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Market Follow-Up Wednesday, June 28

Summary

Today's Market Analysis (events, moves)

Follow-up on yesterdays predictions and trade ideas

Predictions and trade ideas for tomorrow

How Did the Markets do?

The markets rallied today. They opened up slightly higher retraced modest gains and then rallied up around 10 pm EST. S&P up 0.9%, DOW 0.7%, and Nasdaq up 1.4%.

What Groups Performed Best/Worst?

Financials and tech lead markets higher today, up 1.7% and 1.22% respectively. The worst performing sector was utilities – the only sector in the negative – down 1%. Amongst notable winners were: XIV: 2.8%, AA/X: 4.2%/4.6%, TNA (Small Cap 3x Bull): 4.6%, JNUG: 4.2%, OILU: 3.5%, TQQQ: 4.2%, FINU (UltraPro Financials): 4.3%, GBTC (Bitcoin Investment Trust): 3.8%, and ^TNX (10yr Interest Rate): 1%, which was higher but then gave up some gains.

The losers: ^VIX: -9.3%, UVXY: -5.9%, and ORLY: 2.2%.

Why? What Economic/Market Events Occurred?

International Trade in Goods: at $-65.9B vs. $-67.1 prior and $-66B expected. Strength in consumer exports (like vehicle exports – up 4.8%) was the key driver in narrowing the gap. The weakness of the report is the exports of capital goods – down 0.4%, suggesting weakness in global business investment. Total imports of goods fell 0.4% (consumer goods imports, such as vehicles, were down and imports of capital goods up).

Pending Home Sales are down -0.8% vs. -1.7% prior and 0.5% expected – a negative for the 3 rd month with the biggest decline in the west.

EIA Petroleum Status Report: Crude oil inventories are down -0.1M barrels vs. -2.5M prior, up 2.7% from a year ago. Inventories, such as gasoline, are down. Crude oil imports rose 140,000 barrels/day, averaging 8 million barrels per day. Product demand continued to decline. Overall, the relief in product inventories fueled higher oil prices, up 1.1% today after being down during after-hours yesterday – currently sitting at $44.74.

After yesterdays sell off, the markets continued to decline during after-hours. Asian stocks declined, as did the markets in Europe. It was during pre-market trading that US futures went from red to green. The markets opened up slightly higher, retracted some gains (Nasdaq completely covered the open gap) and then rallied higher around 10 pm, pushing higher throughout the entire day. Yesterday I wrote that it’s unlikely markets dip much lower, because if Nasdaq fell a tad more, it would break it’s MA(50) support, triggering stop losses and signaling a loss of confidence overall. It is because Nasdaq was at these sensitive technical levels that investors were slow to buy the dip and eager to sell as they saw the index continue to reach that level in the first 30 minutes of trading. Once it held the support and bounced higher, markets took off as if they got confirmation that everything is ok. S&P & Dow, unlike Nasdaq, were not at critical support levels – they were slightly below their daily resistance levels and above weekly support.

 Aside from Nasdaq’s recovery, strength in the financial sector contributed to today's rally. After passing the Feds stress test, banks benefited from deregulatory prospects. This deregulation allows banks to operate with more capital and flexibility.

Perhaps the most interesting development (and most meaningful one, in my opinion) is ECB’s vindicating clarification that followed Draghi’s comments on Tuesday. Draghi addressed the strengthening of the European economy and hinted at inflationary pressures picking up (“reinflation”) – as a result bond yields jumped (inflation = improving economy = decreasing QE efforts = tapering. Tapering = May 21 st, 2013) and the euro appreciated to November highs. The reaction was so stark that the ECB had to clarify, on Wednesday, that Draghi’s statement was misunderstood and ECB policy was yet unchanged (i.e. no tapering soon…). Investors did a 180 and bought eurozone’s bonds (yields fell) and the euro fell (but made a recovery). This paints a very vivid picture of just how skittish the market is and raises the question of how exactly central banks plan to underplay the tapering, which is expected later in the year (around September). It also shows how US yields move parallel to foreign ones.

What do I Predict Will Happen Tomorrow/Next Few Days? Trade Ideas

Today’s rally, central bank’s sugar coating, and a rebound in tech are likely to have positive carry over into foreign markets. The momentum upward will likely slow but resume nonetheless in tomorrows trading day. I don’t expect markets to open up significantly higher, however, because of the data-dense morning. The 3 rd GDP revision will provide insight into second quarter expectations, which may substantiate the fears of slow growth. The jobless claims will provide insight to next week’s employment situation, and corporate profits may shed light on upcoming earnings. Because the past two weeks haven’t contained much information about the direction of the economy the data tomorrow may result in early conclusions and trade accordingly. Thus far the reports were mixed and not much evidence hints at which way next quarters’ GDP or next Friday’s job report will go.

I think that the rally will continue but lose steam tomorrow and the 4% gainer’s today will either take a breather or have a pullback. I think gold will be more active than usual as investors position themselves for Friday’s Personal income and outlays report, as any inflationary pressure could increase the probability of another rate hike this year. Gold is also facing strong daily technical resistance from MA(50) at $119.5 and pivotal resistance at $119.14 as well as weekly resistance MA(50) at $119.32. Fundamental factors affecting gold are yield rates, which are expected to rise if the Feds case to hike again strengthens (from Income and outlays, for example). However, I don’t think that the Fed will raise again in July, instead they’ll hint at a hike in September (seems to be a critical month in terms of central bank events). Therefore, I believe gold will pull back a little in the short-term but overall continues to be a good investment for central bank woes. Keeping a position in gold is also good protection for geopolitical tensions and unexpected events; therefore I plan to day trade gold tomorrow.

DUST/DGLD/JDST

It’s hard to say in which direction gold will move in the near future, but it would need a fundamental change to break out higher from it’s resistance. If technical moves show weakness for gold, DUST is a good short-term play and JDST is a good day trade. Investors may be reliant on technical patterns to decide how to play gold; therefore I will keep my eyes open for a good entry point to short gold.

FINU(FAS)/FINZ(FAZ)

Financials led the market higher today amid deregulation, the capital increase is expected by December 28 th – a way’s away. Citibank doubled dividend and along with JPMorgan announced biggest stock buy back ever in after-hours trading, suggesting they’ll be up in tomorrows trading session. One way to play this financial mania is to trade FINU/FINZ on technicals and hype. Financials will probably rally further tomorrow, but face resistance at prior highs – around $25.13 (XLF) the next weekly resistance is at $26. Traders who rode financials today to take advantage of the positive news and who, perhaps were planning on taking profit at a slowdown tomorrow will have to think twice and the shorts that were in financials will definitely have to cover their positions. So I think that hopping onto the FINU trade in the morning is a profitable move, as no one will short. However, people will overestimate the move because ETF’s such as FINU/XLF aren’t apart of the bank stock buyback and the dividend increase isn’t as attractive in a growth-seeking market. So once XLF reaches $25.10 level (prior high and likely resistance) getting out of FINU and into FINZ for a pull back could be a profitable trade. If financials continue to push higher, hop back in FINU/FAS for the ride, if momentum and strength support the jump.

SQQQ/SOXS/SSG

Tech may have lead markets higher recently (including today), but now that Nasdaq is approaching its former highs it could be an appealing short. Todays rally was highly technical, a bounce from support. Aside from that, nothing fundamentally changed in the rationale that sold off tech in the first place. Semiconductors dragged Nasdaq down on Tuesday and lead it today. The big name in semiconductors – Micron, has its earnings report in the after hours. It is my personal opinion that MU will fail to live up to the hype and dip below it’s MA(50) if investors sell. Investors may also take profit (and advantage of today’s rally) and get out prior to earnings, causing one of the biggest names in the leading industry to have a small pull back. If so, SQQQ/SOXS could be a good trade once Nasdaq (and TQQQ) reach resistance levels, especially prior to close. A small tech/semiconductor short position to hold is also a good idea - like SSG because it’s less volatile.

Reports/News Coming up?

Tomorrow: GDP 3 rd estimate, corporate profits, jobless claims, farm prices, EU economic sentiment, and Japan’s unemployment/industrial production. Earnings: RAD (before open), NKE & MU (Micron) (after close)

Friday: Personal Income and Outlays, rig count, consumer sentiment, and Britain GDP.

How Did My Stocks/Predictions go?

TQQQ

Average buy: $99.58 ($15,932.80), sell for $16,273.60. Profit of $340.80 (2.14%)

My TQQQ trade idea played out perfectly – it opened up, closed the gap with Nasdaq, and dipped below open as nasdaq (COMPQX) was approaching it. This gave me the opportunity to buy some more shares at a lower price. Once Nasdaq started to recover and approach intra-day resistance I got out.

Once I got out Nasdaq dipped below the resistance momentarily but quickly pushed through it and continued its gains throughout the day. I missed the opportunity to get back in and make the larger percentage profit, the idea for which I predicted correctly. This is one factor I need to improve. 

PANW

Profit: $13.20 (0.16%)

I still don’t entirely understand the reason behind PANW’s weakness today. The stock opened higher, as news of ransomware and cyber threats persisted the second day. After showing promise at open, it quickly retracted gains.

As Nasdaq bounced off open levels and the rally was on the way, PANW showed weakness – something I least expected as it had sound reason to be bought by investors looking to take advantage of ongoing cyber threats. The only reason I can think PANW was slow to recover is the technical resistance it faced at $136 levels. The lack of correlation with market rally caused me to doubt the investment and I got out, capping a small profit of $13.2 after commissions. 

ORLY

Loss: $-19.10 (-0.86%)

The small loss was the first on my recent record, of only -0.06% of total capital; -0.86% of trade. The logic behind ORLY was a value play. Investors, I thought, would buy & hold technical levels – I was wrong. This strategy worked on Tuesday, during the sell off but failed on Wednesday with the rally of tech and growth. Once ORLY had trouble holding the $220, I cut my losses. I will still keep my eyes on it.

 What is the Mistake/Success? Lessons Learned?

The TQQQ trade once again highlighted my weakness – letting short-term moves influence my “long term” thinking. If the fundamentals haven’t changed, there’s no reason to fully abdicate position in hopes of small profit from buying at a lower price - “It’s a bull market” lesson from reminiscences of a stock operator. ORLY was well executed (losses cut quickly), but I shouldn’t have assumed value stock like ORLY would perform well during a rally like today. PANW could have been replaced by bitcoin/crypto plays but I still have to research those further.

 What to Watch/Enter/Exit?

DRN (REIT) instead of GLD for inflation/general research

• Aforementioned trade ideas

• Euro & EU Bond Yields•DXY

• DXY