Why the bounce today?

Today’s Notes: 

Why ask Why? I found myself asking why the marketing was going higher today. The headlines offered their respective reasons, but as the day progressed, all I came up with is, why ask why? Human nature wants answers, but sometimes it just takes time and the answer will stare you in the face. For today, I am going with why not? Merger and acquisitions continue to be in the headlines, Russia in the background, economic data mellow and investors looking for somewhere to put cash to work. Thus, push it into the sectors that have suffered the most selling… small caps and technology. Why? Simple answer… they potentially have less risk on the downside should the selling resume, after all they have already sold lower. It is that kind of reasoning that can lose investors a lot of money. I am willing to watch and see how it unfolds going through the balance of the week and forward.

Chart to Note:

The Russell 2000 small cap index and the technology index both got credit for the move to the upside in Monday’s market. While both have tested lower of late the RUT-X index has tested key support levels last week and held. Thus, today’s move is similar to the one last Monday when the index moved back to 1132 only to test lower at the 1082 mark on Thursday. Now we are moving back near the 200 DMA and maybe another push to the 1130 level. The trend is down and the bounce is encouraging, but it will take more than today’s move to get investors to believe in the sector looking forward. Thus, the most I can see is a trade in the sector, but not much more. Watch and see how this plays out the balance of the week.

RUTX

We posted the chart of the homebuilders Wednesday showing the downtrend in play from the March high. The homebuilders index released on Thursday didn’t help the cause on the upside, but it did stick with our evaluation of the downside being in play. Tested below support at $30.50 level of support and held, but the damage is done as the sellers believe they can press the downside.  Plenty of pressure on the stocks relative to cost of materials and availability of land. The downside is in play, but holding support at the $30.50 still… see how it plays out.

Japan – EWJ remains in trading range… from post last week
NASDAQ 100 – QQQ moved to top of the consolidation pattern Monday… break above $88.50 gets interesting.

Notes to Note:

  • VIX index back to the lows again. No worries, be happy, keep buying…
  • Small caps (IWM) jumps 1% to start the week and bounce off support.
  • India (EPI) is up nearly 20% since the February lows and begs the question relative to valuation. The break from consolidation eight days ago continues to push higher with another gap higher on Monday. I would tighten stops and protect gains here short term.
  • Oil is back to $102.63 and remains on the upside short term. $37.74 target on USO short term.
  • Financials tested $21.60 (XLF) again as support, and again it bounced! Watch the top end of the range at $22.20 for now, but a break above that level would be beneficial to the sector.
  • Watching for follow through on the upside tomorrow… this is making me seasick as the up and down movement lacks conviction in either direction.

The markets remain somewhat uncertain in direction as we have discussed for the last eight weeks. The growth sectors have sold and rotated to dividend and defensive positions, and now we are seeing further rotation to bonds. The fear factor was rising modestly, but that shifted today to what the hell let’s buy mindset. Until the picture clears and defines the trend we will continue to take it one day at  a time. Stay focused and remember that cash is a sector and sometimes the best trade relative to market risk.