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Equities finished mixed, in what was a fairly volatile week of trading. With
a clear absence of market moving news, stocks struggled to find direction. The
major theme was weakness in commodity and high beta tech shares. Meanwhile,
strength was actually seen in large cap tech for a change. The strength in
large caps stemmed from respectable results from Cisco Systems. More
importantly, the networking company’s management sounded the most upbeat over
business prospects in some time on the conference call. This gave investors
confidence that the long awaited IT spending pick-up was finally about to
unfold. The strength in large cap tech names also seemed to trigger relative
performance in other large cap shares. This allowed the Dow to outperform the
Nasdaq Composite and Russell 2000 by a wide margin.
In our trading we closed out one position for nice gains. We took a more
defensive posture in our trading, because of uncertainty over interest rates.
Our focus turned to industrial metal names as shorts, given that the momentum in
the group seemed to be fading. As always, we’ll be carrying a number of
positions into the week ahead that we remain comfortable with. A recap of our
performance for the week (as well as year to date) can be found at:
Much like we have seen over the past three weeks, equities struggled to make
much upside progress. Meanwhile, the downside was also limited due to hopes of
the Fed stopping their rate hikes. After last Friday’s jobs report indicated
that wage inflation could become a problem, expectations for two more rate hikes
seemed to become largely the consensus. However, with the sharp commodity
correction of recent days, the Fed could begin to tone down their hawkish talk a
bit. Furthermore, after homebuilding bellwether Toll Brothers issuing another
profit warning, if the Fed moves too fast, it could negatively impact the
housing market. With that said, hopefully the Fed will avoid over tightening.
If this is how things work out (i.e. the Fed backs off a bit on rates), we
believe the stage could be set for a very powerful move to the upside in
equities. Until further guidance is provided on the interest rate front,
equities will probably continue to remain range-bound. This definitely makes
trading more challenging. Therefore, it’s probably a good idea to keep cash
levels on the high side until some more attractive risk/reward set-ups
materialize.
All right then, that’s it for this weekend. We hope you have enjoyed this
edition of the free weekend report. Until then,
good luck in the markets!
Ray Johns is the founder and Senior Market Editor of Daytraders.com, Proudly serving day traders & short-term investors since 1996, at http://www.daytraders.com. Daytraders.com is the publishers of the award winning Morning Stock Market Report and the home of the Interne’ts finest real time trading desk. Ray has been on the forefront of trading and investing in the markets and has appeared as a guest on a number of radio and television shows including CNBC’s Market Talk. If you would like a free trail of the newsletter and the live trading desk log on to Daytraders.com. Comments and questions can be sent to marketing@TraderAide.com.
