Technology and Financials Are Sector to Watch

The news on Tuesday after hours was mixed. Intel CEO stated the outlook for growth will be slower. The news was not as negative as AMD, but it was enough to send the stock lower in after hours trading. The outlook is slower into the third quarter and hopes are that Microsoft release of Windows 8 will spur sales and business growth. Bottom line… the chip sector is struggling. The chart reflects the struggles with the SOX index broke 353 support and SMH is attempting to hold above the $29.90 level of support at the previous low. If the support gives way and the sector breaks lower on this type of news the play is to be short the index. The bias is to the downside both fundamentally and technically near term.

The balance of the technology sector is attempting to buck the trend of the semiconductors. XLK, SPDR Technology ETF is trending highe roff the June low and holding above the 200 day moving average. $28.35 is resistance for the sector and a break will have to find momentum from other sub-sectors. The key has been the large cap technology stocks leading overall. The software (IGN), networking (IGV) and internet (FDN) sectors are not showing much in the terms of upside opportunity. If technology fails to hold the uptrend it could be a challenge for the broad market to find its way higher.

Mosaic (MOS) jumped 5.1% on Tuesday to join Monsanto (MON) in leading the Agricultural Chemicals sector. The bump has come as a result of the jump in Corn, Soybean and other soft commodities. DBA, PowerShares Agriculture ETF has made a big move off teh June lows as the drought issues facing this summer crops across the country. The spreading gains through the sector are worth scanning and looking for the impact stocks. Now is a good time to scan the holding in DBA to find the opportunities that fit the current momentum.

Treasury yields rose on Tuesday on the ten year Treasury bond to 1.5% up from 1.44% level hit on Monday. The test of the recent lows is key to the stock market as well. If the yield starts to rise again it would show some confidence from investors in stocks. The rotation to¬†safety has been a big part of the current trend in the broad markest. If that trend stops or shifts it is positive for stocks short term. Keep an eye on the thirty year bond as well with the yield hitting 2.52% on Monday and bouncing back to 2.6%. There is plenty of work ahead on this issue, especially following Bernanke’s comments on Tuesday.

Financials are showing signs of life following positive earnings announcements. The banks (KBE) and regional banks (KRE) are both breaking through key resistance points. The news from Goldman Sachs, Wells Fargo, Citigroup and JP Morgan have all been better than expected. The test now comes from Bank of America with earnings. The outlook from these banks have off set the negative outlook heading into the earnings period. XLF is bumping against the $14.80 resistance level and set to move higher. The move will have a positive impact on the sector overall and the broad markets. Watch for the breakout to bring more investors to play buyers and push the broad indexes higher.

Watch to see how the balance of the week plays out, but the broad index (S&P 500 Index) is position to lead the way. Watch for a push through the 1367 mark and the 1373 July 3rd high. Plenty of work to do for the index, but the momentum has shifted towards the index short term. Be mindful of the current volatility and uncertainty. Let the trend define itself and play based on your risk.