Monday started where Friday left off… uncertainty about oil prices and China showing more economic weakness. The one big expectation on Monday was the Black Friday preliminary sales falling 11% versus last year. With Cyber Monday still in the works we could get more disappointing retail data out tomorrow. The net impact on the broad markets today was selling. The NASDAQ was down 1.3%, Russell 2000 index dropped 1.6% and the S&P 500 index was off 0.7%. Retail was down 2.1% and semiconductors dropped 1.3%. In all not the type of days buyers enjoy. The biggest question now… which direction do the markets head the last month of the year? That all depends on your beliefs relative to the speculation in play. Who has the best story that is believable for investors. Below are some charts to watch this week for clues on direction overall and within these key components.
First, Energy! Why not start with where the greatest challenges lie for investors. Support is near the $78 mark and on Monday the intraday reversal showed some positives as buyers were willing to step in on the bounce back towards the $69 level for crude oil. Still plenty of work to do in the sector and potential fall out from the price of crude, but we have marks to watch for any up or downside trades on this chart. Break support short trade is back in play. Clear the $81.20 level on the upside and potential long side trade is on the table.
Next is the VIX index. Small bounce in the uncertainty Monday that pushed the index higher and is now in position to accelerate through the 14.5 resistance. If the speculation continues and uncertainty rises look for the index to jump back near 18 initially. Worth watching and using this as a hedge against existing positions in portfolio.
Next is the Russell 2000 Small Cap index. back to the 1153 support level again after just seven days of bouncing off this level. Break support and the downside risk rises for the sector and the short interest will rise. Volume spiked in TZA today in trading as the piling on to the shorts was obvious. Buyers have stepped in at each point of selling, but this could test lower short term. Watching the downside trade opportunities.
Next is Semiconductors. Tested lower on Monday after a strong run on the upside and leading the technology sector higher. The test puts us on notice should the broad markets start to erode short term. If the test of support holds this offers an upside opportunity when the dust settles.
Last, but equally important is the Retail sector. The upside has been promising since the test of support in October. Belief in the economic outlook and the consumers has been the driver for holiday sales being improved this year. The first shot of results on Black Friday are not looking supportive of the belief and now comes the challenge for investors. Do they believe enough in Santa Clause or does the Grinch still Christmas? Important sector to watch as it will set the tone for the first quarter of 2015.