Trading Notes for Today, February 20th

Jim’s Market Notes:

The lack of zeal in the market has been interesting to watch this week. As we end the week nothing has changed in the broad indexes. Since eclipsing new highs they have essentially traded in place. I am still following the below as there has not been much progress.

1) ¬†Interest rates and the Federal Reserve. This has been on the table since the September 2014 meeting. In many ways it has been the one giant unknown for the markets looking forward. When will the Fed take action? How fast will they act in hiking rates? How will the economy respond? The questions come fast and furious when you consider this issue.¬†The FOMC minutes did nothing to offer clarity other than stating the Fed is worried about hiking rates too soon. Great that is a real confidence booster. Still looking for rates to rise near term despite the Fed’s comments.

2)  Related to the first concern is real estate. The housing market is very interest sensitive as it impacts the affordability of housing for those wanting to buy. It is important to remember that housing is a key part of the US economic cycle. Home construction (ITB) has move up more than 12% off the January lows as the outlook for the sector gained some traction on lower rates. This again is a sector to watch as it relates to the rate changes. Slowing in the housing data this week could be seasonal or it could be rate related? Disruption is where opportunity is created.

3) ¬†Oil remains a love/hate thing for investors, but really comes down to supply and demand. This is the¬†one key element of the argument, demand has not fallen… supply has increased to out pace¬†demand, as seen in the supply data on Wednesday. Thus, if the supply side can¬†control production it could level¬†the playing field with demand and balance pricing will return. It is a simple equation, it is just hard to implement. I would expect the volatility in the sector to remain, but we are establishing a bottom from which the future will be measured.

4)  Geopolitical issues in Europe and around the globe. Some signs of peace with Russia/Ukraine. Greece and the EU remains a search for common ground. Volatility will be elevated and there will be plenty of opportunities as we move forward, but we do so cautiously relative to Europe.

News is driving and the market/investors seem to have lost focus on what matters relative to the fundamentals and are focused on the news. It will eventually come down to fundamental improvements in the economic data as we go forward. Time will tell how it unfolds, but for now we are patient and willing to hold cash as a hedge against the unknown.

Action Taken: “Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Adjusted stops on positions in plays for trading today.

Added XLV to the S&P 500 Strategy.

Added PSX, TBT to the Sector Rotation Strategy.

Manage your downside risk and keep looking forward for the new opportunities.

Sectors-to-Watch:

Utilities fell 1.1% to test the current lows again on Thursday. That put an end to the one day bounce. The sector continues to look for a base of support as interest rate creep higher. I like the prospects of the sector looking long term, but for now let it settle into support and then find the entry points. The short term downside isn’t enough to be short at this point, we would need to see more price destruction fundamentally.

Crude oil fell on supply data, but all the drum beaters who believe the bottom is in started with the buy, buy, buy noise. It is still holding above the $50 mark and still within the newly established range as a base, and if it manages to break higher from the range I would be a trader in the commodity, but until then everything is speculation and conjecture. Oil is stealing the headlines, but UGA, gasoline is in position to move higher short term.

Biotech pushing back into the leadership role it has enjoyed the last year plus breaking above the $328 level on IBB. Resumption of the uptrend is a positive sign for the long term holdings and it offered another entry point for those wishing to enter the sector. 50 DMA is good trailing exit point for new trades.

Volatility index is testing the 14.7 mark as support. A move lower would be a positive sign for stocks or just show further lack of concern by investors. SVXY has played out well and I would raise to tighter stop to protect the nice gains.

Money Management Strategies Links:

  1. S&P 500 Strategy¬†–¬†Added plays – adjusted stops
  2. Sector Rotation StrategyР Added plays
  3. ONLY ETF Strategy–¬†Watching
  4. ONE EGG Strategy –¬†Watching – Managing¬†IWM
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. We are stalled and looking for some activity short term on direction. We cannot argue with the trend, but we can manage our risk each day as we move forward. Taking what the market gives and remaining focused is the key as we adjusted stops below.
  2. SLB – entry $88.10. reverse head and shoulder. Energy sector broke through resistance and stocks are moving higher in the sector.
  3. SIMO – entry $30. cup. Semiconductor sector exerting leadership of late. continuation of the move higher is the trade.

Pattern Trade Tracking:

  1. UNG – entry $14.40. bottom reversal. energy sector gaining some momentum. Weather related move for this trade. Stop $14.
  2. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $19.60
  3. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $14.35
  4. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $20.70.
  5. TRLA Рentry $46.80. bottom reversal consolidation break. Target is $52 short term. Sector has been active with M&A. Stop $45.75 (This was merged with Zillow on 2/18 and we get shares in exchange on the transaction. Z is symbol.) 
  6. Z – entry on conversion $109.07 (0.444 shares per 1 share of TRLA). Broke higher and testing the 200 DMA. Stop $115. Nice pop on the deal and holding for now.
  7. SVXY – entry $57. Downtrend line break. Broke the uptrend line on VIX. The short trade as the momentum shifts is the trade currently. target $61.50. Stop $56.50
  8. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move. Stop $49.15
  9. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move. Stop $16
  10. AKAM – entry $64.50. double bottom breakout. Looking for move back to the previous high if technology resumes leadership role. Took position on opening strength today. Against my emotions, but I like the earnings. Stop $65.
  11. NXPI – entry $82.30. trading range breakout. The earnings report helped the upside and looking for the follow through short term. Semiconductor sector. Target $88. Stop $82.30
  12. F Рentry 16.12. trend reversal and break above 200 DMA. upside momentum from sales and target of $17.25 in play. Stop $15.80
  13. AMD – entry $3.07. trading range breakout test. Broke higher and testing the move in pennant pattern. Upside trade on the confirmation. Stop $2.93.
  14. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $460.
  15. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $147.25
  16. IWM – entry $119.50. break in range. The move through this level puts the upside back in play and expect leadership from the sector going forward. Stop $118.50
  17. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $206.50
  18. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  19. ERX –¬†entry $56. Bottom range breakout. We have been faked out before on oil, but still made money. Looking for the bounce to gain some momentum short term on crude prices. Give some room for volatility. Stop $62.70. HIT STOP
  20. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  21. ENPH Рentry $11.10. bottom reversal within the trading range. Semiconductors have been a leader and looking for move at least midway in the range to $12.60. Stop $13.60. HIT STOP
  22. WFM – entry $48. Flag. Longer term outlook very positive off earnings. Look to hold this position going forward. May add to our long term strategy below. Stop $52.50
NOTE: The pattern trades above are setups that I see for a potential swing trade or short term trade opportunities. Some will fail to follow through on the pattern, some will break and trade according to the pattern. The key is to use discipline in the trades. Entry, Exit and Target on all trades is vital. I am posting these as opportunities that I see when doing scans daily. You can use them as a teaching tool or you can trade them, either way please use discipline. The best way to treat these as a learning tool is to assume a $100,000 portfolio and each positions receives a 5% allocation. If we state to take a 1/2 position as an example you would only allocate 2.5% to that position. I would use a downside risk of $500 per trade as a maximum loss. That will help  you learn position sizing and risk management. All investing comes with risk. Our job as investors is to manage the risk. Keep your focus and discipline in place.
Long Term Opportunities: 
Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain¬†good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. >¬†Added to position: 500 @ $77.50 – 1/8< ¬†> Added 20 March¬†$75 Puts @ $4.25 as hedge< TODAY:¬†¬†Holding above support and finally made move on the upside Thursday. Moved¬†through the 50 DMA which is essentially horizontal currently and watch to see if it holds today. Patience as this unfolds.
  • Twitter (TWTR) – ¬†(1) Added 500 shares at $42.80 (10/28/14). (2)¬†Added 500 shares at $39.20¬†on¬†1/9/15. ¬†(3)¬†Added 500 shares at $40.25 for short term trade to $42.25. Stop for added shares raised to¬†$46.25. This is a long term holding, but we will trade on short term technical data if warranted. Gapped higher on earnings and so far holding the move.¬†TODAY:¬†Flag pattern of consolidation on the gap higher in play and willing to let this unfold short term. Raised stop on the traded shares above (#3).
  • Bank of America (BAC)¬†(1) Added Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. (2) Added 2500 shares at the $16.35 mark ¬†on 10/21/14. Banks are¬†gaining some ground on the proposed hike in interest rates and I still like our position going forward as we practice patience. TODAY:¬†¬†Testing support again along with¬†investor resolve. Consolidating with $16.70 as¬†resistance and $16.20 as support.
  • Whole Foods Market (WFM)¬†(1) Added 1000 Shares @$48 11/20/14 starting position. The outlook has improved after making changes to the stores and adding new stores. The earning validated what I have been following for the last year and the company should be at the front side of a long term upside based on fundamental growth. So far so good on the sequential earnings period. TODAY:¬†Upside remains in play following earnings and looking for this to hold the course on a steady climb.