What Will It Take to Follow Through on the Upside?

Markets bounce as buyers find promise in the economic data and hope in the ADP and Jobless Claims. Right or wrong the buyers used the news to put money to work. As we discussed last week the market has been in an oversold state technically. Thus, it was due for a bounce. Will it amount to any more than a bounce? Only time will tell, but the news going forward will play a key role in how this plays out. Today we have the infamous Jobs Report and based on the news Thursday expectations are leaning towards positive numbers. If the momentum can continue look for the upside to follow through today. The challenge for investors currently is the shortened time horizons trader/investors are watching. This puts more pressure on the markets and investors.

Scanning the moves on Thursday I offer the following outlook going forward:

1)  NASDAQ Index moved off support of the trendline and the 200 day moving average to close back above the 3000 mark. 3037 resistance is just overhead and then 3100. If the small cap stocks continue to gain ground it will be positive for the index. Likewise, the technology move higher will benefit the index. Watch for the test of the bounce in the process as this all unfolds. The key will be for leadership to develop in the broad index that would allow for an extended move to the upside.

2)  Technology Sector was one of the leaders on Thursday with a move off the current low and support. XLK reflects the move in the large cap stocks as it regains the 200 day moving average. The leadership in the sector came from the Networking (IGN) and Semiconductor (SMH) stocks on Thursday. Software (IGV) and Internet (FDN) both added positive moves as well. The oversold state of the index is reflected in the bounce. Short term target to for XLK is $29.90 with resistance at $30.25. This sector is a trade short term. The fundamental data from earnings are not favorable to an extended move higher based on the sentiment towards the sector currently. Watch to see how this unfolds as we move forward.

3)  Small Cap Index made a move off support as well and showed some short term leadership. IWM, iShares Russell 2000 ETF bounced off the 200 day moving average on Wednesday and followed through with a nice move on Thursday. Resistance is at $83.25 for the ETF. The downtrend is still in play off the September high. IJR, iShares S&P 600 Small Cap ETF looks very similar with the downtrend still in play and a bounce off the 200 day moving average. If the upside is to play out going forward the small cap indexes will play an important role in the move.

4)  Consumer Index is another big question mark short term. Both the consumer discretionary and consumer durables will play a key roll going forward. The consumer has been called into question with higher gasoline prices, food prices and stagnant personal income levels. Despite these headwinds the retail sales reports have been positive and the outlook remain upbeat from analyst. The consumer confidence and sentiment reports have both moved higher showing optimism from the consumer looking forward. Both XLY and XLP bounced off support and we are now looking for follow through on the upside as well as some leadership from the sector.

5)  Basic Materials and Industrial stocks moved higher in response to the hurricane. The speculation is the clean up, rebuilding and infrastructure improvements will provide much needed stimulus to the sectors short term. No evidence concerning this being valid, but the argument sounded good enough for buyers to step into the sectors and buy stocks. XLB and XLI made solid moves off the low on Thursday and are worth watching going forward for some short term opportunities.

There are plenty of moving parts currently. Some favor a move lower following any bounce and some favor moving higher following the bounce and the election. We have to be disciplined in our approach to the current trends and movement in the broad market indexes. One day at a time… one sector at a time as this all unfolds.