Jim’s Money Weekly

Story line: 

In one word…¬†STIMULUS! Action from the Bank of England, European Central Bank (ECB), Bank of Canada, Federal Reserve, and just about anywhere else you can think of, were will to throw everything including the kitchen sink at stimulating the global economic outlook. In turn, the major indexes pivoted off the recent lows/support and bounced 3.5% to put them back in the middle of the six week trading range.

The second word… UNCERTAINTY! Investors remain in limbo relative to what all of this means looking forward. The VIX index has moved back above 23 on the lack of clarity. The STIMULUS word put the VIX back at 16 and calmed the nerves of the market enough to bounce. Is anything settled? NO. expect the uncertainty to continue play out moving forward.

The third & fourth words… CHEAP OIL! What should be seen as a long term benefit to the economy is being demonized short term as a albatross around the neck of the economy. Cheaper oil make production cheaper of so many things and that will benefit the bottom lines of companies and consumers. However, short term the losses of jobs will have an impact and thus the ugly in the good.

The final words… WEAK ECONOMY! Yes, all the stimulus is designed to jump start the economies and get things moving again, but like Humpty Dumpty… all the analyst, economist, Fed Presidents, ECB Presidents, and any one else will clout, couldn’t put Humpty together again. The picture is still being painted and like those in the late years of Van Gogh’s life it is kind and dark and lacks clarity still. Patience is another word we need to add to our vocabulary going forward as¬†all of this settles, and clarity can¬†obtained relative to direction for the broad market.

It’s YOUR Money —- Manage IT!

Monday, January 26th at 5:30 p.m. EST, we will have a webinar on managing each position in your portfolio. For example if you own GDX currently how do you manage both your stop and target relative to the position? I believe if we do this daily we remove the anxiety of ownership and can hold the asset with confidence based on the strategy and discipline in place to keep from take a big loss or giving our profits back. You can call it risk management or position management whatever gets you focused on managing each position in your portfolio. The same process is applied to the entry process or buying a position in our portfolio.

JOIN ME Monday, January 26th @ 5:30 p.m. EST. 

Notes to Note:

Treasury bond continue to move higher as yields continue to drop. TLT gained 1% on the week and remains in a solid uptrend currently. Bloomberg Report Money flow into the bonds is looking for safety short term.

European Central Bank (ECB) offers more stimulus in the form of bond buying up to 60 billion euros per month through October. Leaves plenty of question marks, but offers the US markets a leg to the upside. ECB & S&P 500

Economic data remains on the weak side of the equation.  Housing data existing home sales saw first drop since 2010. For all of 2014 sales declined 3.1% in a low interest rate environment. Does this say something about the labor market and quality of jobs added in the year? Leading Economic Indicators rose in December pointing to better growth going forward. Manufacturing PMI falls to 12 month low. If this continues the downside risk will rise and stocks will continue come under pressure from investors.

Crude oil supplies¬†continue to rise and oil prices continue to struggle. Moving below the $46 level now has the talk focused on the $30-35 level going forward. I will say that buying gas yesterday for $1.98 a gallon was a bit of a flash back! I didn’t mind either when the total came to $35 versus $68 I paid last summer.

Earnings have been, to quote Forrest Gump, like a box of chocolates. Some good, some bad, some not worth it. This is the biggest disappointment from my view and one that going forward could be bigger issue than anything above for the indexes.

MAJOR INDEXES:

The ten-year bond moved lower after a failed attempt to move back toward the 2% level closing the week at 1.82%. I expect the volatility in the bond sector continue to be high moving forward as investor fight between safety and Federal Reserve wanting to hike yields later this year. If the rally in stocks takes root I would expect rates to rise in conjunction with the move short term.

The NASDAQ closed at 4771 up 20 points and 135 point for the week or %. A consolidation pattern or trading range for the index remains in place and we bounced off the bottom of the range support at 4555 last week. The bounce pushed through the 4750 resistance point and now has the December high in sight. Trading range still in play.

The S&P 500 index closed at 2059 or up 2% for the week or 40 points. Moved above the 50 DMA, but failed to break above the 2063 resistance. Energy, Technology and Industrials were the leading sectors for the week. All ten sectors closed higher on the week as well. Materials stumbled on Friday giving back 1% of the gains. Trading range still in play on micro-trend.

The Russell 2000 index gained 23 point or 1.1% for the week. The index stalled at the 1190 resistance and needs to find the catalyst to move higher. It is still in the trading range and back above the 50 DMA. Watching how this unfolds next week. Not showing much in terms of momentum short term despite the big move on Thurday.

The Volatility index closed lower on at 16 as the S&P index made solid gains on news. Hit the entry point on SVXY as the downside has given way to the buyers yet again. Watch to see how this unfolds with 14.5 the next level to move towards.

The Dollar (UUP) gained ground on the euro losses closing at $25.15 (UUP). The dollar index (DXY) has moved above the long term resistance and progresses higher closing at 94.84. The stronger dollar remains in play. Talk of stimulus from the ECB put selling pressure on the euro and benefited the dollar. The weakness and uncertainty globally is one key reason for the rally and unless that shifts near term the dollar my remain strong for the foreseeable future.

Crude Oil jumped Wednesday more than 5%… fell on Thursday 5%… Friday up 5.8%… Tuesday down 5.2%… Wednesday up 2.4%… Thursday down 2.3% . Bottoming process in play? Must be as all this volatility has led to $46.70 price level and building a base. The inventory data for the US pushed prices lower to end the week.¬†Too much pressure on the downside to rally and the trading range is threatening to move lower is oil moves below $45… closed at $45.57 Friday.

News, events, earnings and central banks are causing more¬†speculation in the markets than clarity. Investors struggle with uncertainty¬†and that is keeping the current trading range in play. If the market can find a catalyst that is sustainable on the upside…. a break above the December high is completely a possibility…. however, if one does not materialize in short order, the downside is likely to return.¬†If Energy is the leading sector on the week… we don’t have leadership on the market currently, we have speculation.¬†This remains a high risk environment¬†and one to managed diligently.

Smell the B.S. …¬†

The State of the Union speech was full of stats and comments that failed to impress Wall Street. I know they aren’t the best judge of what is fair or right when it comes to doing what is right… but, they are the ones that have a major influence on market direction that impact us all. If there is any BS spread it was from all sides and each stretches the truth about what is best for the economy, Americans and Wealth Accumulation. I do know it is not redistribution. All this will play out moving forward and the challenge will be the impact of the conversation in the media.

The housing sector showed a decline in existing home sales in 2014. It was an¬†interesting take from the NAR chief economist, “I expect sales to rebound this year.” based on what? First, Stronger labor market? Really the energy sector just announced more than 40,000 layoffs and that is just the start. Wages are stagnant to falling. Minimum wage jobs won’t qualify for lending. Second, higher consumer confidence… Really that is a reason, I should become a chief economist. Consumer confidence is survey that changes almost as much as Madonna at a concert. Third, Mortgage rates that refuse to go higher? What happens if the Fed hikes rates this summer? This one has a 50/50 chance and that is the best reason he gave. With this type of reasoning maybe we want to short the housing sector.

Even smart people hold stocks longer than they should. Eddie Lambert made billions in real estate and funneled it into his hedge fund ESL Investments and Sears Holding (SHLD). Between holdings in Lands End and Sears Holding he lost $211 million on Thursday after announcing LE would miss earnings. Since the last high in 2010 SHLD has declined more than 70%. I can only he hope his position was hedged with some put options. Otherwise he would go down with many of other investors that keep saying I will sell when I break even.

@ RISK this week…

Commodities… 1) Copper (JJC) – broke to lows not seen since 2009. Long term downtrend is confirmed with $29.60 support. Watching for bottom to be established or opportunity to add new short position. 2) Crude Oil (SCO) – ¬†hitting 2009 levels as well on the downside. Supply data brought the downside back into play after attempting to build a base. Short side is in play short term and short trade is trade again if we break below the two week base. 3) Natural Gas (KOLD) – Testing the 2012 lows and not looking promising relative to the upside. Short trade if we break support at $14.50 on UNG. ¬†4) Gold (GLD) – made an attempt to move back above the $1300 mark, but failed to hold it. Watching for short test and move higher. If it fails the short side trade will get attention from traders and speculators. Watching the pennant pattern. Silver (SLV) – Ran to the 200 DMA and is testing the resistance. Upside continuation we can add to the position; downside look for short trade. 5) Agriculture (DBA) dumped Friday breaking the January 2014 low and is looking at 2009 levels. Shorts are in and the downside is ready to accelerate based on charts. MOO continues bounce off the low? That is the opposite of what the commodities, and it is worth breaking down the ETF to find the leaders. The sector is in a two year trading range.

Utilities (XLU) – warnings from everywhere about the overbought technical condition of the sector. There are also warnings about valuations. Fundamentally the P/E ratios are elevated, but if the commodities that run the electric facilities are getting cheaper wouldn’t it follow that profits would rise? This is a sector to watch, but the upside may still be in play for awhile. Manage your risk accordingly, but let your profits run in the stocks.

Euro Currency (EUO) – the euro continued lower this week on the ECB stimulus plans falling 3.1%. The short trade in currency in in play and likely to be the best trade based on the current willingness of the ECB to provide stimulus for growth. Good luck with that approach.

Financial Sector? (FAZ) – The downside in financials is in place micro-term. Earning started the reversal and speculation keeps the trend in motion. The question: will banks find a way to overcome the expense of regulations and return to profits? Head & shoulder pattern broke lower, tested the 200 DMA, and tested again to close the week (XLF). Banks (KBE) are the driver on the downside and I would look for the short side trade if this bounce doesn’t hold.

Sector Trends to Trade:

China (FXI) – breaking higher on improved, albeit slower, economic data. Government stimulus is in motion as well. Traders are hopping it all works and willing to put money at risk on the belief. The upside trend off the October low remains in play and the break above the September high was confirmation of the upside move.

Emerging Markets (EEM) – Free money for everyone! The global stimulus is favoring the emerging markets… at least in theory. The break above the $39.50 resistance was the follow through to the bottom reversal started in December. This is all positive short term and offers upside opportunities worth trading from a short term perspective. Risk management is vital to any trades in this sector short term.

Europe (IEV) – ECB stimulus talk reversed the downtrend and put some upside hope into the sector. Proof is in to pudding as they say and we will look for some upside follow through this week. $42.50 entry level is in play and looking for move through the $43.50 mark an then to target at $45.25 near term.

Treasury Bonds (TMF) – yields continued lower as money flow continues to rise into the bond. Rotation from the action globally and the US investor is adding to avoid risk. Some topping in the bond this week, but the outlook isn’t changing based on the actions taken globally. Look for more rotation and steady as it goes.

Strategies Watch List:

  1. S&P 500 Strategy¬†–¬†updated
  2. Sector Rotation Strategy- updated
  3. ONLY ETF Strategy- updated
  4. Pattern Trade Strategy Рupdated
  5. ONE EGG Strategy – updated

Pattern Trade Setups:

  1. Volatility has settled, but the rumblings of uncertainty are still in the background. The slight optimism voiced on the ECB is still a question mark on sustainability to stocks momentum. Manage risk with your stops and see how far it will take us.
  2. FEYE – entry $34.50 test of move Friday. Trading range breakout $34.20. Watch the confirmation of the move with max entry at $35.
  3. VIPS – entry $23. Flag. Break above short term resistance and trade to $24.75.
  4. INFI – entry $15.65. micro-downtrend break. biotech remains a leader and setup is good.
  5. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry.
  6. VMW – entry $83. Bottom reversal and trend break. Attempted the move higher on Friday and tested. Looking for upside to follow through with technology leading.

Pattern Trade Tracking:

  1. ENPH – entry $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 $10.85.
  2. QLD – entry $135. break downtrend line and reversal off support. NASDAQ has been leading on the bounce off support the last three trading days. Swing trade on the move higher.
  3. SPXL – entry $85.50. trendline break and bottom reversal swing trade. Stocks trying to move higher again after test of support again.
  4. TBT Р entry $41.60. base and bottom reversal. If stocks rally looking for bonds to fall modestly enough for trade opportunity on the breakout.
  5. SVXY – entry $56.90. bottom reversal. VIX index receding as the fear subsides, but uncertainty still in play. Watch for swing trade on the reversal.
  6. BABA – entry $100.40 (15 cents above posted entry). Resistance and trend reversal. Bounce off support and break of resistance would be entry. Trendline break at 105.25 would be point to add to position. Stop $99.90
  7. GILD – entry $104. bottom reversal and trendline break. Fundamental news driving the upside reversal. Trendline break entry point. Stop $102.40.
  8. VXX – entry $33.60. Resistance breakout. Volatility is picking up short term and looking for the follow through on the upside move as uncertainty rises. $33.60 (raised stop). Volatility starting to drop…. honor the stop.
  9. TSEM – entry $13.45. descending triangle. Confirmation break on the upside from consolidation and uptrend resumption. Stop $13
  10. GDX Рentry $19. Break from consolidation bottom. Look for trade on the upside move in gold miners short term. $20.50 short term trade target. NUGT gives you the leverage. Stop $21.50 (target price + profit).
  11. 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 $46.90
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) added 1000 shares back on the long term outlook following the choppy drop in markets. 10/28 – Earning¬†were good, but the outlook showed higher costs and the first reaction is sell the shares from traders. Still trading sideways range as investors sort out the facts and fiction. Testing the bottom of the current range and bounced … bounce (we added to our positions. 500 @ $77.50 – 1/8) Watching how the downside plays out. (Bought 20 of¬†the $75 puts for March on¬†the downside break $4.25).¬†TODAY:¬† Bounce produced some gains, broke¬†the downtrend from the December high and¬†looking for the follow through on the move back above the $78.50 mark.
  • Twitter (TWTR) – ¬†Added 500 shares at $42.80 (10/28). This is a long term holding and we will manage the downside risk going forward. (hit stops on our put contracts on the reversal last week.)¬†Bounced back to resistance and sold the puts… Looking to buy shares on break above $39.20. (Added 500 shares at $39.20 Friday.) TODAY:¬†Resistance at the $39.50 mark in play and watching to see how it plays out. Willing to add to position on move above the resistance and trading range.¬†
  • Bank of America (BAC) We own the Jan 2016 $17 Calls at $1.85/200 contracts (added 100 contracts on pullback). Banks were¬†gaining some ground and I still like our position going forward. We add our long positions in stocks back (Added 2500 shares at the $16.35 mark ¬†on 10/21). Stop is $15. (ADDED 2500 shares at $17.15 and target is $18 on the move short term as trade in¬†the position.) (50 Feb 17¬†puts @ 60 cents. ADDED) &¬†¬†(ADDED 250 June 17 put contracts @ 0.95 cents 1/14)¬†TODAY:¬†¬†Hit the resistance at $16.20 and watching how this now develops.
  • Whole Foods Market (WFM)¬†11/20/14 Start coverage. 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. Adding 1000 Shares at $48 to start the position.¬†Small range as market keeps stock in check. TODAY:¬†¬†Cleared the $52¬†resistance and move up to maintain the uptrend.