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PLAY LISTS ACTIVITY:

SectorExchange.com
Play List Added: GIS, JNJ, IHI
Adjusted Stop: SLV, SSG 
Stop Hit: None 

Sector Exchange Model
Added: GIS, JNJ, IHI
Adjusted Stop: SLV
Stop Hit: None

ETF Only Model
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Adjusted Stop: SDS
Stop Hit: None 

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This promises to be an exciting week as taxpayers rush to file before the deadline and investors are inundated with data from earnings. We start every week watching for ideas that could provide opportunities to develop trades, long or short. This week we are looking at the rotation of leadership, the price of oil and the dollar, the height of the earnings parade, taxes, and economic outlook through the eyes of the banks. It promises to be a fun filled week of trading and opportunities.

Leadership – Last week we discussed the defensive sectors consumer staples and healthcare have taken the leadership role for the broad markets. Money is rotating towards the sectors where risk is perceived to be lower looking forward. One primary concern for consumer staples is the higher price of commodities. Can the price increases be passed on effectively to the consumer? We have see announcement from Nestle and Kellogg’s relative to increases, but it is too early to tell the impact. Healthcare faces an uphill battle as well withbudget cuts at both the federal and state levels. Money is rotating that direction as reflected on the charts of Coke (KO), Kellogg (K) and Kroger (KR). Watch this week to see if any growth sectors join the upside or more money flows to the defensive sectors.

Oil vs Dollar – The price of crude oil pulled back towards the $106 level last week only to close above $109. The Middle East and Northern Africa geopolitical issues are putting speculation into the pricing of oil, but the US dollar isn’t helping. The dollar index continues to fall putting pressure on the cost of imports. Thus, the US continues to ignore the dollar in belief we can export more goods around the world and help the economy. This has never worked in history, but the current administration believes it can be the Cinderella story. We are importing inflation as the price of crude has jumped from $85 to $109 since February 16th, or more than 28%. Watch 74.24 as support on the dollar index. A break below this level will set a new low for the dollar. The relationship between oil and the dollar will only exacerbate the situation along with the geopolitical issues globally. Over the weekend the Saudi Oil Minister stated they would cut production as the market is oversupplied. More news to impact the price of oil.

Earnings Data – 70% of the S&P 500 index will report earning over the next two weeks. If they are anything like last week the parade of good news from earnings may be over. GDP is being revised lower by analyst towards the 2% level for first quarter. To put that in perspective estimates started at 3.5% in December. Last week the data was mixed with the most notable miss coming from Google (GOOG) and the biggest surprise was Super Value (SVU). Leadership from retail, healthcare and consumer staples have helped maintain the uptrend, but earnings from technology and financials will be an important indicator for the broad markets.

Taxes, Debt & Rhetoric – Today is tax day for the 55% of Americans who pay taxes (Tax Policy Center). The talk relative to the budget cuts in order to balance the annual spending deficit remain a big topic for politics, but the market continues to ignore the pending issues for now.  The IMF stated the US needs to take measures to manage their debt load currently and in the future. If the IMF can see what is happening, why can’t the bureaucrats in Washington?

Banks – Bank of America (BAC) and JP Morgan (JPM) announced earnings last week. The result for JPM was positive, but their stock fell 5%. The results for BAC was negative and the stock fell 4.5%. This would lead me to believe regardless of what Q1 results are the direction for bank stocks is lower. Why? No loan growth (9% unemployment), no revenue growth (not lending), Billions of dollars cut in credit card revenue, residential mortgage problems, and a stagnating economy. Otherwise the outlook for banks is great! This week brings more good news and insight to the sector with more news from Citigroup(C) and the regional banks release earnings data as well. This is a sector to watch guidance more than current earnings. Is the outlook improving relative to revenue? If so, a bottom may be established in short term. Worth watching and reviewing the data.

Busy week on tap for investors. Filter the noise from the relavent and take advantage of the resulting opportunities. Each of the areas above will potentially offer something this week we can profit from investing.

The US Congress is in the process of voting on a bill to challenge China’s valuation of the yuan. Last week the House Ways and Means Committee voted in favor of a bill designed to address China’s undervaluation of its currency. The accusations against China are based on the premise an artificially low yuan steals manufacturing jobs from the US. The banter between the two countries has escalated in recent months with the pressure on Congress and the White House to create jobs. The November elections are playing into the process  posturing to look as if something is being done towards creating and saving jobs. This isn’t a problem that will be fixed by attacking China. It is one that is best dealt with by building opportunities for good old American ingenuity.

At home, Senate democrats are pushing legislation to discourage companies from shipping jobs overseas. The bill proposes a tax cut on new US jobs that replace those in overseas markets, but it lasts only two years, then back to business as usual on taxes. Also, it wants cuts in tax incentives for companies moving jobs outside the US (lost write-offs for hiring overseas employees). In addition, it does not allow companies to defer taxes on earnings until brought back into the US, and taxes them as earned. These do little to change the course of action relative to creating jobs. If the Senate democrats think that they will create jobs by taxing corporations further and making them less competitive in the global markets, they are missing the point.

Abroad, US poultry producers were hit by a 30+% Chinese tariff on poultry exports. Why? According to the Chinese government the “dumping” of products by US companies was impacting the domestic producers. Or, it could be the 35% tariff the US levied on Chinese tire companies earlier this month. Poultry stocks fell 1.5-3% on the announcement. The impact to these companies may expand depending on the timeline of the tariff.

Similar types of actions during the 1930′s only exacerbated the length and depth of the depression. Saving jobs from global expansion and production of products isn’t the best course of action. The challenge for America is building and expanding jobs at home based on new industries (alternative energy) and an expanding economy. Find revolutionary ways to reform the housing market, lending, and banking. Find new ways to deliver healthcare through the private sector. Focus on growth of business versus roadblocks.

What are the answers? Time and effort from all involved. Putting our collective minds together and finding solutions that work versus fighting about who is right. A growing economy creates jobs from both big and small businesses. Focus on growth of the US economy versus government jobs. The jobs report will be out next Friday for September and the number one producer of jobs will be the government. Find industries that need improvement and innovation, and invest in the growth of that industry.

Here is a crazy idea. We have spent nearly $1.4 trillion dollars to bail out the financial sector, and who has not paid the government back? Fannie Mae and Freddie Mac. We have all these houses facing foreclosure, so why not take the billions in bad loans, etc. and put them into a F&F REIT that qualifies for Section 8 housing tax credits. Rent the homes back to the people the government is attempting to help under this provision. It takes the house off the balance sheet of Fannie and Freddie. The house is rented to someone under the government guidelines and tax credits are provided to the investor. Win-Win-Win! This is better than giving them another $50 billion to bail water out of a sinking ship. When we take the time to find solutions that are win-win, the end result is a growing economy.

The key for economic and job growth in the United States is to focus on what we can control and influence. We can take steps in the right direction, but throwing rocks at China isn’t the answer for growth. It may get votes, but in the end Americans are looking for solutions not politicians.

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From the open the market struggled with the outlook for the U.S. economy along with news from China on slower economic growth. The challenges facing stocks isn’t going away anytime soon and thus, more volatility is likely on the horizon.

No real changes on the play list today. The early selling didn’t trigger our stops and the rally gave some breathing room for tomorrow. The short play in semiconductors bounced nicely on the drop in the technology stocks. The best we can hope for now is direction. Eventually it will arise and the outlook gain clarity. Until then patience is our buzzword.

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