10 Things to Watch Now

01/06/2016 9:15 am EST

Focus: ETFS

Jim Farrish

Founder and CIO, Jim's Notes

Oftentimes it is fear-inducing uncertainty that allows news and rumors to move the markets. Keeping that in mind, Jim Farrish on Jim’s Notes offers a lists of ten things to watch now for opportunities…both short and long.

The market was negative during the pre-market Tuesday, but shifted to positive by the open? I know it doesn’t make any sense. There are all kinds of rumors and prognostications running around about the Fed intervening by buying S&P mini contracts on the moves lower, hedge funds intervening in a similar fashion, and just about any other conspiracy theory you are willing to entertain is in print or on the news. I am going with the fact that what you don’t know in the market allows news and rumors to move the market that direction for whatever time line it is believable. That could be hours or days, but in the end it is uncertainty that makes everyone neurotic. I say it is similar to a bad horror movie where the people always do the wrong thing like run upstairs when ax murderer is in the house instead of leaving the house. That move causes everyone to yell at the screen telling them to go the other way. Bottom line, the patients are now running the insane asylum. With that in mind I made list below of things to watch now for opportunities…short and long:

1. China—$34 on FXI is the level to hold near term. Yes, they did put $22 billion into the system on Monday. Yes, the economy is weaker. Yes, it is a communist country and no one knows what to believe currently. All that matters now is support and if the buyers are willing to put faith in the recovery opportunity in the country? Thus, being short (YANG) is not the obvious answer. Being long (YINN) isn’t exactly promising either. But, the opportunity as this unfolds will be presented. If the negative news and sentiment continues, the short trade will play out. If the optimism returns the long side will play out. Watching how this unfolds based on what we know and what transpires short-term.

 2. US economy—ISM manufacturing 48.2% second month of contraction in the sector. Europe—which everyone is stating is in worse shape than the US—reported 53.2% much better than the US? Thus, how is the US in better shape? By what standard? Construction spending falls 0.4% versus rising 0.9% as expected. Auto sales were weaker than expected as well Tuesday showing more challenges from the consumer. The list and hits keep coming…SPY and QQQ are attempting to hold support near term. A break as outlined in the weekend notes will offer a short trade opportunity. Any upside rally would have to validate that the buyers are willing to step in for more than a day or week…the volume on the upside move would need to be significant enough to warrant the risk of stocks ownership near term.

NEXT PAGE: The Remaining Eight Things to Watch Now


3. Crude oil—fell back to $35.62 on the day and back near the key support levels for the commodity.  $35.44 is still the level to hold and a break lower opens the short sale opportunity. SCO moved back above the $137.10 level Tuesday and $145.50 is the high for the short ETF near term. Patience as this story line continues to unfold and the negative bias remains for the commodity.

4. Gold—GLD hit resistance at the $103.50 level again Tuesday as the bottoming process continues for the metal. The upside has been in response to the economic data globally and worries over China. I am not convinced that is enough of a reason to jump on the gold bandwagon relative to the upside growth in price. A break through resistance would offer a trading opportunity short-term, but the short side trade is more likely to be the winner longer-term…watching how this one unfolds both short- and longer-term.

5. Sector Rotation—this is the bigger question currently facing stocks. Looking at flight to quality in bond, defensive stocks winning (utilities and telecom leaders today) and cash is building again. Where is the money rotating from? Technology, financials, and consumer discretionary sectors are losing money. This is an indication of investors getting weary. The question going forward will be sustainability of the rotation or something taking place to bring investors back to the market and willing to take on risk.

6. Volatility—the index is at 19.3 Tuesday falling from the highs on Monday. The uncertainty is causing the spikes in volatility, but it has not sustained any true elevation indicating fear ruling the markets. This is one indicator to watch as we move forward, but currently I am not seeing any indication of mass selling building in the markets.

7.Coach (COH) break from consolidation and above the 200 DMA, positive for the retail sector.

8.Utilities (XLU) made move back above the $43.40 level and the 200 DMA, positive move for the sector.

9.Amazon (AMZN) watching the $625 level of support. Break lower would be negative overall for sector and the downgrade Monday didn’t help matters near term.

10.Banks (KBE) and (KRE) both broke support on Monday, but $32.50 is the level to watch for KBE currently on the downside risk. Financials should have benefited from the rate increase, but the overhang from the junk bond decline and worries about loan defaults in the energy sector are weighing on the sectors currently.

Plenty to watch as this all unfolds, but too much risk currently to add positions on the lack of direction and uncertainty…tomorrow is another day and we will watch how this all unfolds day by day.

By Jim Farrish, Founder & CIO, Jim’s Notes

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