Yields drop and stocks tread water

Today’s Notes:¬†

Trading in choppy markets usually results in choppy returns. The last eight¬†weeks the broad index has not been able to define any direction and switched from intraday volatility to day-to-day volatility. A look at the chart of the S&P 500 index shows clearly the ups and downs since the March 7th high… the close today put the advance since then at 15 points or less than 1% gain on the index.

What are we supposed to do as investors or traders when these cycles take place? The simple answer is play golf, travel, shop, sleep in, anything but trade. The challenge is we all feel as though we will miss a great opportunity. The reality being that the real opportunity is when there is clarity and the next trend is being established. Trending markets allow us to invest with greater confidence and manage positions with more certainty than choppy markets.

That said, we are all still in there attempting to find the best opportunities on the upside and downside and letting the market beat the crap out of us as we attempt to define what is going to happen. The new high established by the S&P 500 and Dow index is a positive sign short term, but the lack of volume and follow through on the upside gives me some concern about the move and any follow through.

Therefore, here we are with the same attitude as before the new highs were hit… do investors have enough conviction to follow through on the upside move? Only time will answer that question, but the activity the last two days has not shown me anything different from what we have seen the last eight weeks. Therefore, despite the new highs we are still chopping around with a gradual move to the upside. Nothing has changed, plain and simple. It is important to stay patient and let this all unfold, but then that is easier said than done.

Chart to Note:

The homebuilders continue to be a topic of discussion and the chart below shows the pressure on the downside the sector has experienced as a result of the negative outlook from analyst. Plenty of pressure on the stocks relative to cost of materials and availability of land. The downside is in play, but some optimism showed up on Monday as the ETF moved back above the 200 DMA, but it gave that up in today’s trading. The support near $30.50 is the level to watch near term for the support. A break would open the door for more short trading activity.

XHB

Yesterday we posted the chart of Japan Index (EWJ), it had gapped higher on Tuesday, and is in position to attempt to break the downtrend line that has been in play since the November high. Didn’t follow through today, but it is still worth watching for a possible upside trading opportunity. Need to confirm a move above the $11.30 ish level and then $11.45, etc.

Notes to Note:

  • PPI was up 0.6% well above the 0.2% expected. Pushed stocks lower at the open — watching CPI impact tomorrow.
  • Earnings in pre-market were ugly! TTWO off 7.9%, YUME fell 2%and FOSL down 10.2% all missed the market. The earnings data is still a mixed bag and not providing any upside catalyst currently. ¬†ARTX beat expectations and was up 25.3%.
  • India (EPI)¬†is up nearly 20% since the February lows and begs the question relative to valuation. The break from consolidation on Friday was positive and the follow through this week has added to the upside. I would tighten stops and protect gains here short term.
  • Oil is still moving higher hitting $102.35 today.
  • Emerging markets continue to make solid upside moves. EIDO follow through on the break from consolidation. THD bounced back above the 200 DMA and attempting to regain the upside momentum off the January low. ERUS is holding the break higher as Russia stays out of the headlines. IDX breaking from consolidation pattern is adding to the upside move. FXI bounced today, but still has some work to do to regain the upside. EZA break higher as well. EPU is still attempting to break from the extended trading range.
  • Small Caps (IWM) tested lower again giving up the 200 DMA.
  • SOCL – social media ETF attempting to put in bottom after declining more than 25% off the March highs. Proceed with caution. FDN – internet ETF is in the same position short term.
  • Biotech (IBB) has build a nice consolidation pattern (ascending triangle) off the April low. Looking for a move above the $234.80 to confirm a move higher.
  • Banks shift lower again losing 1.6% on the day. The sins of the past continue to haunt this sector and not much is changing currently. $31.50 support in play and the next stop is $31… and $29.50.
  • Volatility index (VIX) remains near the¬†previous lows at the¬†11.75 level. No volatility and sentiment is leaning on the positive side with a new high on the S&P 500 index. The NASDAQ volatility fell below support¬†near the lows at well at 15 on VXN.
  • KOLD –¬†continued higher as the downside of natural gas continues for the commodity.
  • Crude oil (UCO) is attempting to resume the upside trend with a solid move higher.
  • Sugar (SGG) made a move back to $57 and may set up and upside move short term. Nice break higher today.
  • Korea (EWY) resumed the upside as we posted Monday and has gapped higher three days in a row.
  • Russia (RBL) breaking to the upside and the fear and political issues quiet down. Continued today.

The markets remain somewhat uncertain in direction even as the S&P 500 and Dow hit new highs. The growth sector experienced a solid boost Monday, but remain in their micro downtrend status. Wednesday attempted some selling, but never gained any momentum. 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.