Research Notes foe April 29th


The market continues to provide plenty of surprises. The pre-release of the Twitter earnings did not help the cause as the stock fell 20%. Needless to say the earnings were not good. They missed both the top and bottom line and then lowered guidance. Not the type of news you want to spring on the market mistakenly. That aside the markets were already more nervous that a long-tail cat in a room full of rocking chairs. Iran taking a cargo ship captive added to the morning fun, but then they released it? The end result of a day filled with news was a close essentially flat on the day as neither side could take a stand. Small caps bounced from the beating on Monday. Other issues causing angst on the day was the FOMC meeting ending today and getting the next explanation of what the Fed believes looking forward. Expect more volatility from the news as markets with conviction get tossed around by the waves of the media. Should make for a fun day.

Where does that leave us heading into today’s trading day? With more questions than answers, and thus we manage our risk accordingly. Risk management is money management and we must focus on what risk we are willing to accept based on what we know looking forward. Remember, time frame is the key part of the equation. Know what time horizon you are looking at as you evaluate your the risk/reward of each position and how to manage it now and going forward.

As I stated early this week, this is the final week of April and we will start to get reports on the economy for the month, if there are no signs of improvement following the winter excuses the sellers may well exert their authority. Patience, stops in place, read the signs and play defense on both micro and short term positions. Longer term positions have to be evaluated in light of what is unfolding and exit point determined now in the event the selling accelerates. I am not being speculative about direction only taking the precautions from what is unfolding. Easier to execute a plan that is in place than creating one under fire.

NOTE: The following are things to watch and evaluate on the day…

China (FXI) QE or Not to QE… answer is unknown it could impact the sector.
Energy (XLE) oil is stalled. stocks are stalled. looking for breakout move.
Gold (GLD) bounced on weaker dollar… sustainable or trade?
Software (IGV) leading tech? Watch the micro term pattern setups.
Social Media (SOCL) weakening on FB and TWTR earnings testing lower…
Base Metals (DBB) breakout and momentum in the metals micro term (0-13 wk)
Retail (XRT) weakening sector… watching how it unfolds near term.
Utilities (XLU) setup to break higher? Trade or longer term development…
FED (FOMC Mtg) interest rates and bonds… what will happen short term?

S&P 500 Index (SPY) the index moved above the $211.17 resistance, but that was after testing lower and in some instances hitting our stops. The early selling came of the heels of worry around the Fed and earnings. There was the issues in the M&A part of biotech that was beat to death after-hours as well. The combination sent the index lower, but later rebounded and closed higher on the day.  Jury is still out on the conviction to take the index higher. Patience for now and we will let it play out. $212 break on volume would be of interest for adding to or establishing new positions.

NASDAQ 100 Index (QQQ) Tested the $109 support level after the open. The index continues to lead (with some renewed volatility) and I added¬†to positions on the¬†move above $108. stop break even on those. Watching reaction to Twitter’s earnings today.

Russell 2000 Index (IWM) The index broke down on Monday with the biotech’s leading the way lower. Tested the trendline on Tuesday and bounced settling back in the middle of the previous range. Still looking for a directional decision and the last two days show that investors are struggling with any type of commitment for now. Watch to see if the upside follows through or not.

Volatility Index (VIX)¬†closed at the bottom of the range¬†12.50-17.10.¬†Anxiety early sent the index to 14.23… it closed at 12.41. Simply put, the lack of real concern about the downside risk is keeping the indexes near the highs and volatility at a minimum. The complacency is not a positive from my view going forward.

Transportation (IYT) Transports need to move higher if the broader index is to sustain a move higher. Tested below the $154 mark again with touch of the 200 DMA and bounced. Still building the base and for now holding the key support level at $154.

Dollar (UUP) the greenback remains a story line many are following. The strength has given way to sideways trading with the $25.50 support broken Tuesday. It is below the 50 DMA. MACD has turned negative short term. Now it gets interesting how it plays out. Creating a opportunity in Gold (GLD) and gold miners (GDX) both breaking higher Tuesday on the weaker dollar. Watching commodities as well overall for impact.


Consumer Discretionary (XLY) broke higher on Friday from the trading range… needed to follow through, but gave up the gains on Monday and more on Tuesday… weakness back in the retail stocks.¬†Need to hold support at the $74.50 level if the upside has a chance of keep the trend moving higher.

China (FXI) buyers continue to show up despite the press and negative views on China. Upside remains in play, but there is still plenty of speculation on the horizon. Reentered the trade at $51.50 after we resumed the move higher. with $49.40 as the stop for now. Patience as the consolidation plays out.

Russia (RSX) Showing some topping currently and testing the resistance of the 200 DMA as overhead. $18.75 support. $18.70 stop. Patience.

Emerging Markets (EEM) cleared resistance at the $41 level and made solid advance. Tested the $42.50 support and held. China, Brazil and other markets have benefited from the rotation into the global markets and away from the US markets. Watch for some testing today of the move. Adjust your stops accordingly. Also looking at how the dollar will impact this trade?

Bonds¬†(TLT) In¬†sideways trading range… $129.20 on downside (broke) and $132.20 on the upside. Broke decisively lower from the range, bounced…¬†TBT entry hit at $42.65. stop $42.30. Let it play out as the yields are in fluctuation. Bond sold off into the FOMC Meeting conclusion today. Watch to see if more selling show up in the bond today. I am not convinced the Fed takes any action nor do they clarify their intentions near term. They have built plenty of reasons not to raise rates. Protect your gains on the TBT trade short term.

Crude Oil (OIL) broke from the trading range bottom above $53.85. The continuation of the upside remains in play for now with at test a the current high of $58.¬†Currently ¬†there is more¬†speculation than logic¬†as the rational and justifications are pontificated. Watch for break above $12.15 (OIL) or test lower… patience as it unfolds.

Energy (XLE) Broke higher and stalled as the broader indexes tested lower. Next level to clear is $82.50, but it has stalled and tested the ceiling again on Tuesday. Move is value buyers stepping in and the stall is the traders moving to other places for now. Need to continue upside trend if possible. $80.50 support level in play.

Solar (TAN) test of the move higher and nice gain on Thursday. $47.75 support, held and looking for follow through to the new high. $50.50 next resistance to watch. I like the upside continuation in the sector looking forward, manage the risk and let it run. Stop $47.50. Nice bounce back on Tuesday off support.

Biotech (IBB)¬†Sold off 4% on Monday and the test is on. Tuesday posted loss of 1.1% as well, but it did manage to bounce off the test lower at 338.60.¬†Plenty of speculation in the sector on Monday, but it adds up as another sector selling, profit taking, rotation to?? Global is the one place money has shifted… watch for support $342.80. Short term holding stops hit on Monday.

Semiconductors (SOXX) it is a messy chart, and the break lower on Friday on makes it worse. MXIM, CAVM, AVGO, NXPI and FSL led the downside on earnings. This puts the short side in play, but it would take a move below the $92.50 level to gain my interest to short the sector. Not what we were looking for as the leadership is key for the technology sector overall. Looking at SOXS at $12 is holds the downside move.

Other sectors in the process of rotating and we will watch how Wednesday unfolds.

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

Unfolding Stories in Sectors Currently:

Retail (XRT) Рthe consolidation at the highs showed some weakness last week as it broke support ($100.25). The retail sales data for March was okay, but below expectations. Money flow is drifting lower and there are some key stocks breaking down. BBY, KSS, JWN, KR and TJX are some of note along with the specialty retailers. This is a sector to watch with interest as the consumer is key to the US economic picture. AMZN led the sector on Friday with a 15% gain. Selling back? Stops in place as this unfolds. $98.50 stop.

Industrials (XLI) – if (and that is a big if) the global economies continue to recover and growth takes root… industrial stocks should rise from the dead. This story will take time to validate, but it one worth our attention as we move forward. GE, AAL, RSG, ALLE, and SNA worth tracking.

Brazil (EWZ) Рcleared a double bottom pattern entry at the $34 mark. Looking for test and follow through on the reported improvements in the country. Finally got the move higher we were looking for and now we manage our gains. Entry $34.60. Stop $34.75. Manage the risk as we deal with the $37.40 resistance.

Healthcare (XLV) РAttempting to reestablish the previous leadership. Downside did some damage to the chart and watching to see how it unfolds. Negatives from all sub-sectors on Monday. Did get slight recovery on Tuesday.

Utilities (XLU) building bottom (triangle pattern). Nice gain of 1.3% on Friday back to resistance.¬†Still in range… watching how it reacts to overall markets today.

Global Energy РThe US is only one of the largest oil producing country thus there are other opportunities globally relative to the recent bump higher in oil prices. The bump is still only a trading opportunity from my perspective. The trend will develop, but there are too many obstacles still in the way short term. With that in mind ENY is a Canadian Energy Income ETF to watch. EWZ is Brazil ETF which benefits from the recovery in a oil dependent country. PBR is a key stock in that recovery big gain on the week. RSX is Russian ETF as they are the second largest producer of oil globally worth trading. Watching this story line unfold. (FILL, MLPX, IXC, PBD)


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< ¬†TODAY:¬†¬†Bounced above $84, but earnings are being debated relative to increased expenses cutting into profits.¬†Back below the $81.50 support… Twitter news didn’t help.
  • Twitter (TWTR) – ¬†(1) Added 500 shares at $42.80 (10/28/14). (2)¬†Added 500 shares at $39.20¬†on¬†1/9/15. Use $45 at exit on shares added¬†(3)¬†Added 500 shares at $40.25 for trade Sold at $46.25 on 3/10/15. This is a long term holding, but we will trade on short term technical data if warranted. TODAY:¬†¬†Wow… released early and the downside accelerated on the pre-release earnings were poor. Hit stops in the storm… watching how it unfolds today.¬†
  • Bank of America (BAC)¬†Sold all positions as this has become a train wreck of news and write downs. Earnings are here and it may set up trade opportunity with some cheap options?¬†¬†TODAY:¬†¬†Earnings were okay, but not enough to push the stock higher. Watching to see if¬†downside sets up for short trade. Still looking like dead money for now.
  • Whole Foods Market (WFM)¬†(1) Sold our first position for a $6.50 profit on 1000 Shares held from 11/20/14 – 3/11/15. The outlook has improved after making changes to the stores and adding new stores. I like the long term outlook for the company. TODAY:¬†still looking for the next opportunity as bottom or support is established. Short trade hit entry point $50. August¬†$50 puts $3.10. Closed position Friday at at $3.60.¬†Held support and watching. Break below support and we put the short trade on again.