Stimulus Pushing Rotation of Assets

Wednesday, August 22nd

The market was down to flat heading into the release of the FOMC minutes today. The verbage was what investors wanted and the market pushed higher, only to close flat. Stimulus is still the driving factor for the markets overall and with it becoming more of a reality the rotation of money is in play.

Weaker dollar on the news and a break of support on UUP at $22.40. Thus oil was higher along with most of the commodities. Interest rates fell and bonds rallied. The fear factor is stepping into the markets again as the reality of a slowing economic picture shifts money back to the defensive mindset.

Stimulus is fueling inflation talk, but inflation from food and energy are already in play. Thus, gold and silver were higher along with the mining stocks. As the old saying goes, be careful what you wish for, you may get it and more.

Mixed day as money rotation starts to accelerate on the news. Sectors below are updated based forward looking opportunities.

1)  US Equities:

S&P 500 Sectors-to-Watch – The S&P 500 index moved above the March highs hitting 1426 intraday Tuesday, but managed to close lower than Monday creating an outside day. The negative technical¬†indicator is in play currently. The downside¬†started at the open and gradually sold toward the next support level at 1405. The FOMC minutes pushed the index back near the¬†Tuesday’s close at 1413. All of that trading to remain¬†in the same position¬†with the same concerns looking forward. Thus, we watch to see how this plays out looking forward.

The market leadership is starting to rotate to commodities. Gold, oil agriculture, etc. The materials, energy consumer services and technology sectors remains on the upside. We continue to watch financials to provide some leadership short term, but it is a process of patience as this all settles out in the coming weeks of trading. The volatility did pick up on the day and remains worthy of our attention looking forward.

Telecom – The sector moved higher was consolidating near the highs, but fell below the first level of support today. $23.70 is the level to watch near term as this volatility plays out. The uptrend remains in play off the June 4th low, but we still need to manage our downside risk.

WATCH: IYZ – Entry – 22.40 – Stop – 23.95

Energy РUptrend remains in play off the June lows and resistance is in play at $73 on XLE.  Oil services (OIH) is moved above short term resistance at $41.15. Production and exploration (XOP) is testing the support of the 10 day moving average. Watch for the upside to continue, but protect against the downside risk. Crude moved above $97 and hit resistance on Tuesday at $97.80, watch to see if the resistance will stall the advance in oil prices. UGA hit resistance at the March highs near $59, but move through that level today. Watch for a continuation of the upside is the dollar remains weaker.

WATCH: XLE – Entry @ 69.25. Stop 70.40 —– OIH – Entry $41.50 Stop – $40.20

Financials – The sector hit against resistance at $15 and then made move higher. Still looking for some upside leadership from the sector going forward. Raised stop to break even on the trade. KBE, KRE moved above resistance and looking for more upside. Starting to be a stocks picking sector with BAC and C both breaking above resistance.

WATCH – XLF – Entry @ 14.55 – Stop 14.60

Healthcare РThe sector continues to trade sideways. We dropped to support at $38.40 and held today. Hold positions and manage the risk.  IHF and IHI are moving up nicely off the lows, but XPH is a drag on the progress.

WATCH – XLV – Entry @ 38.10. Stop $38.20

Consumer Staples – The sector continues to bump against the high and looking for a follow through on the upside. $35.95 move is the key short term. Large cap dividend stocks are driving the sector higher.

WATCH – XLP – Entry 35.31 – Stop 35.31

Consumer Services – The consumer services stocks have been fragmented to winners and losers. Dig into the ETF for the leaders. The gaming stocks have started to move higher with WYNN, LVS and others making a move. The retail stocks remains a stock picking sector as seen by URBN earnings after hours.

WATCH: XLY – Entry 44.50 – Stop 44.25

Basic Materials – broke above $35.75 resistance to continue the uptrend off the June bottom. Watch the miners and metals as they gain on the increase in prices. The metals prices have moved higher as well. Watch and manage the trade short term.

WATCH: XLB – Entry 35.80 – Stop 35.45

NASDAQ Index – Broke through the 3025 mark and the 3065 level last Friday. The upside momentum has been as a result of the technology stocks. The NASDAQ 100 index broke above resistance at the 2660 mark and found the upside move easy with 2785 the next level to clear. The play continues to pan out for now – manage your risk.

WATCH: – QQQ Entry @ 65.25 Friday. Stop 67.40

Small Cap Russell 2000 Index – The upside move off the July 30th bottom was positive, but we have now spent the last week trading sideways and testing the move. Took the entry on the move above $79.20 and through the downtrend line. Got the continued move higher above the $80.50 level. Still have to manage the risk of the position.

WATCH: IWM -Entry 79.60 – Stop – 80.10

Volatility Index РThe index hit new low at 13.46 on Friday, but jumped above 15 on selling today. The lower volatility has been a question mark looking forward. Watch for ECB or the Fed to be the tie breaker for the VIX.

WATCH: SVXY РContinues higher on low volatility.  VXX Р$11.80 Entry if rally continues in the VIX.

2)  Currency:

Dollar РThe dollar got thumped today on the FOMC comments. The risk for the dollar has been stimulus from the Fed and the ECB. The lack of activity from the central banks has been better for the dollar. However, we are now seeing the downside and we have to mange our position in UDN.

WATCH: UDN – Entry $26.40. – Stop $26.40 Raise to breakeven.

3)  Fixed Income:

Treasury Bonds РThe bond selling has stalled on the expected stimulus from the Fed and the ECB short term. The yield has moved to 2.82% on the thirty year bond, pushing prices higher on the bond. The move to 1.71% on the ten year pushed prices higher as IEF and TLT both bounced nicely on the move. TLT moved back to the $124.40 mark which was the previous support? Watch to see how it played out.

SOLD our TBT position today at $15.90 as we hit the stop on the day.

WATCH: TBT – $14.80 entry. Stop $16

4)  Commodities:

Agriculture – DBA broke support at $29.70, but bounced back to move back towards the previous highs. The soft commodities are on the rise again as we watch CORN, SOYB, WEAT, etc. are all bouncing higher again with a small rest today.

Crude Oil – Moved higher slowly, but is taking out the short term resistance and attempting to move higher short term. Manage risk of the play and mange your stops. Weaker dollar is providing a catalyst for the price to move higher.

WATCH: OIL РEntry 20.75 РStop 22.85 (stop on the close)

Gasoline – Solid move off the test the last few weeks. The upside is still in play, but watch oil prices and if they stall at resistance. Watching for a test short term on the steep move higher. Solid move above the $59 level today.

WATCH: UGA – Entry at 52.75 – Stop 57.80

Natural Gas –¬† There short term support held at $18.30 on UNG. Analyst have turned negative on the commodity bringing the downside in play short term.¬† Manage risk of the short play. Bounced off support and holding for now.

WATCH: KOLD РEntry 27.15   Raise stop to 27.80 (HIT STOP TODAY)

Coal – Started to benefit from the selling in natural gas, but has been testing the move of late. Watch the $24 level as near term support. Watch to add a position on the test of the move if we find support at reasonable level.

WATCH: KOL – Entry $25.20 – Stop $23

Resources and Commodities Strategy (BCX) breaking above resistance to continue higher at $13.92.

WATCH: BCX РEntery $13.95   Stop $13.95. Manage the risk

5)  Global Markets: The global markets responded to the ECB stimulus anticipation on Tuesday. The EAFE index is attempting to hold the gains, but some negative sentiment from no action is around. Watch and manage any opportunities short term. If there is no activity near term from the ECB the downside risk will grow for the market.

WATCH: EFA – Entry $50.50 – Stop $51.50

Sweden – Making a break from consolidation and worth watching on the upside. Move above $28.35 positive and looking for a follow through on the country ETF EWD.

WATCH: EWD – $28.35 entry. Stop – $27.30

China -Broke above short term resistance, stalled and is testing support near $34.25. I expected volatility along the way as China decides to push stimulus at the economic picture. Disappointing data is impacting the outlook short term. Hit Stop and took the exit today.

WATCH: FXI – Entry $34.20 – Stop $34.20 (HIT STOP)

Mexico – Moved against resistance again and still looking for a break out move on the index. Watch the volatility and manage the position.

WATCH: EWW – Entry $62.25 Friday. Stop $61.50

Singapore – moving back above the high at $13. I still like the country looking forward, but the near term weakness isn’t a positive. Manage the risk of the trade short term.

WATCH: EWS – Entry $12.70, Stop $13.10

Brazil Small Cap (BRF) channel top $37.50 with potential move higher. Posted on Wednesday for the opportunity in the global markets moving higher. Solid move higher on Thursday to follow through on the upside breakout. The entry was at $37.60. Manage the trade and Raise Stop to $37.20.

6)  Real Estate (REITS) РThe sector remains near the near term highs. Double top (IYR) set up on the downside short term. I like the outlook long term, but short term we remain on hold. Still scanning and looking for the best opportunities.

WATCH: IYR test of support at $63.60 to hold and then bounce.

7)  Global Fixed Income РThe issues with sovereign debt in Europe keeps us out of the asset class currently. Emerging market bonds (EMB) are overbought and we have put this on a wait and see list short term as the bonds have pulled back to support at $118 short term. Watching for the opportunity. The downside may pick up Рlook for a confirmation either way.


Moves from our Watch List:  1) The miners (XME) are gaining momentum. Worth watching for a move through resistance$42.50 or test of support at $40.50 and bounce higher. Look for play on break higher. Got that on Tuesday Рtook entry at $43 on confirmation of the move higher. 2)  Silver Miners (SIL) broke above $19.50 resistance on Monday hitting the entry at $19.75, set stop at breakeven now. Solid gains on Wednesday. 3) GDXJ РJunior Gold Minders ETF breaking above the $20.25 resistance. Follow through on Monday with entry at $20.50. Stop breakeven. Added to gains on Wednesday.   4)  JJG РGrains Total Return ETF is in a flag pattern on the move higher. Hit entry Monday at $63, stop breakeven.   5)  KRE РRegional banks in position to break from the consolidation pattern and resume the uptrend. Watch for entry at $27.90. Hit on Tuesday and set stop at $27.25.

What am I watching:   1) Mortgage REITs (REM) bounced off the selling and headed back towards the previous high and remain in an uptrend test of the move.  2) Downside risk in the broad indexes. SH, Proshares short S&P 500 index ETF is holding lows near $34.75, and entry would be a move above $35 at $35.15.

The downside is alive. Look for the S&P 500 index to hold the 1405 level of support for now. A break brings the short side into play based on the emotions from stimulus.

Weaker dollar… stronger commodities (Watch crude, metals, mining, agriculture etc.)

VXX – volatility pick up may bring the opportunity to play. At the short term trade entry of $29.10.

DXD – short the Dow on the reversal Tuesday.

Watch Ebay on the PayPal deal signed with Discovery

Watch and play according to your risk tolerance. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your downside risk determines your long term results. Trade smart.