Support holds to end the week

The nerves that were showing on Thursday settled today and the buyers were willing to step back in and the indexes hold support. As we discussed in the webinar last night there were two options to plan for heading into today’s trading. First, a follow through on the move lower and break of support at the 1925ish level on the S&P 500 index. Second, a bounce off the support of the same 1925ish level and move higher. Friday’s trading is leaning towards option two. We have to be patient and watch to see how it plays out next week, but the case can still be made for the upside to continue.

The data continues to be mixed. The retail sales reports on Thursday were not good, regardless of how much perfume analyst wanted to spray on them. Today the consumer sentiment was lower than expected and lower than last month. However, PPI showed a -0.2% decline and better than expected on the wholesale inflation front.

Thank goodness we have the weekend to digest all of this and put in place a plan of how to address next week and beyond. The trend is still on the upside and the noise is getting louder relative to a pullback or correction. In listening to the talking heads last night you would have thought the world was coming to an end. Filter the noise, focus yourself and keep moving towards your objectives.

Practice patience.

Weekend Trading Notes will be posted on Saturday….

Notes to Note:

  • The Volatility or VIX index¬†jumped to 12.6 or up 8.7% on Thursday. The upside move didn’t last long as we moved back to 12.1 on Friday. We are still asking the question about how much worry or selling will creep into the markets near term?¬†For now, not much. Looking forward it will depend on what personality the markets take on.
  • Oil moved above $107 to end the week and with the issues in Iraq still in question we will hold our trades in the commodities over the weekend and address the open on Monday.¬†Energy stocks remained on the upside all week as well.
  • Interest rates on the thirty-year bond fell six basis points to¬†3.41% and the ten-year is at 2.6%. The move keeps the downtrend in yields in play as well as the hope for the bond sector to push off another attempt at rates pushing bond prices lower.
  • Small caps (IWM)¬†tested the break higher the last¬†three¬†days, but is holding above the $115 level .(tested lower on Friday, but bounced back.) Move above $117 would be a continuation of the upside and follow through to the breakout from consolidation above $113.
  • Scans still show of the short ETFs in them and that means don’t count the downside out just yet.

Chart Notes:

The chart below is a comparison chart of the 7 asset classes that make up the markets overall. As you can see clearly US stocks formed a nice rounding top and then closed the week with a small bounce. The micro uptrend is still in play and looking forward the chart would need to move above the most recent high to keep the trend intact. Commodities and Treasury bonds both bounced off recent lows to lead the week.

7 Assest Classes

The gold miners (GDX) have established a bottom off the May lows. They consolidated and then started a methodical move to the upside. The move above $23.20 was a positive reversal and upside trading opportunity. GDXJ is the chart below posting more than a 5% gain on Thursday and 3.3% give back on Friday. Upside in play and one sector to watch short term.

GDXJ

Semiconductors continued to the upside after one day of selling and continues to lead both technology and the markets higher.  Positive guidance from Intel boosted the sector on Friday and INTC added 6.8% on the news.

SOXX

Consolidation is the game in play. It may take two day or two weeks, but we will watch to see how it unfolds and what rotation takes place as a result. Remember the long term trends are still in the upward direction and their is plenty of room between the current close and those trend lines on teh downside. Manage your risk relative to your time frame and remain patient.