The Bounce Follow Through w/o Volatility

The markets finally spent the day on the upside without a big swing intraday. However, now the questions start… how much upside does this bounce have before running into the same old worries about the Fed and the future growth of the US economy. The Fed’s beige book was released today and the consensus was the economy was improving in most of the country.  Yeah! Winter is not a problem any longer! The improvements were in the consumer, and jobs. How much improvement over the months prior to winter pressures remains another question altogether… Investors liked the news pushing stocks higher following the announcement. Below is a chart of the S&P 500 index and a look at where we fell to, where we are, and where we could potentially rise to before hitting resistance.

SP500

Bank of America missed earnings on settlement payments exceeding expectations. The miss sent the stock lower along with the sector. The sector recovered to move into positive territory BAC was off more than 2% on the day. The hit and miss issues with the banks continue and the challenges that face them are still far from over. Thus, the question, opportunity to buy or short the sector? Too mixed to dump the entire sector, but worth paying attention to the winners and what is driving them.

More earning tonight from Google, IBM and other technology stocks. The question surrounding the sector are rising as some believe the sector has peaked. The numbers from both companies will be watched for insight or confirmation about slowing or growing. Plenty of financials stocks on deck as well to report after the close.

The housing data continues to be a disappointment as the housing starts were lower than expected. This has been an issue with the housing sector overall. There have been analyst reports and a article in the Wall Street Journal concerning builders running out of land to build. The crisis prompted many of the companies to give up land to shore up their balance sheets and now don’t have enough to build on . This could lead to acquisitions of small builders with land inventory. This is all worth our attention in the sector and the ripple effect to the lenders and home improvement components. Defining the winners and losers will offer opportunities up or down gong forward. As you can see on the chart below the sector has broken the September trendline and is testing the 200 DMA. The downside micro trend is putting pressure on the stocks overall, but there will be opportunities both directions worth digging in to investigate. 

XHB

Scanning today’s results again relative to the sectors, Energy continues to provide upside leadership gaining 1.2% and adding to the upside momentum and posted a new high today. Basic materials and industrials both up more than 1.3% to push half way back to the previous high. Consumer services, telecom, small caps and technology all moved off their respective lows and made attempts to regain some upside momentum. The Transports (IYT) were up 1.45% on the day and back to near term resistance at the $135.60 level. Held the uptrend and support of the 100 DMA for the sector. The chart below shows the trend off the October low and the test of the trendline. Worth watching and digging in to determine the leaders and opportunities.

IYT

Overall the market put in a solid upside day as did the global markets with the EAFE (EFA), Europe (IEV) and China (FXI) all posting solid gains on the day and adding to the upside bounce in play currently. The major indexes held their bounce from Tuesday after testing support. How high do we bounce? Are the indicators showing overbought signals? Not yet, and the momentum indicators have turned positive today. 1870 target for the bounce on the S&P 500 index. The key is to be patient with the trade and let this play out now that the extreme volatility has subsided.