The Dip Buyers are Back!

You would think there was astounding news in the market today as in the broad indexes on cue bounce off the 50 day moving average. The move essentially erased two days of selling and puts the index back at resistance point it reach on Monday. The volatility is definitely back in both directions and on again, off again issues relative to stimulus cuts and higher interest rates is beginning to build a trading range. I am content to watch from the sidelines and see how it all settles out at this point. This activity raises a good argument for day trading, but that is not what we do, thus patience is the better course of action.

The futures were down all morning on the news from Japan. The Nikkei lost more than 6% overnight as interest rates moved higher and the yen gained against the dollar and the euro. After twenty-five minutes of trading the indexes moved into positive territory and rallied the balance of the day. To top things off, EWJ, iShares Japan Index ETF gained 2.5% which says that the Nikkei is poised to open higher in overnight trading… now that is volatility. The yen ended the day up 0.8% which was much higher at the open of trading. This will be one key issue to watch tomorrow as the markets unfold.

All of the sectors that were oversold moved higher. Consumer Discretionary, Basic Materials, Energy, Utilities and Healthcare all moved up more than 1.5% on the day. The cause or rationale for the buying? Jobless claims fell again showing positive job data again. The retail sales were stronger than expected with a 0.6% increase. XRT gained 1.7% on the day pushing back towards the previous high. Both jobs and retail were better than expected putting some positive momentum behind stocks and outweighed the negative news from Japan. All good, but the rally is just another step towards investors attempting to make sense of the Fed’s possible stimulus actions, the economic data and the potential for earnings growth. All I can say is, one day at a time is how we have to take it good or bad.

This is setting up as trading range development more than a up or down trend development. Investor uncertainty towards the Fed and global markets currently may keep the game close until there is more clarity all around. Be patient and don’t force trades in this choppy mess. The should I or shouldn’t I decision on buying is far from clear at this point.

Moves of interest on the day:

  • IYZ – moved back to resistance at the $26.40 level. Question… if it breaks back to the upside is the risk/reward worth trading or buying any positions?
  • XLF – back near the $19.90 move to the upside? $20 entry could still make sense if the upside gains momentum short term.
  • XLB – back near the $40.50 resistance short term. Same issue on the upside if it clears and trading risk.
  • XLE – $81.40 on the upside is the goal and then a move higher… assuming risk/reward measures up.
  • XLU – trading range $37.25-38.25 – upside trade setting up on clearing $38.25.
  • XLV – Back at the $48.65 level of resistance. Watch the upside opportunity if they make sense.
  • XLP – resistance at the $40.90 level. Trade on the upside in question if breaks through.
  • VIX – declined to 16.45 and 14.75 is support? Watching to see if the index drops further.

This is just the quick view of the major sectors, there is plenty of other interesting setups left behind today. We will dig in further tonight and have a trading plan for tomorrow for the morning update. Hang on this promises to get interesting.