Up and Down Day With No Additional Clarity

Thursday, December 6th – Notes & Research

Looking at the intraday chart of the indexes leaves plenty of questions relative to volatility. But, in the end another day of modest progress as investors keep buying the dips. The jobs report is due tomorrow and the excuses are already being set up with Sandy taking the blame. I am sure based on the posturing the report will be a non-event. That said, we still have to watch for any potential reaction from investors.

The economic data hasn’t been enough to this point to push the markets higher and we will have to get through the 1415 range to make it work. Thus, we will remain patient, keep our eye on the outline below and let’s see how we open tomorrow.

Tuesday’s¬†post still applies as we saw today with the intrady activity.

The markets continue to churn in place without much downside pressure. Those looking for a test of the current move higher may have to continue to be patient as this unfolds. What’s holding the market up?

  • A deal on the fiscal cliff issues for one. Despite all the posturing and talk by those in Washington, many believe the deal will be done by Christmas. Thus, the hope of this solution is keeping money put for now. The bantering hasn’t been bad enough yet to push much money to the sidelines.
  • $40 billion per month from the Federal Reserve to keep the system drowning in money. QE3 remains in place and the Fed continues to keep rates low and attempt to push the housing market as well as the job market.
  • Employment reports due out on Friday. While not the attention grabber it was, it still demands respect from investors. The interesting issue for November is the estimate is half the number of jobs added in October. ADP is out tomorrow to start the string of reports.
Bottom line is hope! Last time I looked that isn’t a good investment strategy. Thus, we continue to look for the trading opportunities as holding assets longer term holds too many uncertainties. We have updated the tables and Watch Lists based on the move this week.
Remain disciplined and focused going forward.

1) US Equities:

S&P 500 Index / Sectors-to-Watch

The index moved lower in early trading, but managed to work its way higher on the day… again. When it was all said and done the index closed up 4.7 points to 1413. The Scatter Graph below has a starting point of 11/15 which was the pivot point for the recent uptrend. As you can see at the end of the chart the sideways movement depicts the confusion from investors as well as some rotation in leadership. Materials bounced back from yesterday’s selling but remains lower. Technology got a boost from the reversal in Apple gaining¬†1% in trading. Still struggling off the recent highs. The balance of the sector were positive on the day with the exception of utilities.

The chart is showing rotation to financials, industrials and utlities as the leaders. Energy has made a turn off the low despite oil dropping back to $86.40. We continue to watching the jockeying for position short term, but we are still in need of a catalyst to the upside to break through resistance on the index. The market wants to move higher, but it can’t get all the parts going in the same direction.

Tomorrow is the jobs report and we will see how that plays out on the day.

VIX index has been rising and worth watching as the sideways movement looks for direction up or down?

Click on link above to see the S&P 500 Mode Watch List and Model

Tracking the Indexes and Sectors of Interest:

NASDAQ Index – Bounced back on the reversal in Apple today. Still lacks clarity moving forward. The constant negative talk around Apple isn’t helping, but now we watch to see how this plays out short term.

Dow Jones 30 Index – The bounce back to the 200 day moving average is a positive, but now we need to make a move above this level short term. The selling today wasn’t got our attention early, but managed to bounce back later in the day.

WATCH: DIA – See Sector Rotation Watch List.

S&P 400 Midcap Index – The bounce off the low has now returned to the top end of the previous trading range. A break above the 1000 mark on the index would a positive and a opportunity to trade the sector. Be patient with the entry as this unfolds. Another volatile intraday trading day. Watch and manage the risk.

WATCH: IJH – See Sector Rotation Watch List.

2) Currency:

Dollar РThe dollar sold lower and broke support at the $21.95 level on UUP. The dollar index (DXY) pulled back to support at 80 on Monday and then broke lower on Tuesday to establish the downtrend. The downside is firmly establish for now on the buck,  or is it? The bounce back to $21.95 today puts that in question. Watch to see how this plays our for now.

Euro – The euro dropped back towards the 200 day moving average. Watch for bounce off support.

Yen – FXY tested support again at $119 and bounced two days and reversed to $119 again. Not bounce for now. We will watch to see how support holds?

WATCH: FXY – entry $119.90 – patience as the bounce plays out.

3) Fixed Income:

Treasury Bonds – Reversal short term with yields up on the 10 year to 1.58% and the 30 year to 2.78%. Watch as the yields move lower and test support short term. The drop results in a push higher in the price of the bonds, and the upside trade with it. Stocks have floundered, but the bonds are reacting as if they sold off again.

WATCH: TLT – Gapped lower and then retraced it all. Wedge pattern setup. Watch for the directional break from the setup to give guidance on the trade. A break lower would set up the short play in TBT.

High Yield Bonds – Big bounce on stocks moving higher with stocks. Interesting bounce.

WATCH: HYG – 92.75 entry. Watch as the upside may be limited on any trade.

4) Commodities:

The commodity sector continues to be a challenge relative to direction short term. The volatility remains very much in play off the recent lows. The best course of action is to take the trading opportunities presented short term.

Oil moved lower testing near term $86 support on the close. Still not acting well.

Gasoline fell 1.6% on the day and set to test the lows near $53.50.

WATCH: GLD – Since September 2011 Gold has not eclipsed any of it’s previous highs. GLD resistance is at $175. Volume is declining showing loss of interest over the last fifteen months.Look for a test of $161 on GLD and break below is a clear short signal for the metal. Patience as this all unfolds.

5) Global Markets:

The NASDAQ Global Market Index (NQGM) broke above the 200 day moving average. However, the last two days the index has tested lower. Does not negate the pattern yet, but we have to watch how this plays out. The move was reflective of the positive push in the US and it is nothing more than a trade short term with tight stops to protect against any reversal short term.

WATCH: EFA – Back at the highs of $55.20 and in position to break from the trading range for a trade set up. The jump back to this level has been quick and may test before continuing higher. Be patient and see how it play to start the week. ONLY ETF Model.

WATCH: DXJ – Japan total dividend ETF broke higher, tested the 200 day moving average and has moved higher again. The break from the trading range is a positive with a trade entry at $33.25. Consolidating near the current high. Manage your risk and raise stop to $32.85.

WATCH: FXI – China gapped higher on Wednesday (passed on our trade) and held the move today. Clearning the $38.10 resistance on FXI is testing the gap higher and watch for the $36.65 level to hold as possible entry play short term. The economic challenges facing China moving forward are many, but investor are willing to look past that and believe in the trend. The PMI data was positive on Monday, but the move was lower? Watch for trade on the break from the consolidation. Gap higher on Wednesday as money rotates into the ETF.

6) Real Estate (REITS):

The sector broke support tested lower and then reversed along with the broad indexes. The fear generated by the fiscal cliff issues sent the sector lower. The reversal is worth trading if the cliff issues remain at bay short term.

WATCH: IYR – moved above the 200 day moving average. Entry 63.40 (HIT ON FRIDAY) – Stop $63.25

7) Global Fixed Income:

Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector. Greece back on the table along with Europe despite the resolution to give more money. All of the charts have bounced off the low and continued their respective uptrends. Watch and protect the downside risk in the sector near term.

WATCH: Emerging market bonds (EMB) – testing and moving sideways and attempting to hold support at $121.. Broke on Friday… watch to see how it plays this week.

WATCH: International High Yield Bonds (IHY) – Testing support? Break of $25.81 exit point.

WATCH: PAFCX – bounced off support near the $11.66 mark. Held the uptrend line and held the support for now. Still looking for entry opportunity on the play at $11.74.

WATCH: PICB – International Corporate bonds are breaking above the top end of the current range. 29.15 entry point?

Watch and play according to your risk tolerance on any position taken. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your risk will limit the downside losses.