JFarrish: 08/31 MARKET OUTLOOK:

MARKET OUTLOOK:

Mix bag to start the week with a couple of issues of interest. First, healthcare fell 1.8% led by the biotech sector off more than 3% on Monday. Second, the utility sector fell 1.6% and has erased the bounce off the July lows. This doesn’t set a positive tone going forward and it puts the retest of the previous low in play. The sellers are still attempting to take control of the broad markets as seen in today’s activity.

The blame was given to China to start the day then the rumors about the Fed hiking interest rates at the September FOMC meeting were circling again as interest rates on the ten-year bond jumped to 2.2%. The thirty-year  bond  is now at 2.93% and TBT broke through resistance again at the $44.76 mark.

The NASDAQ 100 index fell 1.1% with the large cap biotech leading the downside move. The Russell 2000 index held up the best of the major indexes forfeiting only 0.3% for the day. Energy was the one positive light on the S&P 500 index gaining 1.2% as crude oil spikes higher to $48.50 on the day. Speculation at it’s best relative to the production levels with OPEC and the US. One comment of interest around crude oil rise is, it stemmed the selling in US stocks! It very well could have, but I am not buying the rationale.

Tomorrow starts the economic data with manufacturing data offering a look at how the economy is growing. Then of course on Friday we will end the week with the jobs report… promises to add some excitement to the party. The bigger question; will this get lost in the China news and rhetoric? We will see how it unfolds. All of the indexes were down on Monday with the exception of energy. Not a good sign to start the week maybe the economic data will offer a boost.

Gold (GLD) caught support near the $107 mark and continued the move modestly higher on Monday. Silver (SLV) reversed and moved back to the upside and holding above the previous support of $13.80…watching how it unfolds. Crude oil (OIL) rose 7.2% or nearly 23% the last three days on a meeting request by Venezuela with OPEC. Throw in the lower output data for the US and why wouldn’t it rise. This is not a supply/demand story it is a speculation story leading the price higher. Tight stops if you own it and watch to see what happens.  Agriculture (DBA) was attempting to put in a bottom again and watching. Base metals (DBB) climbed off the low as the metals attempt to establish a bottom. The dollar is up on a ‘V’ bottom reversal to watch as $25.20 resistance now in play.

The market tallying by sector for the current trends of the ten sectors for S&P 500 index. No change from the upside bounce. The tally stands at nine downside, zero upside and one sideways trend. This clearly puts the downtrend in play short term or the sellers have control as seen on Monday. Energy may be creating a bottom reversal potential on the jump in crude oil price with another move today. Watching how this all plays out, but there are still plenty of issues to manage as we go forward.

Global markets followed the US with a bounce last week and started the week flat on Monday. Europe (IEV) was flat. China (FXI) struggling to gain confidence as the rumor mill keeps volatility in play and dropped 1.2%. Emerging Markets (EEM) bounced off the lows, but still needs catalyst confirmation to keep upside going. Japan (EWJ) was up and forming a nice ‘V’ bottom reversal. The global markets did show some positive moves off the lows, but this is where most of the concern is going forward relative to the economic picture. Watching for confirmation. Stalling in response to concern over China.

We remain mostly in cash with the bounce off the lows of interest along with the test today. I am in no hurry to deploy capital where the risk/reward doesn’t line up. We continue to scan for opportunities, but too much chop currently and the VIX remains elevated with the uncertainty. There are some interesting patterns setting up in the charts. There are plenty of bear flags or pennants that showed validity today and that is worth watching on the downside. Willing to remain patient and see how this unfolds going forward.

My favorite news of the day was the unlucky Illinois lottery winner getting an IOU from the government. The budget has no yet been approved and until it is no check for the $250,000 winning ticket. Why no budget? $5.4 billion needed in spending cuts to balance the budget… of course the legislators don’t want the cuts to spending. That shows the state of entitlements, pensions and healthcare in that state… and maybe the broader country.