Watch Earnings & Consumer Stocks for Clues

What else can you really say…? We have been discussing the emotions and news controlling markets along with the lack of follow through on any momentum. The moves continue to last a couple of days at best and then reverse direction. Friday was just another one of those days where the disconnect between belief and fear drive direction. There were some sectors with bad news and some with good news, but in the end the sellers controlled the day.

A drop worthy of note was Chipotle dropping 21% on missed earnings data. The results as you can see in the chart with the masses exodus from a long time favorite among investors. The Leisure ETF (PEJ) fell 2% on the news and the downside in the sector is worthy of note as it reflects the consumers willingness to spend. The Restaurant sector has been declining since early May and is now in position to test the downside support. The short side is worthy of exploring here short term. (See the TC2000 club for the scan results)

Financials were the drag on Friday’s trading day leading the losers down 1.5%. The gap lower on the open and ended in a boring trading range near the low on the day. The end result was a gut check for investors on the upside. The series of higher highs and higher lows is still in play for the broad market as well as many of the sectors. If financials shift lower and lead the downside short term watch for the rest of the market to follow suit.

The week ended positive overall with the S&P 500 Index gaining 6 points or 0.4%. The NASDAQ Index gain 17 point or 0.5% for the week. Heading into Friday the upside looked solid as investors were in a buying mood. But, as I stated above this market can’t stand sustained direction longer than a few days and thus, we move towards next week on a negative note. Earnings have been a mixed bag, even within the sectors themselves, as seen in financials. The economic data remains on the weak side, and the hope is with the Fed providing more stimulus. Sounds like a great opportunity for buying stocks? Kidding!

Discipline remains the priority! This is not an easy market environment and the outlook remains cloudy at best.

Sectors-to-Watch:

The easy response to which sectors to watch this week… all of them. Financials lead my list of sectors to watch based on the mixed results and mixed response from investors. All the sub-sectors are showing moves to key support levels, but the banks (KBE) remain the key to the sector looking forward.

Energy has captured everyone’s attention based on the move in the commodities. Can or will it sustain the move? Time will tell as demand is not the driver… speculation is relative to the Middle East and geopolitical issues. Watch and manage the risk of the trades short term. The sector of stocks is attempting to break through resistance at $68.80. Watch and play according to the technical data as the fundamentals aren’t driving the direction.

The negative and positive twist in the market continues as investors attempt to determine short term direction. The variables between earnings, economic outlook and investor confidence remain volatile and it is keeping money in motion. This is definitely a traders market and anything else is a frustrating game. Keep your focus on your goals and not attempting to determine what is happening or will happen in this short term market gyrations. Sector rotation is alive and well with energy taking on a new role of leadership.

Positive (fell on Friday, but still in uptrend) – XLV, XLU, XLP, IYZ, XLE

Negative/Sideways – XLF, XLY, XLK, XLB, XLI

Traders market plain and simple. If you are looking longer term manage the volatility with wider stops, otherwise you are going to get whipped in and out of positions. Make sure your objectives are clearly stated for each position!

Volatility Index – The index closed at 16.27 up slightly on the day despite the gap higher on the open down. There is no real fear or negative showing in the index short term.

WATCH: SVXY Hit stop… but the play should catch support near $98?

Dollar – Traded lower all week on the positive momentum in stocks, but bounced back on Friday. The issues in Europe are far from over and the fear factor will continue to rise up and challenge investors. The momentum has been coming out of the dollar and is assisting the run higher in crude and commodities. Watch the downside.

WATCH: UUP – Support is at the $22.80 short term. Watch resistance the $23 mark. Take exit if we break the $22.75 mark.

Treasury Bonds – The yield is 1.46% on the ten year bond. The mini rally was in response to the move higher in stocks. That reversed on Friday and back to the lows on the yield. Money still running to bonds when signs of trouble arise. Hold for now and collect the dividend.

WATCH: IEF – $108.80 (HIT ENTRY) Stop at $108.30 for now.

S&P 500 Index – The uptrend off the June 4th low remains in play short term. The move above 1363 was positive and the move back to 1363 is a test. Our target was a move towards 1390 short term. That remains the short term outlook, but you have to digest the volatility and news driven events in order to make the move higher. If you don’t like volatility… cash is a better alternative short term.

WATCH: SPY – Looking for follow through move above $137.50. Entry $136.50 / Stop $134.

NASDAQ Index – The technology sector picked up last week and led the index back near the July high. Friday erased some of the move, but not the trend. Earnings have been the driver to the move, but you have to expect some volatility in this market. Semiconductors (SMH) came to life bouncing off the low and hitting resistance at $31.50. Still worth watching for upside in each of the sub-sectors. (SMH, IGV, IGN, FDN) Internet has provided some solid moves from the large cap stocks like Google and Ebay.

NASDAQ 100 index holds more interest as the large cap stocks are doing better. The QQQ ETF held support and closed above the entry point. Watch, manage and deal with the outlook near term.

WATCH: QQQ – Entry at $63.60, Stop $63.40. manage the volatility.

Small Cap Russell 2000 Index – Holding and testing the uptrend line off the June lows. Breaking lower would be leadership on the downside. Holding could lead to a bounce trade.

WATCH: IWM – Tough call on the bounce. Watch and play the direction.

Financials – XLF is struggling on earnings data which disappoints investors. The news pushed the broad index lower and testing the 14.40 level. Mixed picture based on investor response. The sector is showing signs of cracking and a short play may be in order this week.

WATCH: XLF – $14.40 support? Watch the downside opportunity with SKF

Energy – Fear remains the catalyst for the sector overall. Eventually the fear premium will escape the sector unless it is validated. We are holding and raising stops on any positions in the sector. Take it one day and a time and keep your stops in manageable position.

WATCH: XLE – entry is $66.80 for a trade. Stop is $67.50.

Commodities:

1) Crude is above the breakout level on OIL at $20.75 ($22.41 close and testing). 2) Gasoline is up in response to crude and closed at $54.47 on UGA. Entry at $52 hit and stop at $53.40. 3) Watch Natural Gas as it is attempting to break higher above $20 on UNG ($21.08 on Friday follow through move). FCG is ETF for the stocks. 4) Watch Agriculture Soft Commodities (DBA) are moving higher. Corn (CORN) resumed move to new high and testing the new highs. 5) Gold not doing much, but investors still want to push it higher. GLD, $148.50 is support. Watch Mining stocks as they drop more than the price of gold and are looking for support near $41. on GDX.

The commodity sector is still in favor with investors as they look for upside on a weaker dollar, speculation and drought.

Global Markets:

The global markets were making a move higher in response to the climb in US stocks. However, the worries relative to Europe returned on Friday and sent EFA down 2.3% on Friday. 1) China (FXI) tested the lows, bounced hit resistance at the downtrend line. Watch for the follow through to bounce. The Entry $34.20 fi we follow through on upside. 2) Mexico (EWW) had rallied back to the top of the range, but is in the process of testing the move higher. Watch as it has been a positive for the emerging market countries. 3) Malaysia (EWM) tested the high at $14.60 and tested on Friday. Watch to see if this turns into a entry opportunity. 4) Europe (IEV) broke support near $32.80, but bounced on euro improving and a move above the $34.30 would be a breakout. 5) Watch Turkey (TUR) which remains near the high in a trading range. Break above $53.10 could get interesting for trade. Currently testing the downside of the range? Watch. 6) Singapore (EWS) is moving back near the high at $13 and worth watching to break higher. 7) Australia (EWA) broke higher in response to crude prices and is testing the breakout. Watch for a trade opportunity short term.

Watch the global markets if the dollar weakens and money begins to rotate again towards the international investments.

What I am watching now?

Leadership is the key to any sustainable move. Currently that is a challenge as Financials took the early lead from earnings and faded. Technology led last week and sold to end the week. The Consumer is up this week with the large caps on tap to announce. If we are going to sustain any move higher leadership has to come from something other than Commodities. Watch and see how this develops throughout the week.

More earnings should bring more insight. Two that will be watched closely are Apple and Facebook. They reside in the technology space we have discussed above and could provide some answers near term. There is a focus on sales data/revenue in the earnings reports as they have been disappointing. Apple is expected to see a drop in revenue as a result of the new iPhone launch later this year? They could drive the response by investors short term in Apple as well as others like Chipotle on Friday.

Economic data… oh yea! More to chew on with Q2 GDP. New home sales, home prices and pending home sales. Consumer sentiment will end the week. Watch as the trend relative to data continues to move lower.

Watch and play according to your risk tolerance. 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 downside risk determines your long term results. Trade smart.