Trading Notes for Today, October 18th

The Watch List and Play List have been updated for today. Review and execute according to your risk and investment objectives. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Google sets the tone for earnings in the technology sector and the stock is trading up nearly 8% in the premarket. That has the NASDAQ futures up as we head into the final trading day of the week. After a day of rejoicing and sending the 17% of the government employees back to work from the shutdown and their paid vacation, all is well. Earnings are the driver now that the deal is done for 90 days. It promises to get interesting and we will remain focused on today as it is all we can control.
  2. Small Cap (IWM) broke below the 200 DMA last week and then reversed with the broad market back above the previous $107 mark. We got the follow through on upside off the budget news and moved higher. Watch and monitor your stops.
  3. Healthcare (XLV) rallied to a new high on Wednesday and followed through on Thursday. The upside gains are likely to consolidate the move and test the upside resolve. Watch and play according to your risk and trail your stops.
  4. Volatility index as you expect fell again to 13.4 on the news of the deal taking all the worries away for the near term. I expected a move towards the 12.5 mark barring any unforeseen issues and we got it quicker than expected. Expect to test the lows and then become flat barring any issues with earnings or economic data.
  5. Financials (XLF) – The $20 mark was recaptured on the bounce last week and hit the previous highs last night at $20.85. A break higher puts the sector with the others hitting new highs. KBE and KRE (banks) have helped the move and earnings continue to find some upside as well. KIE has been the leadership for the sector of late. Patiently looking for the opportunity upside.
  6. Real Estate (IYR) The sector moved back to the $66.20 resistance Wednesday and followed through on Thursday to a key resistance level at $67.30. The dividend trade is still worth our attention looking forward longer term. If the yields on Treasury bonds remain level it will help the outlook for the sector. Patience is required for any position in the sector longer term.

The models have been  content to be in cash for the most part at this point. I am willing to buy as the opportunities as they are presented and the risk is justified. The stops pushed us to cash during the emotional uncertainties and now we go back to work. If the upside is to be the direction of choice we have to get through the current reaction to Washington and the short term settlement. The bigger question is how quickly the attention will return to the fundamentals and reality of growth? Risk remains elevated short term relative to uncertainty, but that will shift in the coming week which is where the opportunity will present itself. Manage your risk on trades more aggressively than your longer term holdings.

Pattern Setups For Today: We continue to manage the risk of the market and make our adjustments as necessary. Expect the choppy days to remain as the rumor of a temporary settlement on the budget is discussed.

  1. The great thing about news driven markets is they will make you crazy if you let them. We have navigated the issues well and we now get to deploy our cash according to markets going forward. One day at a time with a bias towards patience. I expect a move higher and then a test as the markets adjust their focus from Washington to other issues facing growth of the economy. Don’t get over exuberant with the debt deal, there is still plenty of news to deal with.
  2. AKRX – Breakout. Hitting new high on upside. Healthcare stock and leading sector. Entry $20.65.
  3. CRM – Break downtrend off September high and continue the longer term uptrend. Entry $53.40. Technology sector.
  4. LEDS – Cup & Handles. Semi sector as leader. This is a low price stock. Don’t play if you don’t like risk. Entry $1.40.
  5. BAC – Reversal breakout. Financials moving higher. Entry $14.70. Earnings okay and done.
  6. AXP – Breakaway Gap. Look for test of the move today. Entry $$79.50 ish.
  7. Follow up on previous trades or posts:
  8. KEG – downtrend reversal. Entry $7.40. Energy sector regaining momentum. Watch for upside trade to previous high. Hit entry and set stop at $7.18.
  9. MXIM – Ascending Triangle. Entry $30.25. (still watching) Semiconductor and the consolidation is ready to break to the upside on a continuation in the technology space.
  10. QQQ – Triple top. Trade on break higher is the good news play out. Entry $80. Moved through the entry and traded lower again on worries. Still like the upside looking forward. Stop $78.75. Nice gain on Thursday
  11. AAPL – triangle. $492 entry. Stop $480. Break from consolidation and run higher. Nice break from the consolidation on Monday as a follow through to the entry. (Note: don’t worry about the price. if you buy 10 shares and the stock move 10% you earn $490. If you buy 100 shares of a $49 stock that move 10% your earn $490.) It is about making money not share price. Hitting some resistance, but still heading higher.
  12. KBE – descending triangle. Trend continuation play long term. Move above the 50 DMA and the downtrend line a positive short term for the longer term trend. Entry $30.55. Stop 30.55. Nice move to follow through on the upside.
  13. STX – Cup. Hit stop and took the re-entryat $45.25. Stop 44. Semi’s are still leading. Expect volatility. Nice gain on Wednesday and Thursday. This is what I was looking for is a continuation of the upside and why we bought the position back.

Facebook (FB) Update:

  • 10/5 – moved below $50 and we were watching to see if we should take half of our position off. Nice bounce on Friday and we continue to watch and manage the current market emotions.
  • 10/8 – Downgrade from Raymond James and negative sentiment push the stock lower. Looking at our options… Today I am looking for a bounce back towards the $49 level. Entry for the trade is $47.50 with stop at $47. If the bounce fails or doesn’t materialize we will take 1/2 the position off at $45.50.
  • 10/9 – got a bounce off the intraday low back near the $47 mark. Still watching and managing our position.
  • 10/10 – Got the move higher today for the trade on the upside move. The entry for the trade was on Wednesday intraday at $47.50 or Thursday at $48.25. We will use the higher price here to keep things simple. we added 1000 shares of the stock with a target back to the high ($51.25) heading into earnings on 10/21.
  • 10/14 – Nice move, but still not trading with much conviction. Be patient and keep your stop at the $48 mark on this trade and minimize any downside risk on the move.
  • 10/18 – Made the break through resistance and heading higher again. Adjust your stop on the 10/10 shares to $50 and let them ride today on the Google earnings lift. Remember earnings are next week and we will have to deal with that on Monday.

NOTE: The pattern trades above are setups that I see for a potential swing trade or 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. All investing comes with risk. Our job as investors is to manage the risk. Keep your focus and discipline in place.