Stimulus Versus Global Economies

Market starts the day on a positive note, but struggles with the reality of earnings and the global economy, versus the Fed handouts called stimulus supposedly rumored to be announced soon. The rally mode is in place for the announcement, but it isn’t likely to happen until next week, if it happens then. The cat-and-mouse game the Fed is playing with investors and Wall Street is humorous. By the time they actually announce any stimulus the impact will be gone.

NASDAQ 100 index struggles as Apple sells on earnings data. 2550 is the level on the index we were watching starting the day and it was hanging tough to start the trading day. Apple support is at $565 currently based on the open. Both closed above these levels, but we still have to watch them going forward.

New Home Sales dropped 8.4% in June. So much for the bottom in the housing market? Plenty of reasons given, but if this follows through in July the sector will react. XHB, SPDR Homebuilders ETF fell 1% in response today and held $20.80 support. ITB, iShares Home Construction ETF fell 3.5% to support at $15.90. Watch for the response tomorrow as investors sleep on the data. Downside play could develop as a trade.

Ford beat earnings estimates and falls 1%? GM followed suit down 1.2%. Why? They were down 57% over same quarter a year ago. The issues in Europe are the problem and they need to have structural revamp similar to what they did in the US, but that will take unions and labor negotiations with governments. That will all take time and thus the cloud hanging over the sector will remains near term.

Mixed day as the tug-o-war continues between weak economic data and Federal Reserve stimulus rumors. This will filter out opportunities we just have to be patient in letting them develop. Discipline remains the priority! This is not an easy market environment and the outlook remains cloudy at best.

Sectors-to-Watch:

The S&P 500 index remains a challenge relative to the sectors and leadership. Looking at the charts since the June 4th low we find a constant rotation of leadership. That doesn’t fair well for a consistent trend. The creation of new pivot points on the higher highs and higher lows brings with it new leaders and losers. Energy was the leader off the July 12th low, but has also been a leader on the downside of the July 19th high. Financials have acted similar with the highs and lows. Energy, Financials, Telecom and Healthcare have rotated leadership. Utilities, Consumer Staples and Consumer Discretionary have been moving sideways, and Industrials, Materials and Technology have been the most volatile overall. Some strong leadership from the value or growth stocks would help moving forward.

Watch the support levels for the broader index to hold above 1330.

This remains a traders market and one that shifts on news and emotions.

Volatility Index – The index is bouncing between 18 and 21 currently as investors shift on the fear from Spain sovereign debt. Earnings are offering their share of fear and volatility as key reports from Apple and Chipotle both rock investor confidence. The rumors of more Fed stimulus is the only calming influence on the markets for now or else the index may be pushing back towards the June highs of 27+.

WATCH: VXX came back into play with the Tuesday selling. Looking for move above $14.80. Entry $15 if fear continues to mount. Waited on the entry as the early selling turned to buying quickly and volatility fell. Watch and play smart.

Dollar – Hits new high Tuesday on renewed concerns on Europe. Drop as the euro rallied on Fed rumors of stimulus. Plenty of speculation short term be patient and let this play out.

WATCH: UUP – Support is at the $22.80 short term. Watch resistance the $23 mark (Broke higher today). Take exit if we break the $22.75 mark.

Treasury Bonds – The yield is 1.4% on the ten year bond. Worry is back and yields hit a new low as a result. Hold your positions in IEF as this plays out. 30 year bond held at 2.46%. TLT follows through on breakout move Tuesday.

WATCH: IEF – $108.80 Entry.  Stop at $108.80 for now. Raise your stops.

S&P 500 Index – The uptrend off the June 4th low was tested again today with the index holding support at 1330 on an inside trading day. The trend is being challenged on the selling and there is the chance of a pullback to the 200 day moving average. Europe remains in play and they may stay in play for the near term. If you don’t like volatility… cash is a better alternative short term.

WATCH: SPY – A move above $134.50 is a trade. Needs above average volume to interest me. SH is in play on the downside see ONE EGG MODEL.

NASDAQ Index – The index has struggled with direction relative to the technology sector. The  test of support at 2850 broke again today, but bounced back into the close. This introduces the short side as a potential play or trade.

NASDAQ 100 index tested 2550 intraday as support and if we break below that level and confirm it opens the downside play with QID.

WATCH: – QID Entry @ 33.90

Small Cap Russell 2000 Index – Broke the trendline with a gap lower. The 200 day moving average was broken on Tuesday’s follow through selling with the downside in play for now. Tested the 200 DMA intraday and closed below that mark. Still show weakness overall. Patience as this unfolds.

WATCH: Short play with TWM on the break of 200 DMA. ($32.15 entry) Set stop @ $31.35.

Housing – Zillow stated that home prices may have bottomed and projects a 1.1% rise over the next year. The homebuilders have led the upside for the sector over the last nine months. The builders bottomed last October and made a solid move higher through May. Since they have traded sideways as investors determine the sustainability of growth looking forward.

The comments above on today’s new home sales data rocked the sector with a negative report.

Watch: XHB – testing support near the $21 mark. Watch support at $20.80 to hold or the downside comes into play.

Financials – XLF is testing the 200 day moving average again on the day as the downside remains in play? The outlook continues to weigh on the sector overall. Europe doesn’t help as the threat of default would hurt US banks. Mixed picture based on investor response. The sector is showing signs of cracking and a short play was taken on Tuesday.

WATCH: Watch the downside opportunity with SKF (entry $45.30) – Stop $44.35

Energy – Inside day technically and still no conviction relative to the direction in crude oil . Crude held above $88.50 again today and bounce towards $89 after hours. Watch for the stocks to continue the upward trek.

WATCH: IEZ testing $47.75 support – watch for entry if it holds.

Commodities:

1)  Crude remains above the breakout level on OIL at $20.75 ($21.68 close). Closed at $88.50 today despite the worries. Could set up a trade off support ($21.50).  2)  Gasoline was down as investors took profit. Closed at $52.06 (dropped 4.5% last three days) on UGA. I still like the play in gasoline if oil moves higher, watch for play on a bounce off support. 3)  Watch Natural Gas as it is breaks above $20 on UNG, but the selling came in today down 3.1%. $20.60 is stop on position. 4)  Gold rose from the grave today up 1.4% and above the downtrend line off the March high. GLD, $148.50 is support. $156 entry if we follow through on the upside as a trade. 5) Gold mining stocks jumped on move in gold, up 3.1% on GDX. Move above $42.60 worth watching short term trade.

Global Markets:

The global markets were moving higher in response to the climb in US stocks, but Spain reappeared as the detractor once again. The worries brought the EAFE index down 5% the last four trading days. Watch for support to hold and bounce if the US doesn’t follow through on downside.  1) China (FXI) tested the lows again today. But, could be setting up to move higher on better manufacturing data on Tuesday? Watch to see how it plays from support.  2) Mexico (EWW) moved lower after a test of the March highs. Look for a bounce off the $60.50 support levle and the 30 day moving average.   3) Europe (IEV) testing support at $31.8? Watch for a downside play if this continues. EPV above $42.70 is attractive. (Stop at $41.90) 5) Singapore (EWS) was moving back near the high at $13 and bounced off support at $12.50, and took the entry at $12.70 on Tuesday. (stop @ $12.60)

What I am watching now?

Leadership remains the missing component of the market overall. The interesting point is we have the same issue on the downside. The Small Cap stocks have been taking on a leadership role on the move lower stalled today, but still watching to see if they move lower?

Consumer stocks are weakening on the reports of less spending and more savings again. The consumer plays a key role in the growth of the broad markets and we have to be aware of any weakness or sentiment shift. XLY is testing support near $42.50. XLP is testing support near $34.50 and XRT is testing support near $57.50. Watch the consumer for insight going forward.

Gold is setting up to in a consolidation pattern. Wrong on the bias as it broke to the upside today. Watch for follow through and potential trade. Details above.

Fixed income continues to see more money rotate into TLT and IEF both gained on the day. Watch REITs, MLPs and Dividend ETFs for opportunities both as trades and short term investments.

Economic data remains in play for Q2 GDP (Friday). New home sales (down 8.4% for June), home prices and pending home sales (Thursday). Consumer sentiment will end the week (Friday). Watch as the trend relative to data continues to move lower.

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.