Weekend Update: What I'm Watching This Week

The SP500 finally was able to break out above its all-time highs this week and closed out nearly 1% above the 1,576 prior high, at 1,589. All in all it was an impressive week for stocks and now we need to be looking for confirmation of the breakout from sector groups and individual stocks.

What happened this week? I mean last Friday's Jobs Report was pretty bad from most any angle and this Friday's key earnings releases from JP Morgan and Wells Fargo were not amazing. Yet the market has shrugged this off and pushed to new levels. It was most likely helped by a renewed confidence in the Federal Reserve's easy money policy. The idea that QE will be ending soon, is really the last fodder the bears have right now to slow this stampede. After seeing the March Jobs numbers it appears that an end to the Fed's easing is a long ways off. The Bank of Japan announced their own version of QE in a very aggressive central bank decision this past week which no doubt was a tail-wind for our markets as well. Everyone is drinking the Kool-aid now and the race to dilute each's currency is in full gear. Yet Gold continues to be under pressure and in fact closed the week below a major, MAJOR support level.

If you are not in this market in some way then you are missing out. The free for all is well underway and you might as well grab what you can. One day the music will stop and this may in fact end badly (it always does right?), but it is not ending now so you might as well get in the game. While it may seem that the market is too high and moved too fast, remember the saying that markets can remain irrational longer than you can remain solvent. In fact the sentiment poll of the AAII, individual investors are more bearish on stocks right now than have been seen in many years. Sentiment is an interesting thing in that is has a solid record of being a contrary indicator  meaning when investors feel the most excited about stocks the market is nearing a top and the opposite when they are most worried. Interesting thoughts to ponder.

Today I will be sharing what I will be watching closest in the coming week. I really want to focus on a few key things:

Sector Groups: Russell 2000 Index, XLP, TLT, XLK and GLD
Individual Companies: AAPL, HAIN, HD, JPM and F


Russell 2000 (RUT)

Was this week's bounce in the small caps just a throwback to retest the trend line failure, or seeing that it closed back above the 20 and 50 DMA's, was it a legitimate stabilization of the current trend? We will need to keep an eye on the prior high and low. A break above the 960 level will cure all ills while a close below 910 will be a very bad sign.

XLP Consumer Staples Relative to SP500 since 2011

Probably the most interesting chart I have discovered recently is the relative performance of the Consumer Staples XLP vs the SP500 and what happens when the triangle resistance is tested. This chart has major potential implications for the future direction of the rally. The key here will be whether the pattern holds and Staples fail to breakout above downtrend resistance, or if the XLP does in fact breakout this time. Take a look at the correlation to the SP500 when the resistance is tested and fails!

Triangle resistance indicator since 2011:

Each peak in relative strength created a massive buying opportunity.

October 2011- Marked the bottom of the SP500 from Euro crash
December 2011- Sparked rally from December-April
July 2012- Marked bottom of "Sell in May and Go Away" year
Dec 2012- Completed the bottoming process before our current market rally
Current - ???

Is it crazy to think that another big run is just beginning?

 Gold- GLD

Is gold signalling "no fear in sight" or is QE really coming to an end? As I mentioned in the intro, all the bears really have left in the tank is the contention that the Fed is going to be tightening policy and shifting away from QE very soon. Gold, along with being a fear trade, is suppose to reflect future inflation concerns. Being that the Fed is printing money hand over fist it would make sense that Gold would be rising sharply due to the massive stimulus. However, the market is a forward looking mechanism and could be beginning to price in the end of QE. Hard to say whether its a strong US Dollar, the end of QE, or the lack of fear in the market, but gold is certainly trying to tell us something. We will have to watch and see what other hints we get from the yellow metal and other key sectors around the markets.

TLT

TLT is bouncing after a pullback this week. Relative strength is showing a short term uptrend and I would like to see this roll over soon. Figuring Treasury Bonds is very tricky right now as it is being dramatically altered by the Fed's purchasing practices. Just remember that Treasuries typically trade inversely to stock prices, so higher bond prices are a bad thing.

XLK

Tech is key in my opinion for the next leg higher. Investors will look for value and tech has been beaten up. Watch how earnings come in for the big cap companies (INTC, AAPL, IBM, GOOG). A better than expected outlook and they could be ready to lead the way. With Staples, Utilities and Health Care ripping, the so called safe havens are getting a bit frothy. I think a reasonable place people will turn for dividends and relative out performance would be the large cap tech stocks. Don't ignore tech just because it is currently out of favor.

AAPL

1-hour bar chart

Which way does it go? Momentum indicators suggest buying interest. This will be a huge part of the overall tech recovery. Watch Earnings April 23rd. Currently we have conflicting patterns on the short term charts with Head/Shoulder formation (in red) and an inverse Head/Shoulder (in white). Key levels are $419 support and $440 resistance.

HAIN

Nice base forming here. Still waiting for the breakout though. A close above 62.50 is what we are looking for.

HD

A relative strength breakout is just underway. This thing might shoot straight up from here! That would actually make me concerned of a blow off type move. It was upgraded Friday morning with a new price target of $85 by Piper Jaffray. I held my nose and bought back into this beauty on that mid March pullback...I will add to my position on the next dip as well.

JPM

JPM posted earnings this week beating estimates and showing strong EPS. However the stock initially traded lower and close slightly down for the day. I sold half of my position heading into the announcement and will be looking to add to my current holdings on a breakout above key resistance at 49.50. I would also look to add shares on a pullback to trend support around $46.

F

Ford seems to be getting some mojo back and has broken out above downtrend resistance after bouncing strongly on key uptrend support. I added to my position on the Jobs Report Friday sell off and luckily that marked a near term bottom and now it seems poised to rally into its earnings date on April 26th. Relative strength is confirming the breakout giving us more confidence that this move is for real. Love the stock here! Just be mindful of the Earnings related risk in just over a week.