Volatile week closed with positive day

Friday – Notes & Research

Day 5 It doesn’t matter or does it? Of course we are still talking about Cyprus. I am starting to get seasick with the up and down movement this week. Micron reported solid earnings and is up more than 10% on the news. Tiffany and Nike reported strong earnings as well helping the day overall. The S&P 500 index was led by Consumer Discretionary (XLY) and Energy (XLE). The bump in energy was needed following a tough week.

Scanning the sectors for rotation we continue to see developments that are warnings in the making.

  1. Consumer Discretionary was up 1.1% on Friday, but still needs to clear the $52.50 level of resistance and the 10 DMA. The sector remains one of the primary leaders for the broad market.
  2. Energy gained 0.6% and is consolidating between the 10 and 30 DMA. Still looking for some leadership from the sector short term.
  3. Oil moved back to $93.75 up 1.4% on Friday. This keeps the commodity in the current range with the outlook to clear the $22 level on OIL. The up and down movement has not presented any opportunities short term.
  4. Volatility index jumps back above 13 on the week of ups and downs. VXX is setting up for a trade above $21.10 again. Watch the futures in the morning for possible move on volatility.
  5. Speaking of volatility… Technology (XLK) is moving up and down 1% a day the last week. Still in the consolidation range for now, but setting up for a trade whichever direction momentum decides to go. Earnings have been disappointing from several of the large cap stocks and that is keeping the sector in check.
  6. SOXX fell back to the bottom side of the uptrend channel again to test the uptrend. Still on watch for move higher.
  7. Gold started the trek higher again on the Cyprus catalyst. We spent the week with the on again off again focus relative to the outcome. Watch for the upside to break through $156.40 for possible upside trade if the fear continues. We are looking in both direction currently as the outcome will determine direction emotionally for gold.
  8. Interest rates fell this week on the 30 year bond to 3.13%. Volatility picking up again in the bonds as fear rises. Watching TLT and TBT to define the trade that unfolds from the current up and down action.
  9. China’s downtrend remains in play, but watching to see if support holds near the current lows.

This has been an interesting week for the markets overall. The Cyprus issue has taken center stage and pushed the upside of speculation relative to the impact in Europe and the euro. China has been up and mostly down on weaker economic outlook. US market are up and down based on the worry of the day. We must give room for all of this to play out as the issues are purely speculative in nature due to the uncertainty in Europe. We stated that we were back to the four options on the S&P 500 index high of 1565 we posed earlier in the week.  The one playing out since the post is never, or at least delayed. Still looking for the answers on market direction relative to the issues overseas.

Economic Data:

Jobless claims better than expected. PMI better than expected. Home prices up year-over-year. Leading Economic Indicators better than expected. Philly Fed better than expected. All positive, however the trump card on the day was held by Europe and Cyprus worries.

Economic Events & Calendar 

1) US Equities:

Back to the downside as the worries globally return. Wasn’t as bad as it could have been, but then the upside hasn’t been stellar either. This is going to have to work itself out short term before any good comes of the current activity.

Sector Rotation Strategy: 

The February 25th low pivot point remains in play. We added the March 14th high as the next potential pivot point on the downside.I moved the line to today see clearly the current direction developing off the March 14th high. The current trend is slightly down (0.4%). Friday’s bump to the upside has helped keep the longer term trend to the upside, but the short term concern is worthy of our attention. The consumer discretionary (XLY) and financials (XLF) remain the leadership short term. Stay focused and protect the downside risk.

Scatter 225

December 28th Pivot Point for uptrend following the Fiscal Cliff pullback test. The trend has continued to push higher after the February 25th test. See above.

Scatter1228

November 15th Pivot Point for current uptrend. Target 1550-1575. The uptrend off the November low remains in play. The trend has now overcome two attempted moves lower to maintain the uptrend.

SP500Scatter

 

Sector Rotation of Interest:

Technology РBecoming volatile short term and the downside pressure is building. Watch support at $30 on XLK. Closed at $29.97 and the 30 DMA.

  • Semiconductors (SOXX) Tested the bottom end of the up trending channel. Watch $58.80 as trade on upside and $57.50-57.25 on the downside.

Financials РThe Cyprus initiative is pushing the sector back towards support at $17.90. Watch the outcome short term and manage your stops accordingly.

Energy РThe sector hit resistance at the $80 level and tested lower. Watch for support to hold at 50 DMA. Volatility in play, but the uptrend is holding for now.

Consumer Discretionary РBroke above the $51 resistance on XLY. Made a nice move on the upside and has stalled off the $53 high. The stall is in concert with the broad markets, patience short term.

2) Currency:

Sector Watch:

  • Dollar was back near the high on euro news.The test lower on Friday adds to the¬†volatility¬†and the downside watch. UUP closed at $22.42. Still watching support at the $22.35 mark on the downside. Manage your stops.
  • FXB¬†– the British Pound jumped big last week and held¬†the¬†move, and progressed above the $150 level on Friday we have been watching. Took the entry on the move and the target is $152.50.
  • FXC¬†– the Canadian Dollar is attempting to hold support at $95.35. Bounced nicely to breakout, but has retraced to the consolidation zone.
  • FXY¬†– yen is still in bottoming mode. ¬†Watch for a base to build short term if the direction is to switch. $104.50 is the level to watch for a upside play on the bounce.
  • FXA¬†– Australian dollar bouncing as stocks continue higher leading the way. ¬†ONLY ETF MODEL.
  • FXE¬†– ¬†The euro is testing support on the downside again? Broke support at the $128.15 level, but bounced off the 200 DMA. Watch for follow through next week.

3) Fixed Income:

Sector Summary:

  • Yields continue are shifting slightly higher as stocks hold gains. ¬†The question is if the market corrects how much will it impact? Patience as the downside in bonds continues.
  • 30 Year Yield = 3.13% – down 2 basis points — ¬†TLT = $117.33 up 9 cents
  • 10 Year Yield =1.91% – down 2 basis points — IEF = $106.89 up 4 cents

Tracking Bond Sectors of Interest:

Treasury Bonds РThe volatility in the bond sector has risen short term and it is causing grief for investors. Watch and protect on the downside. Estimates are for 2.75% on the 10 year bond by year end? Bounce in motion for the bond off the lows for now. Volatility is back.

High Yield Bonds РHYG = 6.55% yield. Support held at $92.75. heading to the previous highs near $95 Let it run as investors remain in love with junk bonds. I expect the trading range to remain near term.

Corporate Bonds¬†– LQD = 3.8% yield. The price has found short term support ($118.90)… again. Downtrend line remains in play. Patience as this plays out.

Municipal Bonds РMUB = 2.8% tax-free yield. The price of the bonds broke support and the chart is attempting to bottom or build a base. The downside risk remains and this is a sector of the bond market to avoid for now.

Convertible Bonds РCWB = 3.6% yield. Price had been moving higher on the current rally in stocks. Starting to see some selling off the highs. Watch stops and protect your gains.

4) Commodities:

Sector Summary:

  • The commodity sub-sectors are finding some signs of life along with volatility in the sectors. Watch and play the leadership. GSG attempting to build a base on the parts moving. Hitting the 200 day moving average as short term resistance? Not for the faint of heart.
  • UNG (natural gas) made the big move higher breaking out and following through on the upside. Testing the high as well as the $22.45 resistance. SEE¬†ONLYETF Model Portfolio
  • Crude tested support at $89.30 last week and closed at $93.75 for the day.¬†ONLYETF Model Portfolio¬†The upside is still in play. Tested the $22 resistance on OIL.
  • GLD – Gold gained on the alternative asset choice relative to Cyprus, Europe, China or any other worry produced this week. The gain put the metal back near the $156.25 level. Downside is still the outlook, but we have to be patient. Still could play out in either direction.
  • DBA and DBB ¬†both trading near their respective lows – DBB bounced this week and could offer some upside looking forward. DBA still basing.

Commodities Rotation Chart:

Commodity

5) Global Markets:  

Global markets tested lower on the Cyprus news this week and volatility has kicked in since. More downside pressure as the Europe issue is back on the table.  The other shoe syndrome is still alive globally. Watch and protect is the mode of operation.

Global Mkt

Country Watch:

  • FXI¬†– China continues to lead the downside relative to the global markets. FXI bounced 2.5% on Wednesday and dropped 1.1% Thursday. Downtrend in play… news not enough to change direction short term.
  • Japan (EWJ) broke higher, tested, and continued to move higher. Got the move above $10.60 and still moving to the¬†upside. Getting extended, protect your gains.
  • EFA¬†– The long term uptrend remains in play and support has held, but the sideways¬†ys motion and the 30 DMA have my support. Watch the ripple effect of Europe short term as this plays out.
  • EEM¬†– emerging markets continue to struggle. Short is the call on the sector. (EEV breakout $22.75)

6) Real Estate (REITS):

Real Estate Index (REITS) РSettling into a trading range near the high of $68.50-69.25. Sector Rotation Model

Sector Summary:

  • XHB – Homebuilders moved to new high on the housing starts Wednesday, retraced some today, but still remains a positive sector. Be patient and manage your stops if the downside resumes.
  • REM – Mortgage REIT continues to push higher in the trend – let it run is the only thing to do with trailing stop.
  • NLY- Annaly Capital Management – continues the upside trek with some daily volatility. gained 2.5% on Friday to clear the 200 DMA. Hold and let it run.

7) Global Fixed Income:

Sector Summary:

  • The sovereign debt issues had faded, but with Spain in the news again, Italy facing disruptive elections this weekend, and France taxing itself out of existence, too many concerns and the safest play is to avoid the asset class for now.
  • Some basing is starting to take place and we continue to scan and look for opportunities in the sector.

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.