JFarrish 05/31 Picture = 1000 Words

Jims Notes  (LINK)

By Jim FarrishJune 1, 2016Jims Notes

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Since the old saying is that pictures are worth a thousand words I wanted to review some charts tonight as we start a new month. It is not so much the change in months as the frustration in the charts that are driving most investors insane. Today was another of those days where we start one direction and by the close we are looking in another direction, and effectively accomplishing nothing. There are some sectors in good shape technically and others fundamentally, but overall the markets have stalled. There is still a lack of direction, a lack of conviction and most importantly a lack of reasoning to own stocks.

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Markets twist as month comes to close

By Jim Farrish | Research Post | No Comments

MARKET OUTLOOK: May 31st

Another month is officially over and we start the onslaught of data for the economic outlook. Question about how the month of May compared with April and how it will be interpreted in view of the upcoming FOMC meeting and the Fed’s decision on interest rates. This environment leads to speculation and consternation not to mention frustration. Thus, I am willing to be patient as this all unfolds. Not to mention we are at key resistance levels for some indexes. Plenty to watch and deal with moving forward.

The day was mixed with some indexes higher some lower. Some sectors up and some down. The indecision as it relates to the markets as a whole are in parts remains one big question mark. That leaves the speculation to drive the day-to-day moves and even those in some cases are not very convincing for very long.

For now, we will take the short-term view of the markets as the fundamental data is lacking to be committed to the longer term views and the shorter term swings are not enough to trade relative to the risk taken. Patience is key and we will continue to take it one day at a time.

Scans are run each day to show what was and is moving of interest…

TUESDAY’s Scan: Commodities rule the top of the scan and the balance remains mixed.

• Natural Gas (UGAZ) jumped higher on speculation with weather? Watch the supply data on Thursday for some clarity to the move on the upside. Holds above $24.50 would be of interest.
• Russia short (RUSS) moved off the bottom of trading range as oil continues to play into the volatility.
• China (YINN) As stated on Friday update… made the move higher… unfortunately, it gapped above a reasonable entry level. Watching how it unfolds with possible test of the 200 DMA or break higher.
• Metals & Mining (XME) Needs to clear $22.25 on upside reversal pattern.
• Gold Minders (NUGT) Holding the $70 support level and watching. Stronger dollar is negative to gold and it that fails near term the miners head lower as well.
• Crude Oil short (SCO) crude is hitting resistance. OPEC meeting on tap this week and supply data. All will determine up or down near term.
• Silver short (ZSL) Moved above $43.50 resistance and continued higher as the metal struggles on the outlook with the precious metals and the dollar.
• Biotech (XBI) cleared $57.80 and moving above resistance. 200 DMA is next resistance level to watch. Look for entry if the sector follows through on the upside.

Positives remain with most of the Scans from the weekend update. SOCL, SOXL, XPH, IBB, SVXY. Still have to manage the risk of the positions and understand the near term volatility as it unfolds. Patience is the key along with extreme discipline of positions taken or not.

FRIDAY’s Scan: (Weekly look at the scan list for trailing five days.) Another week of interesting results in the leading sector. The rotation from commodities back to stocks has started to show in the scans again this week as the indexes follow through on the upside move. We remain cautiously optimistic as we start the week of trading.

• S&P 500 (SSO) index is at the breakout point of 2100. Clear this level and the long term trendline breaks and upside is in play. Willing to trade the longer term signal with half the normal risk on the stop… we will manage and adjust this as we go forward.
• Gold Miners short (DUST) bottom reversal and cleared $17.35 resistance. Break lower in the metal setup the short trade. Cautious as we start the week on how the metal responds.
• China (YINN) Broke above resistance at the $12.65 level for entry Friday. Looking for confirmation, test or move higher. The bottom reversal is in place and dependent on the positive view in the US.
• Semiconductors (SOXL) came to life after holding the support and bottoming range moved to the upside $23.90 entry hit. cleared $26.10 this week and continues to climb… tighten stops.
• Europe (EURL) bottom reversal and follow through$24 resistance next. Follow through would offer upside trade in the country ETF.
• Biotech (XBI) cleared $52.25 resistance and 50 DMA. This week pushed through $55.85 and holding upside move. IBB equally impressive upside.
• Silver short (ZSL) bottom pattern. broke$40 entry point. Tested Thursday and watching how it unfolds at the 50 DMA. Weakness in gold and stronger dollar weighing on the metals.
• Crude Oil (UCO) hitting resistance and testing. Watching the dollar and Fed reaction. $13.15 is level to clear.
• Pharma (XPH) cleared the $41 level of resistance on the pivot reversal. Target $43.55 and then $45. manage the risk of the upside move.
• Retail (XRT) bounced off low and attempting to reverse… cleared the $41.30 mark. $43.50 target near term.

From last week’s list: Breakout week for many charts. The question is how high it goes from here and it the indexes can break to new highs. Volume fell off heading into the long weekend… watching how we start the week and the level of interest.

Breakout runners to worth watching: SOXL, SVXY, SOCL

The daily scan from Friday: Ended the week with a positive day. The sellers have headed for shelter currently and left control to the buyers. The question now is can they continue the momentum this week.

• Semiconductors (SOXL) break through resistance continues the upside run. Adjust your stops to $27.50.
• Small Caps (TNA) positive reversal and three days of follow through. $63.65 next level to clear (willing to add to positions if this gains momentum.)
• China (YINN) pivot off low. Cleared $12.52 Friday for an entry opportunity.
• Technology (TECL) positive move Friday was a break above $35.77 continues.
• Volatility Index short (SVXY) cleared $58.15 as buyers turn the index lower. VIX testing previous lows.
• China Internet (KWEB) cleared the 200 DMA and resistance at $34.50. Looking for entry on a test or follow through upside with a target at the $38 range.
• Financials (FAS) cleared $28.10 resistance. Tested and held to end the week. Looking for entry to add to positions next week.
• Midcap (MVV) hit a new high on Friday to confirm the microtrend reversal and upside opportunity.
• Gold short (GLL) the break below $116.50 GLD shows follow through weakness in gold. Short opportunity if this follows through on the move lower in the metal. Silver (SLV) did same on Friday.

Friday was an upside follow through for the major indexes giving some momentum to the buyers. Watching to see how the week sets up. Continuation of the upside move or do the sellers return to test the downside? Watch and let this unfold near term.

May 23-26th Scans: This is a list of last weeks scans that are still working and I am still watching or own positions in going forward. Stop management is key as the market extends higher. Still no clear direction overall or confidence.

• India (INDY) moved back to the previous high. Clears $27.75 completes a reverse head and shoulders pattern.
• Agriculture (DBA) moved back above resistance at $21.06 and maintaining uptrend.
• Belgium (EWK) break higher from consolidation near high. Small test on Friday.
• Germany (EWG) pivot reversal working back towards the previous highs. Small test on Friday.
• France (EWQ) pivot reversal working back towards the previous highs. Small test on Friday.
• Utilities (XLU) cleared $48.50 and holding in the trading range.
• Wheat (WEAT) nice bounce off support and closed above the $8.95 resistance. follow through offers upside trade. Small test on Friday.
• Wind Energy (FAN) consolidation break to new high. Positive move for the sector. Small test on Friday.
• Energy (ERX) upside continues with crude moving higher. Cleared $29 upside resistance.
• Oil Services (IEZ) reversal and cleared $37.20 for trade entry opportunity. Tested Friday and still looking for upside breakout and confirmation.
• Natural Gas short (DGAZ) bottoming range needs to clear $17.65 upside resistance. Stalled near term.
• Solar (TAN) bottom reversal confirmation with the move higher as follow through to Friday’s move.
• Clean Energy (PBD) bottom reversal confirmation on the gain with $10.70 entry. Need upside follow through.
• Brazil (BZQ) short side trade if clears the $38.50 mark. Made move looking for confirmation $39 entry.

Following and managing our risk as we go forward.

Trading Outlook:

The current environment/trend for markets is in question with the current trading range still in place and a lack of conviction from either side. The sentiment shifted to anxiety with the Fed interest rate issues in play. Now it is okay because that means the economic picture is improving. Don’t worry about one of the worst earnings periods ever in the first quarter as it pertains to the four consecutive drop in revenue and earnings growth. The test of key support levels two weeks ago had everyone running for shelter. Last week they “bargain hunting”? The Fed Presidents are running around telling everyone the interest rates are going up and sounding like Paul Revere.  Last week was another case and point of the buyers stepping in the keep the sellers in check. We start a new week of trading with the buyers needing to hold serve on the move higher. Sectors to watch for decisions:

• Semiconductors (SOXX) cleared $87.95 resistance on the bottoming pattern. Hit entry and is moving higher leading technology and the NASDAQ higher. Manage the risk and let it run. $95.15 resistance in place. Upside continues to show strength. 
• Biotech (IBB) bounced off the lows of late and pushed through resistance at the $264.60 level. Made the move to $276 resistance and looking for a move to the $287mark. Still in an overall bottoming pattern for the sector and if it clears $287 it get very interesting on the upside. Following through on the upside move. 
• Pharma (XPH) cleared $41 resistance and managed an upside follow-through. $43.55 is next and then $45.50. Like biotech still in a bottom pattern and of interest moving forward. Nice move again on Tuesday. 
• Healthcare (CURE) descending triangle pattern. Move back above the $29.75 level offered short-term upside trade… Cleared the 50 DMA and heading towards the $32.25 resistance. Continues higher towards resistance to start the week. 
• Cyber Security (HACK) moved above $23.15 resistance. Looking for follow through on the upside move. Entry $23.50. Confirmed the move through resistance and adding to the upside trek short term. A break through this level or range would be a clear positive for the sector. Trying? 
• Software (IGV) trading range breakout above the $103 level hit upside trade short-term. Manage the risk and let it play out on the upside near term. Upside remains in place. 

Consolidation patterns are breaking out everywhere. The million dollar question is the sustainability of the move higher. We finished a week of upside move, but volume was declining the last three days. Blame the holiday weekend? You can rationalize whatever you need, but the reality is the upside move is speculation around crude oil supplies, the Fed rattling on about higher interest rates with an improving economic picture, jobs remain fragile relative to quality, government controls and regulations are strangling small business, and earnings growth remain on a downward trajectory. Outside of that, the future is bright and we head into the week with eyes wide open and looking for how this unfolds and any hints of strength from something that matters.

RESEARCH NOTES:

The story lines behind the moves are always of interest to me. They validate if the move is just news or a sustainable event. I am always looking for sustainable events and news that are trade worthy. The following stories have my attention now and looking forward. These story lines are what impact the longer term view of the markets. With more individuals focused on the short term activity, we often lose sight of what is transpiring longer term and more importantly what is driving the trend.

1. NASDAQ 100 Index. – This has been an index of interest as the earnings, revenue, and outlook to start the year were weaker. That has transpired. The downside did accelerate to test the lows from August of 2015. Since the lows in February on speculation, the upside move has been in control with the brief test of the 4300 mark. If we clear the 4550 level the uptrend remains in play from the longer term view. Thus, we start the new week of trading looking at a key resistance level for the index. If we clear this level we get a short term entry level for QQQ. We have not established a longer term holding in this index and wait patiently for that opportunity to unfold. Adding a position on the move above the 4550 mark short term could grow into a longer-term holding, but for now, we take it one week at a time and let this all unfold. The move is the SOX index is helping the sector currently along with technology strength the last week. Held well to start the week. 
2. The S&P 500 index is in better shape long term than the NASDAQ. A move back to the 2100 level again puts the upside possibility back in play from a longer term perspective. IF we clear this level it gives an opportunity to add a longer term position. That said, the challenge will be with the stop at the 2010 mark or a 5% downside risk to the position. 1810 would be a more appropriate stop, but based on the current fundamental data that is too much risk to accept short-term. Financials, healthcare, and technology are the driving sectors in the index and all three have made positive moves of late putting the index in a position to break higher. Thus, we watch how this unfolds moving forward. Leadership from this index going forward will be of interest with SPY is in position to break above resistance. held position, but no additional move higher. 
3. The Russell 2000 Small Cap index is in position to break the downtrend line of the May 2015 high. Why the renewed interest in growth stocks? Speculation is the only thing that sticks out for me. Fundamentally nothing has changed. Economically nothing has changed. That only leaves speculation in relationship to the Fed’s action or proposed action on interest rates as the driver. Long-term positions are tough to establish when this is the primary driver. 1160 is the level I want to see taken out and then we would look at owning the position with a long-term view and a stop at the 1040 level. That is more than a 10% risk factor in the trade. We will need some strong confirmation to take the risk near term. Added to the upside on the start of the week. hit $114.70 resistance with close slightly above… looking for upside trade if it follows through this level. 
4. Interest Rates are still a story line that gets attention when the Fed talks as they have of late. They have not made much noise since last November when they hiked rates 25 basis points. In fact, rates at that time were 2.3%… the ten-year bond is now at 1.8% despite the renewed rumors of hiking rates. The long-term view remains for rates to rise, but until they do this remains in a triangle or consolidation pattern. Eventually, TMV will be the big winner, but until the market is a believer that interest rates are really going to rise the long term thirty-year bond remains in a trading range. As a side note, Goldman Sachs released they believe the Fed will hike rates three times this year! Now that is an interesting prognostication. Patience as the talk has to become reality. Yields tried to move higher, but failed to hold the move. 

The bottom line challenge for the markets is a lack of direction. The economic data is stagnant with some positives. Earnings are declining. Revenue is declining. The fundamentals are not giving any indication of improving enough to attract the buyers long term. A twist on Fed worries is the economy is strong enough to raise rates. This puts the market in limbo or a tug-o-war at best with the talking heads and analyst arguing their respective opinions. Long-term trades are tough to maintain as they lack the conviction to maintain positions without worry rising. The key is patience and looking for where the story lines are strong enough to commit money both short-term or long-term. As stated above patience coupled with sound risk management is vital to protecting your money.

Research Table: 

All trades are posted to the ‘Trading Strategies Table’. You can track them on the table as they are updated daily relative to stop adjustments and other actions for each position. If you have questions you can send them to Info@JimsNotes.com.

Jim’s Trading Strategies Spreadsheet (click link to open)

“Vision without action is a daydream… Action without vision is a nightmare.”Japanese Proverb.

Listen to the Video Update below for a look at the pictures and what they are telling us currently.

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