Trading Notes for February 11th

Jim’s Market Notes:

The week to blame Greece for the good and the bad of the markets. Investors needed somewhere else to look as the energy story becomes old news. Speaking of oil the IEA estimates of further buildup of inventory pushed crude lower closing near the $50 mark. Yes, it remains a news driven market and we have to keep our heads while the whirlwind of data and speculation continues to drive the day-to-day activity.

Oil inventory is out today for the week and if it confirms the projections from the IEA could see more downside in the commodity. This confirms my concern of speculation versus reality. Manage risk of any positions in the sector and book gains as you go forward.

Midcap sector moved back near the high and still wants to lead… maybe.¬†Small caps tested the move higher closed up on the day, but struggled.¬†Patience with both as they filter the news and attempt to maintain the leadership role.

S&P 500 index drifted made nice move higher to close above the 2062 resistance and now in position to test the previous highs.¬†Worries over Greece removed and all is well… not so fast! Letting this play out, but we did add SPY on Tuesday to SP500 Strategy.

NASDAQ index made up some ground on Tuesday as it lead the broad markets on the upside. Technology sector, primarily semiconductors, overcame the weakness of late and push higher. Sustainable? That remains my question overall as start another day of trading. QQQ cleared the $104.20 mark and now needs to follow through on the upside.

Visibility has been lasting 1-5 days currently and unless that perspective changes the traders remain in control. Focus on what strategy is working and maintain your discipline daily as this works out and the clarity is regained.

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

Made additions of SPY, XLF, XLY and SVXY to the S&P 500 strategy on Tuesday. The early test gave us the entry points as laid out and the follow through the balance of the day gave us positive results to start the positions. Manage the stops and don’t assume anything from this move until it is validated by the charts.

Outlook:

Worth our attention currently are several sectors that will hold some implications going forward. First, the Russell 2000 Index which cleared the 1190 level again and has shown leadership for the broad markets to potentially move higher. It held that level and the 50 DMA which are key for the move higher. Second, crude oil did hold above $50 barely after selling off 4% on Tuesday. Need to keep the positive sentiment from the move higher in oil… this has to be watched going forward. Third, the thirty-year bond benchmark TLT broke below¬†$130.50. Yields have been rising on belief the jobs data will put the Fed in play on hiking interest rates later this year. If this moves too fast the ripple effect will have a negative effect on sentiment. Fourth, financials (XLF) are moving¬†higher as a result of higher interest rates and anticipation of better margins to help the bottom line. Followed through, but still plenty of work in the sector going forward.¬†Some movement on Tuesday to help the cause, but still plenty of work to do going forward.

The volatility index (VIX) Greece added to the volatility and it has taken away from the volatility as the index fell back to 17.2 on Tuesday. The uptrend is what shows interest to me going forward. VXX showed a cross of the 50 DMA through the 200 DMA which is bullish. While that offers a trade setup for the index it also is a negative implication for the broad index. We have to focus on managing the risk of our portfolio while also taking advantage of this opportunity as it unfolds.

If ever there were a time to be patient, it is now. I believe it is harder not to trade than to trade. The activity makes you feel like you are at least in the game versus sitting on the sidelines watching. The deception of this is to confuse activity with success. Activity without progress is stress. Patience for the opportunity to take action founded in reality gives you the upper hand as well as confidence in the process. Now is a good time to practice patience and let the opportunities present themselves.

Money Management Strategies Links:

  1. S&P 500 Strategy¬†–¬†Watching – ADDED¬†positions
  2. Sector Rotation StrategyР Watching
  3. ONLY ETF Strategy–¬†Watching
  4. ONE EGG Strategy –¬†Watching – Managing¬†IWM
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. Volatility is back as concerns over earnings and data continue plague the outlook. Bounced on Thursday sold on Friday.  Manage risk with your stops and see where we go this week. It is a choppy market and reversals happen at the drop of the hat these days.
  2. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term.
  3. AMD – entry $3.07. trading range breakout test. Broke higher and testing the move in pennant pattern. Upside trade on the confirmation.
  4. AKAM – entry $62.30. double bottom breakout. Looking for move back to the previous high if technology resumes leadership role.
  5. F – entry 16.12. trend reversal and break above 200 DMA. upside momentum from sales and target of $17.25 in play.
  6. NXPI – entry $82.30. trading range breakout. The earnings report helped the upside and looking for the follow through short term. Semiconductor sector. Target $88.

Pattern Trade Tracking:

  1. VIMC – entry $9.13. trading range. Semiconductor sector in position to move higher again with broader indexes. Stop $9. HIT STOP
  2. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $141 to give room for volatility.
  3. IWM – entry $119.50. break in range. The move through this level puts the upside back in play and expect leadership from the sector going forward. Stop $114.50 to give room for volatility.
  4. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $198.50 to give room for volatility.
  5. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  6. ERX –¬†entry $56. Bottom range breakout. We have been faked out before on oil, but still made money. Looking for the bounce to gain some momentum short term on crude prices. Give some room for volatility. Stop $56.
  7. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  8. VIPS – entry $23. Flag. Break above short term resistance and trade to $24.75. Stop $22. HIT STOP
  9. 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 $13.25.
  10. 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 $51.50
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. (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 – looking to roll them forward if we test the bounce).¬†TODAY:¬† Earnings¬†beat, but like last quarter speculation on expenses weighing down the stock.¬†Sold lower as investors confidence isn’t there short term. Held support, but no volume or momentum in the stock.
  • 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. Looking to buy shares on break above $39.20. (Added 500 shares at $39.20¬†on¬†1/9.) 2/4 Added 500 shares at $40.25 for trade to $42.25 short term.¬†TODAY:¬†Made¬†break from¬†top end of the trade range in the bottoming pattern.¬†Got the follow through on Thursday and beat earnings! Jumped 16% on Friday and need to adjust the stop on the added shares we traded to $45.50. The target was¬†$42.25 on those shares and we will protect the gain, but let it run.
  • Bank of America (BAC) We own the Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. 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. TODAY:¬†¬†Testing support again and¬†investor resolve.¬†Nice bounce on Friday as the outlook for action from the Fed relative to interest rates sparked a rally in the bank stocks. Looking to add to position if this bounce holds and gains momentum.
  • 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. TODAY: Cleared the $52¬†resistance and moved up to maintain the uptrend.¬†Watch and see how broad indexes move and impact going forward. Looking for the buyers to step in and take it higher.