Trading Notes for Today, March 28th

More selling to start the day on Thursday and what looked like an intraday reversal, but in the end it was more of the same.  The rotation somewhat continued with Energy, Utilities, Telecom and REITs leading the charge. Note primarily dividend driven assets or defensive in nature. The other shift to safety in bonds continued as well with yields dropping below 3.5% on the thirty-year treasury. TLT climbed through resistance at $109 and it looks as if the rotation continues as investors exit risk on trades. Thus, fear exists, but because of the dividend stock or value shift the VIX is not spiking higher. All part of this quiet rotation in process with a soft move lower.

Economic data was not pretty. GDP revisions for fourth quarter were lowered again to 2.6% and pending home sales were down 0.8% well off expectations. The good news came in fewer jobless claims, which has not really translated into more jobs. We will see next Friday how that is progressing.

Again, we have to remain patient as rotation unfolds and investors make the shift from growth to… value? Interesting choice, but we will take what it gives as we work through the Yellen effect on the markets with higher rates on the horizon. Don’t look at the current yields falling, look further toward the future where stocks are priced.

What are we looking for Today?

Short covering? It sounds crazy, but the early action on Thursday still felt like a intraday reversal. Because of the quiet rotation I think it lacked the traditional look, but watch for a positive day as the growth sector are show technical indicators oversold. If I am wrong, the downside is not likely to run without some news to rattle investors further.

Oil broke higher on Thursday to $101.28. Watch for another upside run in the commodity $105 target, manage your position in UCO.  UGA cleared the $59.11 entry point as well. Low volume ETF, but worth trading with limit orders back to $61.

Selling in gold is overdone short term. Looking for a bounce and possible trade. Too much talk from analyst supporting the metal. Patience as usual works best for these opportunities.

Be patient today as market remains uncertain of what is on the horizon. It is working through the process and the trend will emerge.

Outlook for the Week of March 24th (Weekend Update)

Sectors to Watch:

  1. S&P 500 index watch for 1840-1850 support (Where is traded on Thursday) and 1885 resistance. Now we watch to see if the we return to test the downside support yet again or move towards the upside. SDS is posted as trade opportunity on ONLY ETF Model. Never took the entry based on the market conditions. The NASDAQ short was the better trade and stayed with it. Don’t take the short today unless the sentiment shifts into the open from the current positive futures. I am looking for some short covering today.
  2. NASDAQ broke next level of support at 4126 and the 50 DMA on the close. The impact of selling growth stocks is in full bloom. Short or bounce back? We added QID from the trade list below and ONLY ETF Model on Monday. Looking to sell half or all of the position today based on the sentiment shift and oversold technicals for the index. Still letting it play out for now with solid bounce on the selling Wednesday. Sell half at $59.50 or better and stop at $58.75 on balance.
  3. EFA is held support ($64.50 ) and the 50 DMA? Looking better than the US indexes this week. May look to add a small position if the move holds and creates an upside trek. Entry @ $66.55 for 5% trade allocation. Europe (IEV) will be key part of the solution with support at $46.50. Let it unfold going forward. The trade is EFA for the rotation to value pay being global as well.
  4. Emerging markets (EEM) Brroke the downtrend line back to the upside and showing interest from investors short term. Need to clear the 200 DMA and look for entry point for a trade on the upside. Watch for trade, but don’t fight the US market going forward. Entry $40.20. Waited missed the entry as it moved quickly. Watch for test today and entry if it doesn’t run away at the open. otherwise willing to pass on the trade.
  5. Bond yields broke support at 3.55% Thursday. Question… if markets are moving in anticipation of higher rates, why are rates moving lower currently? ¬†Rotation to safety? Obvious answer, but looking forward rates will rise if the Fed follows through. Fear of growth is driving money to safety in the short term. Bonds are currently a trade only.
  6. Healthcare (XLV) broke support closing below $58.44? We posted the short trade using put options on XLV in the Weekly Update last Saturday. We added that position on Monday and we continue to monitor the outcome with a stop at break even on the entry. Bounced, but still not convincing on the move. Biotech is the drag currently. Holding support and watching today for some answers.
  7. Financials (XLF) hit new highs last week, but have stumbled since and attempting to hold the $22.15 level. Failed again to do so and hit our stops. The sector will be a benefactor to higher rates as they evolve and if the government intervention will stop. Watch for the eventual move if the Fed follows through going forward. Today may bounce back, but too much indecision currently in the sector.

NOTE: There are other trade opportunities posted in the Weekly Outlook for March 17th if you want to review them. We will continue to monitor the list throughout the week and add to this list what meets our risk/reward strategy for each model or pattern list.

Models:

Sector Rotation Model (updated Р3/27/14)

ONLY ETF Model (updated Р3/27/14)

S&P 500 Index Model (Updated Р3/27/14)

ONE EGG Model (updated Р3/27/14)

Pattern Trading Setup:

Today’s opportunities:

  1. No simple answers for a market in transition without direction or clarity. The shift from growth is obvious by the sectors selling and bonds being bought. The S&P 500, Dow and NYSE indexes have held up better the last two weeks. This may be the next wave of money flow. Watching as trading week concludes. Don’t want to add much in terms of risk currently and willing to wait for next week.
  2. AAPL – entry $545. downtrend line break higher. Follow through on Tuesday’s move. Watch today for buyers to step back in on the test. $540.25 entry today.¬†

Pattern Trade Tracking & Follow Up:

  1. JNJ – entry $96 ($95.75). trading range breakout. Look for test of the move and entry near $96. If higher don’t chase. Added after opening test.
  2. WDC – entry $90. trading range breakout. Follow through on upside move. Stop $88.50.
  3. QID – entry $57.35. bottom reversal. Watch the Tuesday bounce? any legs? Stop $58.75. SOLD half position at $59.50. raised stop on balance.
  4. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  5. STX – entry $52.23. base, descending triangle. technology sector. Stop $54. Raised stop to see how this breakout plays out. Tested Thrusday watch today and take exit if fails.
  6. NLY – entry $$11.40. Continuation breakout. Move above the 200 DMA a plus. Mortgages on the rise in demand and will benefit Annaly. Stop $11. Reversal on interest rates moving higher.
  7. XLK – entry $36.20. Reversal from selling. Watch for follow through move. Stop $35.75 HIT STOP.
  8. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $59
  9. SMH –¬†entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop $44.25.
  10. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  11. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  12. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $12.75. Adjust your stop.
  13. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $26.25. HIT STOP.

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.

Facebook (FB) Update: (see Facebook research page for archive of posts)

  • 2/18 – Raise stop to $58.95 currently and manage the move to the new high according to your risk. With the price moving through the top of the Bollinger bands some downside activity may be on the horizon or a continuation of the top consolidation.
  • 2/19 – $16-19 billion acquisition of WhatApp pushed the stock down 2.5% after the announcement in after-hours trading. Watching to see how investors react in trading today.
  • 2/24 – Continuation of the upside momentum. Plenty of news and comments on the stock, but the buyers remain confident short term. Looking at adding a trade on the stock with options. Watch to see how it trades today.
  • 3/1 – rolling top? Watching to see how this plays out short term and will look for a hedge on the remaining position this week. Raise stop to $63.75.
  • 3/5 – Target upgrade and stock runs higher on the move. Move stop to $65.90 and what how this plays out from this point patiently.
  • 3/12 – Setting up to add a $70 put contract for June at $6.85. 20 contracts. Looking at how we trade the balance of the week and if any weakness develops in the stock.
  • 3/13 – Added 20 puts @ $70 for June at $7.05 today. This will act as a hedge against the position and add some profit if the shares break support.
  • 3/24 – Holding support at the $66.50 level. If we break lower the downside could accelerate towards the $60 mark. Keep stop in place on the shares and manage your put contracts. HIT STOP and held out put contracts. Watch to see how this plays out going forward. Look to lock in gains on half of the position if the selling accelerates.
  • 3/26 – Sold on buyout news and hitting next level of support? Bounce in play. Watch the puts and look to sell half to lock in nice gain and hold half with stop at $62.90 on stock.
  • 3/27 – Sold half (10 contracts) in the morning decline and bounce at $12.6o locking is a gain of $5.55 per contract. Nice gain on the position. We hit stop on the remain 1000 shares at $63.75 and still own 10 puts. Looking to exit the puts today if the stock moves higher and then we will address how we want to play the stock moving forward. Looking at selling puts with a strategy of having the stock put to us if it drops near the entry level we would like town the stock. This would assume the risk on the downside has played out near term.