Trading Note for Today, February 26th

Market Outlook:
Mixed day with some new leadership from the consumer sector. Retail (XRT) up 1.2% Tuesday broke through resistance and is making a renewed move towards the January high. Biotech (XBI) moved 2.4% to lead the sectors and is back to the vertical move higher. There were other sectors just trying to hold to a positive day overall. The major indexes closed lower on the day, but not enough to ring any alarms for investors. The challenge is for the market to find some leadership in the fundamental data, i.e. the economy. With the month of February ending this week we will get another glimpse into how the economy stacks up next week. Has the growth prospect of the economy improved? Jobs? Earnings? Plenty to look for as the February data is reported.

Semiconductors are testing the high and if this continues the broad markets are likely to follow. Nothing major at this point, but on the radar as one leader in position to test.

China trouble brewing again as FXI drops 1.7% as the government steps in to weaken the yuan. The PBOC continues to decrease liquidity, but the problems continue as the government keeps people working to keep the political reforms away. Simply put, still not a good place to invest for now. FXP starting to look good again.

Blame the weather for the consumer confidence miss on Tuesday. It’s been blamed for every other missed data point. Despite the negative reading the retail was up 1.2% on Tuesday with XRT as a leading sector.

Sectors to Watch:
  1. S&P 500 index made a run at breaking above 1850 short term again, but close below that level. Thus we continue to watch and see. Support is 1810 and for now the index looks content to remain in this range.
  2. The NASDAQ lost 5 points and continues to hold the trend of moving modestly higher. 4225 is the level of interest for support short term to hold the move above the January high.
  3. Dow held above the 16,100 level and dropped 27 points on Tuesday. The index is still in need of a catalyst to return to keep the uptrend going short term. For now patience as this plays out.
  4. Russell 2000 Small Cap index near the 1181 high for January intraday, but closed at 1173. For now we will hold our positions and adjust our stops on the move higher.
  5. Europe (IEV) is trading in unison with the US markets and held above the $47.70 mark Tuesday. Adjust your stops according to risk currently.
  6. Transports (IYT) made the move above $131.20, but failed to hold the move on Tuesday. Still in the trading range and holding the 50 DMA. Patience is key.
  7. Consumer Services (XLY) pushing through resistance with entry at $65.50. Held the move on Tuesday as the retail sector leads the way. Watch to see how the upside follows through.
  8. EAFE index (EFA) held the upside break to new high and opportunity to add to existing positions at $67.30. Watch and manage your stops.
  9. Financials (XLF) need some upside leadership from the sector short term. Made move above the entry at $21.65 level, but failed to follow through again on Tuesday. Manage your risk short term.
  10. Real Estate (IYR) has continued to add to the upside and we are at the next entry level if the upside continues. Made the move above $68 again only to give it up again? Watching.
  11. Review the Weekend Update.

The models can be linked to below and each has been updated for the current outlook:

Sector Rotation Model (updated – 2/25/14)

ONLY ETF Model (updated – 2/25/14)

S&P 500 Index Model (Updated – 2/25/14)

ONE EGG Model (updated – 2/25/14) NEW EGG POSTED

Pattern Trading Setup:

Today’s opportunities:

  1. FXP entry $72.50. Bottom reversal breakout. China. Short trade back in vogue. patience.
  2. RF entry $10.50. Breaking from consolidation. Financials. Confirm on the upside with volume.
  3. GS entry $166.50. Bottom reversal. Financials attempting to break higher. Patience. Big give back to the 200 DMA. Watching today to see if the momentum returns.
  4. SDS entry $29.80. Bottom reversal. Sellers put the buyers on notice again Monday. Still watching.

Pattern Trade Tracking & Follow Up:

  1. FCG entry $20. Test of breakout. natural gas ETF broke above resistance and is testing the move higher. Tested lower at the entry and took a position on bounce off test. Stop $19.80.
  2. JBL entry $18.80. Trading range consolidation. Technology sector. Stop $18.40
  3. LINE entry $33.50. Consolidation breakout. Energy sector.  Stop $32.75
  4. LEN entry $42. Consolidation breakout. Homebuilders. Stop $40.50.
  5. PXLW entry $5.25. Reversal top and test of support. Held the support at $4.80 and now positioned to reverse direction back toward upside. Software sector.
  6. AEIS entry $27.85. Triangle consolidation breakout. Energy sector. Passed on entry with volatile open. Watching today for the trade with positive day. (2/18 post) Stop $27.50.
  7. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $10.80. Gap higher and 26% gain on the day. Raise your stop.
  8. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $23.80. Nice move higher on Monday to break to new high.
  9. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $109.80.
  10. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.25
  11. EFA entry $65.25. Bottom reversal and continuation higher. Stop $65.25
  12. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $182.
  13. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $60.10.
  14. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $88.40.
  15. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $60.30. Nice break higher and expect a test of the move as follow through.
  16. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $126.25. Momentum remains positive short term and watching to see how it responds to the move.

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.