Notes for Week of December 29th

Notes to Note: 

Happy Holidays! The markets remain in holiday mode and I don’t expect that to change until after the new year. That means slow and easy this week. The major indexes made a creep higher last week with the S&P 500 index closing at a new high. As discussed below the leadership is sketchy at best. We will outline our views for the week and noted it will be the only one this week as I am still traveling and spending time with the family. The snow in Colorado has been unbelievable this week. I am sure those who live here are not enjoying it as much as we are. But, then that is why they call it vacation. Relax as this promises to be a interesting year for the markets.

The ten-year bond continues to act contrary to the moves higher in stocks, yields on the ten year remain at the 2.25% mark to start the week. The movement in bonds has been an indication that investors are looking for safety or a hedge to their portfolios, not a surge higher in the indexes. As we start the new year many are still looking for the yields to rise to 3-3.5% range this year. That is equivalent to the calls last year which were not even close as you well know. Watching the bond for short opportunities if equities do continue higher. But, it will have to be a very clear indication to take on the risk.

The NASDAQ closed above 4800 for the first time since March of 2000. The index was up 41 points or 0.8% on the week.¬†The biotechs fell early in the week to test the move higher and banks continue to play havoc. Semiconductors and tech overall continue to be the strength of the index despite the volatility of late. Look for the index to close the year on a positive note and I don’t expect much in volatility overall.

The S&P 500 index¬†closed at 2088 and added to the upside gains 18 points or 0.9%. The index has been mixed of late with leadership shifting back and forth depending on the day. Utilities were the leader last week? Energy, Consumer Services, Telecom and Industrials weren’t far off that pace. Not exactly the group you want leading the way higher and thus, we will watch how this week unfolds moving into the new year. Healthcare was the biggest laggard losing nearly 2% on the week. Profit taking? That is what to watch this week as the sector has been the leader for the year. May present some opportunities this coming year.

The Russell 2000 index was able to break through the 1190 resistance and add 19 points on the week to close at 1215. This is positive heading into the new year as the small cap effect may well be an influence to start the year. Look for the leadership to set the pace as we move into January. The close is just above the top of the range the sector has been attempting to break above all year. To start the new year breaking through this year long resistance level would be a positive for the sector overall.

The Volatility index tested support at the 14 level and bounced slightly into the close on Friday to end the week. The swings have been¬†big the last two week, but calmed last week on the upside move of the indexes. Looking for a decision at the 14 mark… break lower with stocks moving higher or move higher with stocks moving lower. Either way it could set up a trade opportunity in the VIX. VXX if the index moves higher and SVXY if the index moves lower.

Dollar (UUP) is holding the current highers and the dollar index (DXY) has moved above the long term resistance of 89 closing at 90+ on Friday. The stronger dollar remains a positive from my view near term. Still looking for more upside strength in the buck. The weakness globally is one key reason for the rally and unless that shifts near term the dollar my remain strong for the foreseeable future.

There is plenty of speculation in the markets currently as all the new year prognostications are put forth. I am not big on speculation or guessing where the market ends one year from now. But, the ability to look at the trendlines and determine the direction currently and going forward is key to managing your portfolio. The trend is back on the upside for now and we will go with the trend until it ends or convinces us the upside move is over or in jeopardy of declining.  As we end the year spend some time setting up your beliefs going forward and how they will be validated or proven wrong by the markets each day as we move forward. Happy NEW YEAR! Make it one with a defined strategy and defined approach to managing your money.

Economic News for the Week:

All the data last week was of the mixed version again. We continue to the ups and downs of the economy from month to month, but overall it remains on the positive side. As we end the fourth quarter and start the new year the data will start on Friday and then progress into next week. All eyes will be on the retail sales, ISM manufacturing and services data along with the jobs report. It will be a focus for investors to gain some renewed prospective of what to expect in the new year.

Last week GDP was better than expected at 5% for Q3! Interesting turn of events on the number. Durable goods were negative 0.7% and well below the positive 3.3% growth expected… that didn’t set well. Consumer sentiment is in line with expectations at 93.6. Personal income and spending were in line with expectations. Inflation was at 0% and new home sales fell short of expectations as did the existing home sales. Again numbers continue to be mixed and not offering much in terms of confidence building going forward. This will unfold further as we conclude the final week of trading and the final quarter of the year. The data will set the tone for the new year.

Existing home sales were disappointing falling to 4.9 million and below expectations. Home sales have been up and down, but holding steady overall. Housing sector managed a modest gain following the news.

Some thoughts on news/events and statistics impacting investor psyche:

* Holidays are keeping volume low and the noise dull. We will let the holidays pass and this renew our look at what investors believe or at the least are doing with their money heading into the new year.

* FOMC meeting was catalyst for the upside currently in play…watching to see if the news unfolds into an event to continue the upside short term into the new year.¬†Patience and focus are key short term.

* Tug-o-war over oil prices continues with the $55 level current the support to watch. The speculation that OPEC would fold has not materialized, if anything, it has made them more determined to stick with production levels. Plenty of speculation on how this will be destructive to the global economics, but there are no real facts on the outcome or destruction levels that can be validated currently and thus we trade what we see and understand until proven otherwise.

* The Fed remains in the forefront of the issues relative to interest rates and the economic picture. The only thing that is for certain is the uncertainty surrounding their future actions relative to interest rates. The minutes when they are released in January should offer more insight, but I am not holding my breath on that cause.

What to watch¬†this week…

This is New Years week and the holiday will again impact volume. Take what the markets offer, but be mindful of the period and manage your stops on positions as well as trading opportunities. I am traveling through the New year and Notes will resume daily starting January 2nd.

Volatility Index (VIX) moved off the highs and closed at the 14.5 mark. The move on Friday left some question marks about the uncertainty levels still in the market or just a last minute blip in speculation? We will watch this on Monday with a bias towards the short trade with SVXY. Move above the $69 mark would be of interest for a trade on the upside.

Crude oil is still on the worry list to start the week. Closed at $55.14 after a small bounce back towards the $60 mark. The stronger dollar is have an impact relative to last weeks bounce in the buck. As if the commodity needs any more pressure than it already has on the downside. The stocks (XLE) bounced back to resistance at the $80.60 level and leveled off as oil fell lower to end the week. This is worth watching to start the new year as well.

Semiconductors (SOXX) hit support bounced and leveled off to finish the week. Still looking for the upside leadership from the sector along with technology stocks overall. SOXX, IGN, IGV, FDN, SOCL and SKYY are the ETFs to track going forward.

Retail is still a mixed bag of optimism and reality. The upside move after the sales reports helped push XRT back above the $95 level and held with small test on Friday. Auto parts and related stocks are the leadership currently. This is still stock picking sector with the auto and parts stocks leading the sector currently.

Small Caps (IWM) moved above the $119 entry posted for the EGG and the Pattern Trading Strategy and made a modest move higher last week. Watching the open on Monday and looking for the follow through on the upside to start the week. Need the leadership to start the new year.

Biotech (IBB) tested early last week back to $293 and closed at $306 with a bounce off the lows. The key is how they unfold going into the new year. Was the selling pofit taking? or is there more worry on the horizon relative to earnings? Time will tell as we own the biotech sector and will look to add if the upside holds to start the week.

Emerging markets (EEM) holding the bounce off the lows and I am watching how this unfolds in relationship to Russia, China and Latin America. They are all oversold short term and did produce a modest bounce, but need to clear the $39.70 mark on EEM. Watch ans see how this unfold on the week.

Watch List Opportunities:

  1. S&P 500 Strategy¬†–¬†Revisions to the investment options starts January 1st
  2. Sector Rotation Strategy- NEW STRATEGY starts on January 1st.
  3. ONLY ETF Strategy- updated
  4. Pattern Trade Strategy Рupdated
  5. ONE EGG Strategy – updated

Pattern Trade Setups:

  1. Managing what we have and letting this all unfold into the new year. Not posting new trades this week do to schedule and vacation. We will manage what we have and look towards the new year to start anew.

Pattern Trade Tracking:

  1. KLIC – entry $14.45. Trading range breakout. Semiconductors are leading again and looking for upside follow through. Stop $14.10.
  2. IWM – entry $119. Trading range breakout. The sector has flirted with breaking through this resistance three times maybe it makes the upside move now. initial target $123. Hit entry, but late in day. Waited for the weekend to pass and will take on Monday assuming upside resumes. Stop $119.
  3. SOXL – entry $135 test. pivot point reversal in the previous leader is positive sign. I would like a test to the bottom of the bar on Thursday at $133 ¬†ish and take the lower entry, but if that doesn’t happen a small test to $135 will be good. Another gap open pass. Initial target $146. Stop $135 – break-even.
  4. ENPH – entry $11.75. trading range consolidation at support. breakout in the semiconductor stock worth trading the upside move. Stop $13.50
  5. SWIR – entry $39.25. Flag consolidation at high. Break to new high. Telecom struggling on Tuesday, but leader in the sector. Stop $44
  6. 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
  7. XRT – entry $90. Break higher from ‘V’ bottom reversal… holiday momentum? Stop $90.
  8. MAS – entry $23.25. ascending triangle. big move on Thursday? watch for follow through or test of the move. On test $22.75 entry would be positive. Stop $24.70.
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: 
Nice bounce back from the selling and now attempting to make a push on the upside. We have to be patient with these and use different approach as they are long term holdings.
  • 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 as investors sort out the facts and fiction. MONDAY: Gave back the gains and still holding and waiting for the upside to resume.
  • 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. (11/10 – Jan $40 puts – 10 contracts @ $3.20. Stops still $1.75 on contracts.)¬†Broke down and trading lower, we exercise the put if no bounce. $36 is potential support. Watching how to trade this near term. MONDAY: still testing the support levels watching.¬†
  • Bank of America (BAC) We own the Jan 2016 $17 Calls at $1.85/200 contracts (added 100 contracts on pullback). Banks are finally gaining some ground and I like our position currently.¬†We add our long positions in stocks back as held support¬†and make some progress relative to sentiment. Added 2500 shares at the $16.35 mark (10/21). Stop is $15. MONDAY: nice move higher and looking for follow through at the $18 level on upside.
  • 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. MONDAY: moved lower to end last week… watching how it unfold this week.