Commodities, The Next Best Play?

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We’re Docked!

Shore Excursions are a big reason many opt to cruise rather than fly to a destination. Passengers like the ability to tour the major sights of a destination and then head back to the comforts of the boat.

However, many passengers prefer to remain onboard and take advantage of the smaller crowds and discounted prices for many of the ship’s activities.

While the market is docked in a trading range before the highly anticipated FED meeting, should traders “tour” the blue chip stocks and put their money down with tight stops and quick profit targets?

-Or-

Should traders stay on the boat, peruse the lightened activities schedule and/or stay in their cabins until the ship sails away?

Which Sectors Should You Look At and Which Ones Should You Avoid?

We at MarketGauge assess all instruments among 6 different Market Phases.

Which Instruments are in Bullish Phases?

Currently, 3 of the 4 indices are in Bearish Phases, which makes the entire landscape colored with caution. NASDAQ 100 has yet to have a “death cross”, but with it trading under the 200 DMA, it too speaks caution.

Only one major economic sector is in a bullish phase: Homebuilders and with 2 ETFs to trade (XHB, ITB), only ITB is in a bullish phase. Considering the upcoming interest rate decision, I recommend waiting until that dust settles. If the overall market holds up, this is an area of relative strength which one can logically conclude, in a positive rate scenario, would only get stronger.

For more details on the differences between XHB and ITB and specific price levels to look for trades check out Geoff’s “Trades & Tutorials” blog post from earlier today.

Over their 200 but under the 50 daily moving averages are Biotechnology (IBB) and Regional Banks (KRE). With phases not as strong as XHB, they both are nonetheless not only members of the Modern Family, but also viable sectors to look at should the market firm.

Commodities

Why bother looking here considering a major talking point for the pundits has been “deflation?” The Agricultural ETF (DBA) has vacillated over and under its 50 DMA since entering a bearish phase in August 2014. The Commodity Tracking Index ETF (DBC) also entered a bear phase the same time as DBA.

What interests me about both of these ETFs is that they are only marginally trading under their 2009 lows whereas SPY and the rest of the indices are trading over double the value from their 2009 lows.

DBA in better shape than DBC, could get a substantial boost in the next few months. DBA’s major holdings are cocoa, corn, live cattle, soybeans and sugar. DBC’s main components are gasoline, crude oil, gold, some corn, aluminum, soybeans, wheat and zinc.

Both have become an integral part of my daily analysis with of course, timing and risk the keys.

For now, our discretionary model is safely resting in the ship’s cabin long one agricultural commodity with the rest in cash. Our automated trading models are off the ship, but staying close to the loading dock just in case.

S&P 500 (SPY) Range still the same-200 will be the next big resistance to clear with near-term support at 195, then 190

Russell 2000 (IWM) Holding 114 thus far, trouble if that breaks with 116 closest resistance to clear

Dow (DIA) 159.74 low from 2 weeks ago is best area of underlying support. 166.75 level the point to clear

Nasdaq (QQQ) 104 to the 200 DMA at 106.91 is a decent trading range to expect ahead of the FED

XLF (Financials) Needs to hold 22.00 and clear 23.20

KRE (Regional Banks) Closed just on the 200 DMA which gives this a confirmed phase change to Distribution.

SMH (Semiconductors) Held 50.00 the pivotal area. If the market holds, 51.22 is the 50 DMA to clear

IYT (Transportation) 146 huge pivotal area with 141 next level of support

IBB (Biotechnology) 345 key support and a good sector to go long if market is firm

XRT (Retail) Support to hold 45.50 unless it resurrects over 46.75

IYR (Real Estate) Closed around unchanged. Still like this after we see what the FED does provided it holds 68.45 on a weekly basis

ITB (US Home Construction) Bullish phase-what I mean by if buying, look at relative strength in positive phases

GLD (Gold Trust) 107.70 the 50 DMA resistance and 105 support

USO (US Oil Fund) With all the buzz about “oil at $20.00”, this continues to respect the 14 level

UNG (US NatGas Fund) Been basing since May with 12.28 rock bottom support

TAN (Guggenheim Solar Energy) Over 30.93 clears the 200 weekly moving average. 29.50 near-term support

TLT (iShares 20+ Year Treasuries) Firmed ahead of FED

UUP (Dollar Bull) 25.00 is the point to clear

GREK (Greece) Phase recovery (over the 50 DMA)

FXI (China Large Cap Fund) Still think a move to 38 area possible then hits the wall for best short trade risk

JO (Coffee) Possible island bottom if holds 19.10 another day and clears/closes over 19.40