Up and down day to start the week

Monday starts lower and then finds buyers to move higher, but managed to give them back the balance of the day to close basically flat on the S&P 500 index and the NASDAQ 100. Small caps were up 1.2% at one point and closed with a gain of 0.86% and pushing back towards the March highs. The rotation toward the growth sector continued today and may be willing to play catch up near term. Worth watching to see how this all plays out short term. Technically the markets do look extended, but until the sellers are willing to exert themselves the buyers are in control.

More talk in the headlines about corrections and worries. The VIX index is at 2007 lows and the volume is low and… and … and! I am not in the business of prophecy and I don’t like getting into these discussions because there is not right answer in either case. As we teach it is important to formulate your own story about the markets based on your strategy and belief. Then manage your money accordingly. For example, if I am of the opinion that the markets are overvalued relative to fundamental data then I should set stops at level that I would be uncomfortable owning the risk. Remember, managing money is about investing where you are comfortable. It doesn’t matter what ‘they’ say or what ‘they’ think, it matter what you believe and think, after all it is your money!

Slow economic data week and until the retail sales numbers on Thursday traders will be left to their own devices for direction. That by itself should make it interesting as we saw today. The goal is to take what the market offers and to manage the risk in the process.

Notes to Note:

  • The Volatility or VIX index tried to push above theĀ 12 level last week, but fails to make any serious move towards the worry side. Today we closed back above 11, but still no major concerns from investors. Unless something changes or a catalyst evolves it is likely to remain or move even lower on a further rally in equities.
  • Banks gain 1.4% and continue to push higher leading the financial sector. This is a positive from my perspective and looking for the follow through on the upside short term.
  • Apple completed the 7/1 split and gained 1.6% on the day to close at 93.69.Ā We still own the stocks in our models and looking for further upside short term.
  • Treasury bond yields close the week at 3.45% on the thirty-year bond and 2.61% on the ten-year bond. Small bounce, but no definable reversal in the bonds. Watch to see how this plays out next week as well.
  • Gold stopped the downside move and looks content for now to trade sideways. I still favor the downside near term. The mining stocks are consolidating near the current lows.
  • IWM – small caps made the big jump on Monday gaining 0.9% to lead the indexes. Back nearĀ the $117 level again and in position to test the March highs.Ā Rotation back to the growth stocks is in play and could be the next catalyst to higher indexes.
  • ITB – homeĀ construction isĀ attempting to solidify a reversal off the May lows. Closed at the $24.75 resistance and a move above this level would offer the potential for a return to the February highs at $26.50.
  • BAC – Bank of America cleared resistance at $15.30 on reversal of trend off the May low. This also closed the gap left on the drop in April. A move to $16.25 resistance for now and then see how it move from there.
  • S&P 400 Midcap index made a move above the 1400 mark to eclipse the March highs. Midcaps have been lagging, but maybe they will offer some upside solutions for the broader index near term.

Chart Notes:

Russell 2000 Small Cap index completed a reversal of the move lower, bounce, test and move higher. This is the sector many have pointed to for validation of the current break higher in the indexes above. The move higher in the growth stocks is offering validation on the upside trend in play for the broader markets.Ā It will continue to give insight into the willingness to take on risk in portfolios near term. Be patient and manage any trades in the sector.

RUTX

Emerging markets broke higher on Friday and are now in position to make a push through key resistance points short term. Backing away to week or even a monthly chart you can see a double bottom with an opportunity to break higher. This is one sector to expect volatility, but the upside looks to be in place and a move higher could be just the beginning of a longer term bull run in the sector.

EEM

Plenty of moves on the upside and the markets solidifiedĀ the next leg higher for the buyers. We have to exercise patience on both the buy and sell side of this market. The upside is in play, but the worry is rising as the market gets more overextended. The short term expects the worst and the long term is still content the upside is engaged.