Stocks end the week in positive territory

Friday – Notes & Research

The broad indexes were mixed to start the day as the Wells Fargo data weighed on the open. The indexes ended the day basically flat and the week slightly higher. Still in search of a catalyst for the broad markets to gain ground.

Retail remains a mixed bag. XRT has pulled back this week after threatening to break from the trading range last week. Best Buy (BBY) jumped 12% on the day as sales were reported flat versus down. That brought buyers to the stock? I am not one and still don’t see the attraction to the stock. JC Penny’s (JCP) was downgraded to sell and the stock dropped more than 6%. Scanning the sector turned up some stocks worth watching. PSUN, WAG, CVS, URBN, SVU, TSCO, ANF.

The trade deficit widened in November, but the cause was of interest. The cause was a jump in consumer goods imported. That would be a positive for the US consumer spending, or at least you would believe it is. The bad news is higher imports takes money out of the economy and impacts GDP. Time will tell which is better, but I am going with spending being better than GDP.

Not a bad week overall, but there is still plenty of work to do relative to earnings. Financials will be the focus of next weeks trading. If Wells Fargo is an example as stated above, there could be some disappointment in the  market indexes. We still have to take it one day at a time and maintain our discipline if the markets reverse. Keep your stops in place.

The Watch Tables will be updated by Sunday Afternoon. Video has been posted for the weekend update.

1) US Equities:

S&P 500 Index / Sectors-to-Watch

The index made a solid move to 1472 on Thursday. There was not follow through on Friday, but the index ¬†remains near the recent highs. So much for a test lower, at least for now. Filtering¬†through the sectors of the index we find Financials (XLF) cleared the $17 level on the upside to lead the sectors. Healthcare (XLV) broke to new high closing above the $41.60 level. Industrials (XLI) pushed back to a new high. Basic Materials (XLB) closed at a new high. Technology (XLK) held above support at the 200 day moving average. Bottom line… uptrend remains in play.

The chart below has a starting point of 11/15 which was the pivot point for the uptrend. Still moving sideways with an upside bias on the week and finding a catalyst on the upside is the goal.

SP500Scatter

The chart below is the 28th of December starting point looking for current leadership on the renewed push higher. Materials, financials, healthcare and industrials are the leaders for the broad index.

SP500Scatter

The VIX index remains at the lows near 13.50. No signs of anxiety yet.

Click on link above to see the S&P 500 Mode Watch List and Model

Tracking the Indexes and Sectors of Interest:

NASDAQ Index РThe index cleared 3110 on the week and held. The test is holding above this level for now with the upside in play. Still potential for a test of the 3030 level.

Dow Jones 30 Index Р13,440 level on the upside Thursday was a positive. 13,200 support may come into play short term. Watch for confirmation of the move higher.

Small and Midcap Indexes showed equal moves to the upside after holding support similar to the other major indexes. Small caps are above the previous highs already and holding as well as mid caps? Weigh out the risk factor of buying at these levels currently.

Financials РXLF fell slightly on Friday in response to the Wells Fargo earnings. It remains above $16.80 as the first support level for now. One day at a time as we move into next weeks earnings on the financials. I would expect more selling short term if the focus on margins continue.

A test back towards $16.50 would give better entry point for a trading opportunity, but we have to go with the trend. Downgrade to BAC Wednesday put downside pressure on the banks as well. Watch to see how it plays out short term.

Wells Fargo posted revenue that topped expectations, but the profit margin fell (shock) disappointing investors and the stock dropped more than 2% at the open. Is this a sign of things to come from the sector? I wrote in the morning notes that the margin on revenue would be one of the key question marks. Now we have to protect against the downside if the trend continues next week. I would still take the selling as a opportunity to add to positions with a longer term focus.

Basic Materials РXLB  hit a new high and remains one of the leaders. This remains one of the leading sectors on the upside. The earnings forecasts for the fourth quarter were cut by as much as 14% for the sector, but it has maintained the upside. Watch for any adjustments short term.

2) Currency:

Dollar РThe dollar made a bounce off the lows as the Fed minutes gave reason to believe that QE funding would stop. Thursday and Friday the dollar retreated to support at $21.70 on UUP. The test lower today was a negative for the upside short term.

Euro РThe euro was testing lower on the rally in the dollar, but that reversed on the dollar weakness and is now above the previous high at $132.44. The support at $129.35 held and our stop on the euro play.

WATCH: FXE – $130.80 Entry. IN PLAY

3) Fixed Income:

Treasury Bonds РThe yield on the 10 year held at 1.87% and the 30 year to 3.05%. The downside risk in Treasury bonds was in play, but they are poised to bounce short term after holding $117.50 support on TLT. (SEE SECTOR WATCH LIST)

High Yield Bonds РTesting the highs and resistance near $94 on HYG, as the upside in stocks resume. Look for support holding at $92.75. Continued to creep higher on the week.

4) Commodities:

The commodity sector continues to be a challenge relative to direction short term. They have bounced off the December lows, but lack much in terms of upside conviction. Even the breakout move on Wednesday seems lackluster. The volatility remains very much in play off the recent lows.

UNG РNatural Gas broke support and move lower. Thursday the inventory data showed a drop in supply. That was good news finally and the price moved up 5% the last two days. Winter demand remains mild which is why the downside has been in play. Watch as the short side may set up for a trade. KOLD.

OIL РOil has been stuck in trading range, but on Monday moved above the top end of the range and today continued higher towards $93. Still looking for clarity in trading relative to the price of crude. The upside is in play, and the breakout on Monday is confirmed to the upside.  The trade is there short term if you are willing to take the risk. ENTRY OIL is $21.70. (STOP $22)

UGA – Gasoline had moved back to the $59.40 level of resistance and has tested the move. On Friday the move down nearly 2% was of interest as oil fell 1% as well. That triggered our stop and now we watch to see how this plays out.

GLD – Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. We are in the midst of a test at $159 on GLD. The metal cannot make up its mind short term. If we are to believe in the upside everyone is¬†pontificating¬†there has to be a break of the short term downtrend line before we are willing to be long. The short side is a break of support. Be patient if you want to own gold.

DBB – Base Metals have established support at $18.90. The sector has struggled to hold the upside, but the still looking for opportunity on upside to continue. We added a position at $19.25 on Thursday’s bounce, but the ETF is still testing the support and we may need to exit our position. Set your stop accordingly.

Palladium (PALL) and Platinum (PPLT) remain the better bets on the precious metal side.

5) Global Markets:

The NASDAQ Global Market Index (NQGM) struggling to get above the 200 day moving average. The consolidation near the high is worth watch for a direction indication short term. The global markets remains a positive among investors short term. Money flow into the country ETFs has improved along with the upside gain. Resumed higher today on the cliff resolution.

WATCH: EFA – The uptrend short term continues, following a small test short term the fund has moved back above the previous high. Stick with the uptrend play for now as it holds support.

WATCH: IEV – Europe continues to rally as investors believe the worst is over. Why? Simply put the backing of the EU and the ECB (similar to the Fed in the US in 2009). The confidence that there is a back stop has brought investors back to the table. Looking at the daily chart for the last year we can see the break above resistance and the trend higher remains in play. Upside target is $45.50 going forward.

WATCH: FXI – China has firmly established the uptrend off the November low. However, the volatility of the move has picked up on economic data from China. The Chinese exports rose 14.1% in December well above the 5% expected and sent the markets higher after a test lower on the week. Watch as a consolidation pattern is building on the chart.

WATCH: EEM – Emerging markets have been doing well. The chart shows a consolidation pattern developing similar to FXI, but there are other single country ETFs doing well. EPHE, THD, EPU, EPI, TUR, EWW and others are worth watching.

6) Real Estate (REITS):

The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading as the cliff issues are resolved short term.

WATCH: IYR – Look for reasonable entry. $64.90. The break above $66.12 was the entry point of the move above resistance. Still moving higher short term. Watch for potential test of support in the move.

ENTRY $66.15, Stop $64.75

7) Global Fixed Income:

The sovereign debt issues are fading as the global outlook improves. Still plenty to be concerned about relative to growth, but the fixed income side is attractive for now. High yield bonds and corporate bonds are gaining momentum short term.

WATCH: Emerging market bonds (EMB) – testing $122 support which failed on Friday triggering an exit on the stop. This is still worth watching to find support and see how it plays from there.

WATCH: International High Yield Bonds (IHY) – Tested support at $25.75 and bounced and hit new high. HOLD.

WATCH: PAFCX – bounced off support near the $11.66 mark. Holding within the trading range for now. HOLD.

WATCH: PICB – International Corporate bonds broke higher and they are testing the current high again. HOLD.

Watch and play according to your risk tolerance on any position taken. 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 risk will limit the downside losses.