Trading Notes for Tuesday – April 30th

Today is the last trading day of April… do we sell in May and go away? Only if that is what the market tells us based on both the technical and fundamental data. We end the month with everything moving up and happy. That worries me. When it is too good, something generally goes wrong.

The economy may stink, but investors don’t seem to care. Why? As long as the Federal Reserve stays fully engaged in dumping money into the economy via ‘quantified easing’ at the rate of $85 billion per month investors have no worries… until it stops. The concerns raised in February by the Fed have disappeared with the reality of the economic picture looking forward, and that will keep the Fed fully engaged in the stimulus. And that reality is keeping the market in an upswing as the worry has been eliminated for now.

The hell with logic, just keep buying, that is the new market logic for now.

Sector Moves of Note:

  1. Technology led the sectors on Monday as Apple, Google and Microsoft helped lead the sector. Apple jumped on rumors of a new iPhone 5s by the fall. XLK jumped above the $30 level again (added to the S&P 500 Model) and pushed towards the previous high. Watch for the upside to continue in technology stocks. 
  2. S&P 500 index moved above the previous high of 1593 intraday to 1595 and closing at 1593. The new high was a result of the recent rotation into new leadership for the index. Technology, energy, basic materials, financials and telecom are setting the pace on the upside the last couple of weeks. The fact these were the previous laggards invites money in on the anticipation they will play catch up and offer greater potential currently. An upside trade on SPY at $159.70 entry would be prudent if the index climbs higher short term on the move Monday.
  3. The NASDAQ 100 index also hit a new high 52 week closing at 2866. The large cap technology stocks have taken on the leadership role for the index. QQQ moved above $70 and offers an upside play if we can hold the move higher and extend the gains. Pullback test and entry at $70 on QQQ.
  4. Financials (XLF) failed to offer any help on Monday as the index closed at resistance at the $18.60 level. The sector has remained in the doghouse throughout the current uptrend. When will they find love? Not anytime soon. This will offer some upside opportunities on a break through resistance. Look to add XLF with an entry at the $18.70 ish level.
  5. Raised the stop on UCO as oil moved to the next resistance level. We have hit the target and we let it run on Monday, but the profit is being protected with a tight stop.
  6. Pending sales data for homes were higher on Monday, but the homebuilders struggled to break to a new high. Watch for a upside follow through from one of the current leaders. Sector Rotation Watch List
  7. Retail (XRT) back to the previous high as the sector remains a mixed bag. Some good, some not so good. Watch to see if we break higher. Discount still the winner with TJX and ROST leading.
  8. Drugs (XPH) and biotech (XBI) are still in struggle mode after missed earnings. Looking for some consolidation and then a continuation of the upside move. Looking for reasonable entry points for the trade.
  9. Dollar in position to actually move lower on all the stimulus talk and the global markets bouncing. If everything is truly improving the dollar will continue to decline. Watch as a barometer going forward. UDN could be a trade opportunity if the downside gains momentum.
  10. TLT is building a trading range or top on the move higher. If the confidence in the economic outlook for growth gains traction, look for bond yields to rise and prices to fall. This is another indicator of what investors are really thinking. Rally was on concern that stocks would correct? That concern is still in play based on the current level of TLT. Watch.
  11. I am still looking for the downside hedge or trade as investors come to grips with the dismal state of the economy. SH and PSQ are on the Watch List, but we will have to be patient as this all plays out.

The upside move remains the theme, no matter what we think or the data reflects. At each dip the buyers are willing to step in and keep buying. We will continue to look for upside plays and take what the market gives. There are some good setups in stocks and sectors on the upside. If they break and follow through we have to go with the flow. Fighting the trend has never worked well for me, no matter how smart I think I am at the time.

Keep your stops in place and keep looking forward.