The News From the FOMC & the ECB Are Key

I keep hearing the theme from Monday Night Football…. “Are you ready for some FOOTBALL?” No I don’t want to talk about football season rapidly approaching! However, with earnings, economic data, FOMC and the ECB all ahead this week I am ready for DATA! Monday’s market activity was a snoozer and today is just as likely to¬†be the same, unless there is some surprise¬†info in the income and spending data! All eyes are fixed on the Fed and the conclusion on the FOMC meeting on Wednesday. The bad part about this type of anticipation is if it goes bad, it gets ugly. Because of the pending issues it makes it tough to establish new positions in front of the data release.

As we discussed in last night video update commodities have been the key mover on the upside and that continued on Monday. Soft commodities pushed higher with corn leading the way. Oil fell, but natural gas was up more than 5% on the day. This obviously isn’t the sector you really want leading the markets higher! These higher prices get past on to the consumer eventually and that cuts discretionary income which in turn hurts consumer spending in the form of inflation. Of course that is the type of inflation the Fed doesn’t count in the CPI as they exclude food and energy. Interesting that we can have a 50% hike¬†in bread and gasoline, but that isn’t inflation? Go figure. As I like to say… if the price of gasoline is¬† bothering you, buy UGA. If the price of food is rising buy DBA. In other words you can only keep pace with inflation if you own what is inflating. Dig into the commodities and find what is moving higher.

There are plenty of sectors in position to break from the consolidation pattern that have been building the last six to seven weeks. The NASDAQ 100 index (QQQ) needs to move above $65.30, Consumer Discretionary (XLY) needs to move above $44.40 and the EAFE index (EFA) needs to clear the $50.80 level. They are all at a decision point and they are coinciding with the announcements this week. All are worth playing if we get the data and the move to correspond in a positive direction. Otherwise, look up the inverse ETFs that correspond to the sectors because bad news will not be accepted well after the anticipation set up by last weeks news from the ECB.

The energy sector remains one of the primary leaders in the last two weeks. The price of crude is back above $90, natural gas is back above $3, and gasoline has set the pace on the upside. The large cap stocks (XLE) are moving higher with ExxonMobil (XOM) hitting against the highs at $87.75, Chevron (CVX) and Phillips 66 (PSX) are moving higher as well. The Oil Services (OIH) are breaking higher, Exploration and Production (XOP) are poised to break above resistance and Sunoco Logistics Partners (SXL) is breaking higher. The sector is one of the two leaders for the S&P 500 index in the current move.

The telecom sector (IYZ) is the other leader for the broad index. The sector tested lower last week and since Wednesday has exploded higher. Stocks like AT&T (T) have taken on the leadership after selling on the Apple news relative to less iPhone sales last quarter. Sprint (S) has jumped more than 30% and is quickly heading to our goal of $5. Vodafone (VOD) is pushing near the highs. America Tower (AMT) is near its high as well. I like the longer term outlook for the sector and I am willing to hold for now, but would look for an entry point on any pullback near term.

The markets remain focused on the optimism of stimulus. That tells me we are likely to see short term disappointment. The ECB isn’t like to act any faster than September and the Fed is likely on the same time schedule. If that is the case the announcements from both on Wednesday and Thursday will disappoint investors and we could see some downside volatility. Either way we have to be prepared to take what the market provides as an opportunity. Keep your stops in place and look for the rising stars according to the news. Fundamentals will matter in time, but the focus for now is the news.