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I have been investing for over 40 years, evolving from investor to trader. The bear part comes from my degree from Cal: Go Bears! From 1982 to 2000, I managed a 17% return trading mutual funds on the basis of relative strength. This success was, of course, helped by an historic bull market, but... More
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  • ETF Blog For 6/16: Watch XLE, OIH, SMH And IBB In A Choppy Sideways Market 0 comments
    Jun 15, 2014 1:19 PM | about stocks: XLE, SMH, IBB, OIH

    Market Moving News (Summary of 16 Articles)

    Wholesalers, enjoying strong sales, are keeping up their inventories which rose 1.1 percent for a second straight month in April. Sales rose 1.3 percent vs 1.6 percent in March. The stock-to-sales ratio is unchanged for a second month at a lean 1.18. May retail sales disappointed, rising 0.3 percent in May, following a 0.5 percent jump in April.

    Information revenue rose 1.1 percent in the first quarter compared to the fourth quarter. This compares with upwardly revised sequential growth of 2.0 percent in the fourth quarter.

    Rising tax receipts together with cuts in defense spending continue to trim down the government's debt which, eight months into the government's fiscal year, is down a year-on-year 30.3 percent.

    May PPI inflation turned negative-meaning reduced revenues for producers. The PPI for total final demand declined 0.2 percent, following an increase 0.6 percent in April. Market expectations were for 0.1 percent. Total final demand excluding food & energy slipped 0.1 percent after gaining 0.5 percent in April. Analysts forecast a 0.1 percent rise.

    Demand for both mortgage purchase and refinancing applications surged in the June 6 week, up 9.0 percent and 11.0 percent respectively. The average 30-year rate for conforming loan balances ($417,500 or higher) moved up from recent lows, jumping 8 basis points in the week to 4.34 percent.

    In retail trade and in arts, entertainment, and recreation, the number of job openings increased in April. There were 4.455 million job openings on the last business day of April, up from a revised 4.166 million in March. Initial claims rose 4,000 in the June 7 week to 317,000 with the 4-week average up 4,750 to a 315,250 level, however, that is down about 10,000 against the month-ago comparison. Continuing claims, in lagging data for the May 31 week, rose 11,000 to 2.614 million. The 4-week average, however, is down 13,000 to a new recovery low of 2.622 million.


    The headline Consumer Sentiment reading looks soft, at a lower-than-expected 81.2, but some of the details are positive in the report, especially a gain for current conditions. The current conditions component is up 1.0 point from final May to 95.4.

    The VIX

    (click to enlarge)

    The VIX popped up a bit last week, as oil prices rose, geopolitical issues intensified and even U.S. politics became more interesting. The level remains "complacent," and will remain so under the 15.

    The Market (S&P 500)

    (click to enlarge)

    The SPY dropped three points, breaking its trend and rallied on Friday on reasonably high volume. If it moves to a new high, Thursday's low will become an anchor for a new trend at a lower rate of change.

    Small Caps (NYSEARCA:IWM)

    (click to enlarge)

    The Russell 2000 behaved similarly, although volume on Friday was lower than Thursday. Note the resistance above last Monday's high. Unless IWM rallies, I expect the market to drift sideways or lower.

    Core Sectors

    (click to enlarge)

    The core sectors show the sharp drop in transportation (NYSEARCA:IYT), which I had been watching for an entry, the strength of energy (NYSEARCA:XLE), driven by oil prices and fears about events in Iraq, improving relative strength of small caps (IWM). Tech (NYSEARCA:XLK) is holding on, and beating healthcare (NYSEARCA:XLV), which is in a slight decline.

    Best Relative Strength

    (click to enlarge)

    In the chart above, all curves are referenced against the strength of the Russell 3000 (IWM) which appears as the straight red line. Among the 36 ETF's I follow, biotech (NASDAQ:IBB) is showing consistent strength, and dropped less than many others during the past three weeks. Although all ETF's are beating IWM, which itself has shown increasing relative strength, three of them are accelerating in the past 1½ weeks: oil services (NYSEARCA:OIH), energy (XLE), and semiconductors (NYSEARCA:SMH). Software (NYSEARCA:IGV) is also in a slight upward trend. The very volatile social media (NASDAQ:SOCL) is up sharply.

    Trades Last week

    My stops were relatively tight, so the following were sold, most for a small gain, a few for a small loss. Selling INTC turned out to be a big mistake!

    Sold: BA, QQQ, IYR, INTC, XLV

    Bought: XLE

    Holding: AGNC, XLE, SMH

    Conclusion and Action

    The economy keeps grinding slowly higher, but seems to have little effect on the markets, which continue to react to low interest rates, and, increasingly to worries about prices being too high and geopolitical events. If the indices go on to reach new highs, I believe they will do so in a choppy environment in which stocks in different sectors rotate in and out of leadership.

    I am attempting to get into certain ETF's and stocks during upward moves in order to establish a profit cushion that will allow me to loosen stops and hang on for longer periods. Next week I will focus on XLE, SMH, OIH, and will look for more volatile upward action in IBB, SOCL, and BBH. Because it often is less volatile, I will look for opportunities to buy XLV, in spite of its slight relative strength decline.

    Have a great week!

    Disclosure: The author is long XLE, SMH, AGNC.

    Stocks: XLE, SMH, IBB, OIH
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