Month: April 2015

SPDR Energy (XLE)
FirstTrust ISE Revere Natural Gas (FCG)
Guggenheim Canadian Energy Income (ENY)
Market Vectors Russia (RSX)

Energy related equities have run out of short-term positive momentum and over the next two weeks, a decline or sideways move in energy is likely. On the downside, $50 is the important near-term support level. A move to the upside is likely to be a very bullish move, with $60 the next target in the recovery.

Oil inventory continues to build, although there was a decline in inventory at the important Cushing site last week. Once inventory stops increasing, a more robust recovery in oil prices will likely begin.

SPDR Utilities (XLU)
SPDR Pharmaceuticals (XPH)
SPDR Materials (XLB)
SPDR Consumer Staples (XLP)
SPDR Consumer Discretionary (XLY)
SPDR Healthcare (XLV)
SPDR Technology (XLK)
SPDR Financials (XLF)

The materials sector has performed very well, thanks to a pop in shares of DuPont (DD). Activist investors won the endorsement of Institutional Shareholder Services in a battle over board seats. Technology also gained ground due to strong earnings reports.  Healthcare was the worst performing sector over the past week due to a pullback in biotechnology.

Speaking of biotechnology, the major funds have all broken below their 50-day moving averages. It’s the first time that’s happened since the October global sell-off in equities. As long as the broader stock market moves higher, shares are likely to regain the 50-day moving average in the days ahead.

Real estate is not far from a test of its March low and the utilities sector is barely above its lows for the year. Homebuilders have also been sliding in April. Interest rates have been rising over the past two weeks, but more important than interest rates are expectations. Investors may sell holdings in rate sensitive sectors if they expect rate hikes later this year, regardless of where they move in the short-term.

Guggenheim Solar (TAN)

TAN failed to break out to a new high last week.  In early Wednesday trading, it was close to the $48 level that has served as support in April. Solar is a very volatile sector and a break to new highs or lows is only one volatile day away. A 10 percent dip into the low $40s is possible for this sector and with interest rates rising again, a move lower is likely in the short-term.

PowerShares U.S. Dollar Index Bullish Fund (UUP)
CurrencyShares Euro Trust (FXE)
Global X FTSE Greece 20 (GREK)
CurrencyShares Japanese Yen (FXY)
WisdomTree Dreyfus Emerging Currency (CEW)

The U.S. dollar broke lower last week and is now resting at the $25 level. If this support breaks, a potential drop of about 6 percent, down to the $23.50 level, would come into play. The 200-day moving average may also serve as support. A drop to this level would represent a roughly 50 percent retracement of the breakout since July.

The drop in the U.S. Dollar Index has been driven by the Australian and Canadian dollars, along with the British pound. Emerging market currencies have also continued their upward march. The common factor between these moves, excepting the pound, is the recovery in energy and commodity prices.

The euro is spiking higher on Wednesday, to the highest levels since early March. European equities have been sliding on the rebound in the euro. The German DAX Index has lost more than 7 percent in a little over two weeks, but this drop is accelerating as the euro rebounds.

iShares MSCI Hong Kong (EWH)
Guggenheim Small Cap China (HAO)
iShares China Large Cap (FXI)
db X-Trackers China A Shares (ASHR)
WisdomTree India Earnings (EPI)

Chinese A-shares hit another new high in the past week, but the market finally pulled back after the securities regulator issued a warning to investors about risk. It didn’t stop the bubbliest of stocks from rising though. One technology company involved in online music and other entertainment has seen its shares gain 10 percent every day since its IPO in March. The mainland market doesn’t allow shares to rise more than 10 percent a day and trading effectively halts once the limit is reached.

The rally in China is having an effect on India as investors shift assets away from India. Most investors, including many institutional investors, were caught off guard by the explosive rally in China. If the trend continues, investors may be given an opportunity to buy India at a discount.

iShares DJ Transportation (IYT)

IYT remains in a trading range, but it is very close to breaking down. It topped out in November when oil prices started to tumble, but with oil prices recovering, it hasn’t yet followed. In terms of costs, higher energy prices are bad news for transportation companies, but since demand for transportation and logistics is dependent on economic activity, rising energy prices often accompany a growing economy.

SPDR S&P 500 (SPY)
iShares Russell 2000 (IWM)
S&P Midcap 400 (MDY)

Mid- and small-caps are still in a correction relative to large-caps. The falling U.S. dollar is bullish for multinationals and investors who had moved into smaller companies to avoid the rising greenback may be moving back into large-caps. Energy is also a sector dominated by large-cap companies, so the recovery in energy helps the large cap index more than the smaller indexes. SPY has about 8 percent in energy, versus less about 5 percent and 4 percent in MDY and IWM, respectively.

iShares iBoxx Investment Grade Corporate Bond (LQD)
iShares iBoxx High Yield Corporate Bond (HYG)

LQD has slumped following the spike in interest rates. LQD has a relatively long duration of more than 8 years, which roughly translates into an 8 percent move in the fund for every 1 percent change in interest rates. The 10-year treasury yield increased about 0.1 percent in early trading on Wednesday, and LQD fell 0.9 percent, in line with what the duration forecasts.

High-yield bonds are holding up better because of their lower duration; HYG has a duration of approximately 5 years. Shares did better than duration predicts, partially because energy prices have rebounded. A significant slice of HYG and other high-yield index funds are exposed to energy sector debt, much of it used to fund shale oil and shale gas operations.

Stocks are starting the week with the wind at their back. Earnings season is in full swing and the blue chips continue to report in force. Apple (AAPL), Exxon (XOM), Merck (MRK), Pfizer (PFE), Visa (V) and Chevron (CVX), Twitter (TWTR), LinkedIn (LNKD), Ford (F), United Parcel Service (UPS), Gilead Sciences (GILD), ConocoPhillips (COP) and Bristol-Myers (BMY) are a few of the most widely held names. Apple is the largest component in the Nasdaq, as well as a major holding in many technology ETFs and mutual funds. Apple has beaten estimates by 13.7 percent, 4.10 percent, 8.40 percent and 17.70 percent in the past four quarters. Given Apple’s track record, the Nasdaq hitting a new all-time high last week and technology earnings coming in strong this quarter, expectations for Apple are relatively high. Analysts are looking for earnings per share of $2.27 from the firm.

This week is also significant for economic data as GDP will be reported and a Federal Open Market Committee (FOMC) meeting will occur on Wednesday. Analysts are forecasting first quarter GDP will be around 1.2 percent, but the Atlanta Federal Reserve’s real-time model is predicting 0.1 percent growth as of Friday. There are still two more estimates of first quarter GDP growth coming in May and June because it takes time to collect all the data. Odds are the GDP number this week will be closer to the Atlanta Fed’s prediction.

The Fed meeting this week will be very closely watched. The prediction for the first rate hike has shifted to the second half of the year because the Fed appears to be concerned about weaker than expected first quarter economic data. There’s still a small contingent of analysts who think the Fed will hike in June because the Fed wants to change policy, regardless of the data. This is the last meeting before June, so if the Fed wants to fully squash the idea of a June rate hike, it will do so in the upcoming FOMC statement. Given that GDP data is likely to come in below forecasts, the worst case scenario for stocks would be if GDP misses and the Fed signals rate hikes are imminent. This is unlikely to occur.

Oil prices open the week at their highest level in 2015. That’s good news for the energy sector and with several firms reporting over the coming day, energy equities could rally. The U.S. dollar opens the week close to its highs. The 97 level is a short-term support line for the U.S. Dollar Index; it closed at 97.10 on Friday. A break lower is clearly the larger risk in the short-term, with the high around 100 serving as overhead resistance. Interest rates have a much wider range before they break a high or low. The 10-year treasury yield was 1.93 percent in early trading on Monday, halfway between the low set at the end of January, and the high set in March.

The Nasdaq broke its all-time high on Thursday and strong earnings from tech giants pushed it further into record territory on Friday. Shares of Amazon (AMZN) were up 15 percent in early trading, a new all-time high, following its earnings report on Thursday evening. Although Amazon is still losing money, investors reacted positively to its report of rapid growth and high profitability in the web services division. The company is now transitioning from a retailer who used information technology to move physical goods such as books, to an information retailer that sells technology services.

One of the surprises in Amazon’s earnings report was that in contrast to the highly profitable web services, the retail division is much less profitable than believed. Amazon has invested a lot of capital to boost retail margins and while small increases could turn into big profits, it’s likely that web services will drive earnings in the future.

Shares of eBay (EBAY) also rallied following its earnings report, as did Microsoft (MSFT) and Juniper Networks (JNPR), all helping to propel the Nasdaq’s rise.

While investors generally rewarded companies who delivered good earnings reports, they also punished those who failed to meet high expectations. Biotechnology is one of the leading sectors in the market and investors have priced a lot of optimism into shares. This morning Biogen (BIIB) fell 6 percent after missing estimates, even though profits increased 71 percent in the first quarter. Even with the drop today, shares are still up 19 percent in 2015.

Other firms reporting strong earnings this week included Starbucks (SBUX), Dunkin Brands (DNKN), Domino’s Pizza (DPZ) and Verizon (VZ).

It was a light week for economic data. New homes sales in March were down from levels seen the prior two months, but still above the highest level seen in 2014. Durable goods orders were up 4 percent in March, although much of the rise was due to a jump in aircraft, which is volatile month-to-month.

While the Nasdaq is in record territory, the other indexes are still sitting near their all-time highs. The S&P 500 hit a new intraday high on Thursday. It, along with the Dow Jones Industrial Average and Russell 2000 Index, are likely to follow the Nasdaq because its move is a major technical breakout. The Dow Jones Industrial Average didn’t break its 1929 high until 1954, a full 25 years following the top. That bull market, which began in 1942, would not end until 1966.

Another 12 year rally in the Nasdaq seems unlikely given the post-war economy was a very different economic environment. Still, the breaking of old highs tends to lead to more highs and unlike in 2000, there isn’t a speculative bubble in share prices. The companies that dominate the Nasdaq today trade at reasonable price-to-earnings ratios relative to the rest of the stock market, with a few large cap exceptions such as Amazon (AMZN).

Many of the companies that helped pushed the Nasdaq to 5000 in the year 2000 are still around and trading at new all-time highs. Several of the tech giants paying dividends, with yields that are 50 percent higher than the S&P 500 Index (such as Microsoft, Cisco and Qualcomm). One major reason for the index’s rise these past 15 years is Apple (AAPL), a firm that remade itself in the 2000s. However, while Apple makes the list of the top 10 largest gainers since March 2000 with its 2,785% gain, that return is eclipsed by three non-technology companies: Monster Beverage gained 52,000%, Keurig Green Mountain climbed 28,000% and Tractor Supply advanced 8,100%.