Market Participants await Economic Data and the Fed

A quiet day on Wall Street today as summer trading continues. Many are likely still trying to recover from their weekend festivities. Perhaps many were with Steve Cohen. Pending home sales weren’t as bad as the market was looking for, but was still negative month over month. Dallas Fed Manufacturing activity index was lower than expected coming in at 4.4 (expectations were for a reading of 7.5). The market was able to find its footing just after the European close. NYSE volume ran just below Friday’s level and closed that way too. NASDAQ saw volume drop too. Major indexes were able to avoid distribution given volume was lower on the day. Today was not a game changer as this uptrend continues to march on. The talk of the town continues to be whether or not the Fed Chief Ben Bernanke will hint or talk about tapering the Fed bond buying program. QE and ZIRP have destroyed those who have saved by compressing short-term and long-term rates forcing folks into riskier assets. How does this translate to how we react in the market? It does not, but as a matter of policy debate we can certainly point out how much we have destroyed the earning power from savings. Who wins out Wed the Doves or Hawks? Leading the S&P 500 higher today were utilities. Despite the 10 year yields rallying slightly today utilities found love. On the downside the two notable groups lower were Financials and Oil & Gas. While Oil & Gas lead to the downside losing .84% Financials were down .72%. If it weren’t for the Financials earnings growth would be downright dismal. ZeroHedge has been quite vocal on this point. Financials or XLF is one sector to watch. While a pullback is normal, but if the group turns into ITB/XHB would be a big red flag for this market. Until then, there is no reason to think this uptrend can’t continue. We can guess if the market has topped or not, but we simply do not have evidence it has done so. Yes, housing stocks have rolled over and are poised to continue lower. However, they are really the only group looking like the downside is the path of least resistance. Cut those losses.

Obama’s Economic Speech Fails to Inspire Buyers; AAPL Jumps

A big jump in New Home sales failed to get the market going as the homebuilders sold off hard on the news. The talk of the street was AAPL earnings and the stock’s big move on the day. Without AAPL the NASDAQ would have notched a day of distribution. The S&P 500 could not escape distribution settling down .4%. Even though the NASDAQ did not suffer the same fate as the S&P 500 it did give up almost all of the gains had at the open. Not typically something you want to see in an uptrend, but it isn’t a gigantic red flag. In after-hours trading we had quite a few earnings moves setting up nicely in the morning. We are still without enough distribution days and negative price action to call the end of this uptrend. While we may be long in the tooth we don’t have the proper signals telling us this is over. AAPL was an earnings winner as many were calling for an atrocious quarter from the technology giant. More earnings in the after-hours session will help set the tone tomorrow at the open. Earnings gaps have been a great way to play earnings season. Stocks must meet certain criteria before they can be considered, but they can be quite profitable. Homebuilders sold off in heavy volume and it comes to no surprise even with a big jump in new home sales. ITB and XHB are certainly struggling and while the housing data points to a positive outlook perhaps fundamentals truly are best at tops. In addition to ITB and XHB another key sector looks to be rolling back over and that is XLU. After rallying along with bonds (yields falling) yields raced higher today putting pressure on Utilities. Utilities are far from sexy, but along with Housing this sector is seeing quite a few headwinds. You’ll find plenty top callers in this market. It has proven to be a fool’s game trying to game a market top. Don’t call tops and ride your winners.

Markets Close in Lower half of the Day’s Range as Volume Jumps

Failure of the Bank of Japan to signal even more stimulus sent the world markets into a selling frenzy. Initially, buyers were able to push the market well off its low and at one point pushing the Dow into positive territory twice! A weak 3 year Treasury note auction sent sellers back into the market pushing the market near the lows of the session by the close. Volume rose across the board suggesting Institutions were in the market selling stocks a negative sign for the market direction in normal markets. At the very least the action we are seeing may simply be foreshadowing further volatility. This market is certainly under pressure and given the rise from November until May a little correction is certainly not a surprise to us. Obey your sell/exit signals as the stock market is certainly on shaky ground. Following up yesterday’s move lower homebuilders continue to tack onto their losses. LEN continues to be one of the weakest among the group. XHB has seen its fair share of heavy selling since February and is now just finally catching up to the ETF. An even bigger decline has come from the utilities as the 10 year yield has jumped higher. XLU topped out the first of May has slide 9% from its high and has had trouble finding buyers. Higher rates have certainly stung a few industries and it is quite obvious traders aren’t keen on higher rates. Daily volatility has certainly kicked up with the VIX nearing multi-month highs. The VIX closed at 17.07 up nearly 10% on the day. However, VIX tracking ETFs continue to lag the performance of the VIX overall. For example, the VXX was only up 6.6% today well behind the VIX performance. It certainly doesn’t appear investors are rushing towards volatility to hedge against a market decline. Or it simply could be the inability for these ETF managers to keep pace with the VIX. Something to keep an eye on as this market proceeds. The positive here is certainly the major market averages remaining above their respective 50 day moving averages. A negative here was the rejection at the 20 day moving average. While the 50 day is certainly a bit more important the rejection at the 20 day is something to take notice. Since the beginning of the year we have been able to jump back up thru the 20 day with ease. Now, we have rejection. Stick with the process and do not try to be a hero.