Markets decline modestly on the day, but the headlines told more about what is on investors minds. Below are ten items of interest based on today’s activity, news and speculation. Watch how each unfolds and what opportunities are presented as a result going forward.
- Euro shows largest one-day loss against the dollar in two months (Market Watch). FXE hit $109.60 or off 1.4% for the day. Why the shift in sentiment? The ECB is increasing the purchase of public and private debt in May and June. The increase will be offset by lower purchases in the summer when supply is lower. I am not sure what the major concern about this issue was, but we will watch for this to flatten out if that is the only reason for the weakness in the euro. In return that could reverse some of the damage done today in commodities.
- The yen declined 0.6% and could test the March lows at the current rate of decent. YCS jumped nicely on the move lower. This has remained a weaker currency of late. EWJ continues to consolidate near the current highs.
- The stock market top is likely near as investors fail to hedge (Market Watch). The opinion is focused on over exposure to equities without any attention to the downside risk. Historically when investors fail to believe that a hedge offers protection to portfolio risk it has signaled the highs for the indexes. This is only one of many articles focused on the treat of a market correction near term. I am not opposed to the validity of the argument, just the fact that when so many are negative it acts as a near term contrarian indicator. We still have to be patient and let this play out accordingly. Stops are one way to hedge your downside risk and if you are not using other methods… please at least use this one. Remember a watched pot never boils.
- Housing starts jump 20%! Wow that must mean the economy is booming. 1.03 million versus 926K expected. Plenty of arguments about this being revised lower, etc. But, the number as it stands shows a positive move for the housing sector. ITB gained nicely on the news, but failed to hold onto the move closing up 0.6%. KB and MAS were the leaders in the sector for the day.
- Retail is hit and miss… Dick’s Sporting Goods lowers outlook and the stock fell 5.2% today and confirmed the downtrend off the April high. Wal-Mart felt the pinch of higher wages and missed earnings falling 4.3% on the day as well. The stronger dollar had some impact as well WMT earnings. TJX posted better earnings and the stock was up 2.8%… it is all in the numbers, or should I say bottom line. This is a stock picking sector currently.
- Gold was down 1.7%… see number one above… the dollar was stronger on the day and that has kept the price of gold lower. As seen the last couple of weeks as the dollar weakened gold prices, along with other commodities, moved higher. This will get interesting to see how the dollar plays out near term.
- Oil prices down 3.6% and the lowest closed in more than a month. The dollar again gets some of the blame, but the supply has not receded as expected. The $57.26 mark puts the price back in the previous range before breaking above the $58 mark. $54 is the key support to watch near term for the commodity.
- Natural gas (UNG) opened above resistance at $15.14 early, but failed to hold the move closing back at the $14.60 support level. The uptrend has been in play the last three weeks and now we see what impact the dollar and sentiment has going forward.
- China (FXI) was up 1.3% and continues in the consolidation pattern. Move above $51 gets interesting in the short term. The money flow in the country is good, but the sentiment or belief in the upside is questioning the reality of the economic picture for China longer term.
- Financials (XLF) was the winner on the day as the upside continues. Move above $24.80 clears the trading range and $25.13 is the previous high. Regional banks (KRE) are the leaders as they stand to benefit from higher interest rates or at least that is the current belief. The sector is giving the leadership we were looking for if the upside is going to gain traction for the broader indexes.
The challenge remains for the broad markets as it relates to news, speculation and just flat economic data. The headlines sell ads and that is important for the media companies bottom lines, but we have to focus on what we know, what we believe is true, and the trend of the markets. For now the trend remains on the upside and thus we focus on what opportunities are working and keep our stops in place to know where to exit when they no longer perform. One day at a time is all we can do with a bias on discipline.