Trading Note for Today, March 26th

Are traders anxious about the markets current direction? The simple answer would be yes, the current volatility day to day and lack of clarity about the future growth of the economy both domestic and international, creates anxiety. That leads to higher frequency trading from programs and in turn, more ups and downs in the day to day activity of the broad markets. I have stated the last two weeks that sometimes the best trade is no trade. It looks as through that has been the case of late.

Economic data lost in the shuffle, but not that great overall. New home sales were down 3.3% and this reflects the worries relative to the housing market short term. Consumer confidence was at the highest level in six years? Great it is showing in the retail sales data. Still plenty of question marks relative to the strength of the economy near term.

Monday’s notes still apply for the week and we continue to practice patience for now. Look for the opportunities, but don’t force positions in your portfolio.

What are we looking for Today?

A decision on direction. We may not get a decision, but we will make another attempt at two days with the same sentiment.

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

Sectors to Watch:

  1. S&P 500 index watch for 1840 support (held it on Monday) and 1885 resistance. Now we watch to see if the support and bounce works or we return to test the downside support yet again. SDS is posted as trade opportunity on ONLY ETF Model and below on pattern trades if the downside gains any traction.
  2. NASDAQ 4224 support (broke it and tested 4190 Monday) and 4370 resistance. Looking for solution to the break lower? Short or bounce back? We added QID from the trade list below and ONLY ETF Model on Monday. Still letting it play out, but if the bounce continues we will take a loss and hit our stop.
  3. EFA to held support ($64.50 ) and now need to clear 50 DMA may look to add a small position if the move continues. Europe (IEV) will be key part of the solution with support at $46.50. Let it unfold going forward. Held support, nice move on Tuesday.
  4. Emerging markets (EEM) Break the downtrend line back to the upside and I am interested. Monday this pushed toward the breakout point of $39.50 and Tuesday made the move higher, closing at resistance $39.80. Watch for trade, but don’t fight the US market going forward. Entry $40.20.
  5. Bond yields tested 3.55% last week and with the selling, are testing that level again? Rotation to safety? For now I would say yes, but we have to watch to see how it trades going forward.
  6. Healthcare (XLV) broke support closing below $58.44? Look for a bounce back, if fails to do so the short side of the trade will develop. We posted the short trade using put options on XLV in the Weekly Update last Saturday. We added that position on Friday and we continue to monitor the outcome with a stop at break even on the entry.
  7. Financials (XLF) hit new highs last week, but have stumbled since. .Banks (KBE) did same, watching how they progress this week. Regional Banks (KRE) in the same boat as are the Brokers (IAI). This is becoming a stock picking sector more than the whole. JPM and BBT are two moving higher.

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 – 3/25/14)

ONLY ETF Model (updated – 3/25/14)

S&P 500 Index Model (Updated – 3/25/14)

ONE EGG Model (updated – 3/25/14)

Pattern Trading Setup:

Today’s opportunities:

  1. No simple answers for a market in transition without direction or clarity. The choppy waters are not worth navigating sometimes. Biotech (IBB) and Internet (FDN) have challenges as they lead the downside. Rotation thus far has not been significant to other sectors, but the large cap dividend stocks are finding some money flow, IBM was up 3.6% on Tuesday to break through resistance. This may be the next wave of money flow.
  2. JNJ – entry $96. trading range breakout. Look for test of the move and entry near $96. If higher don’t chase.
  3. WDC – entry $90. trading range breakout. Follow through on upside move.
  4. AAPL – entry $545. downtrend line break higher. Follow through on Tuesday’s move.
  5. SDS – entry $29.11. bottom reversal. If we get further downside action to the FOMC meeting. Looking for opportunity to trade the news reaction if it develops and hedge positions.

Pattern Trade Tracking & Follow Up:

  1. QID – entry $57.35. bottom reversal. Watch the Tuesday bounce? any legs? Stop $56.60
  2. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  3. STX – entry $52.23. base, descending triangle. technology sector. Stop $54. Raised stop to see how this breakout plays out.
  4. 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.
  5. XLK – entry $36.20. Reversal from selling. Watch for follow through move. Stop $35.75
  6. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $57.33
  7. SMH – entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop $43.70.
  8. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $4.10.
  9. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  10. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  11. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $12.50. Gap higher and still moving higher, adjust your stop.
  12. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $26.25.

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.