Trading Notes for Today, April 10th

Notes from Wednesday:

Slow start to the day, but built momentum as the day progressed. The NASDAQ took the leadership role setting the pace on the upside similar to the way it did on the downside. Why the change in heart? Maybe the Fed comments in the FOMC minutes? Oversold? Buyers are anxious about sitting on cash? They all have some thread of truth, but the reality is the buyers see value based on the Fed comments that the rate rise pace is overstated. In other words, the Fed is in no hurry to raise interest rates.

The Fed held a teleconference meeting to drop jobless rate target for when rate hikes will take place. It was released as part of the minutes for the March meeting, it was unexpected news of a meeting before discussed by the Fed publicly. That gave stocks a boost as some believe the move will keep stimulus in place longer than thought, and defer the start of interest rate hikes. Speculation is never a good trading catalyst, but the investors are looking for anything positive at this point to put money to work. The news was a boost for stocks, the question is for how long. With the news being Fed related, the impact is likely longer than some believe. After all, don’t fight the Fed.

The futures are pointing higher again today and the party wants to continue despite the negative sentiment from two days ago… all is better with the Fed comments. Take what it gives, but do so cautiously, earnings are not slated to be that great, but then they don’t start in earnest until next week. So two more up days before a bitter pill?

Outlook for the Week of April 7th (Weekend Update)

Sectors to Watch:

  1. S&P 500 index tested 1840 support on Monday and reversed on Tuesday, followed through on Wednesday. The oversold bounce is exactly that for now. We have been watching 1840-1850 as a key support level along with the 50 DMA. So far so good, but there is downside risk going forward. The reversal into the current trading range keeps in interesting for the short term. A trade on the upside for the index was an entry of 1854 ($185.31 SPY) on Wednesday. High risk entry, but it was the technical trade. $187.46 would be the next entry point should the reversal  follow through on the upside.
  2. NASDAQ continues upside with a positive open that gains momentum on the FOMC minutes. The move back to the trendline is a positive, but still needs to climb above this line and hold. The large cap stocks made the move off the oversold lows and now we look for some follow through. Watch to see how it unfolds today? Need Biotech, technology and small caps to keep the upside going if we are to regain upside momentum in the index.
  3. The Dow Jones Index held above the 50 DMA and has not participating much in the current volatility. Made a move back to the 16,400 mark on the Wednesday. The sideways trading range is still in play and we will have to be patient as this all unfolds. Willing to be patient for now. Can add to DIA position at $163.80
  4. EAFE index (EFA) holding up well amid the selling and moved back to the high near $68 on Wednesday. A breakout would give cause for adding to positions or establishing a new positions in the index. Europe (IEV entry $48.90) remains the key on the upside for the index near term. Adjust stops to $66.50 on EFA. Holding for now.
  5. Emerging markets (EEM) has been a positive the last two weeks and the break higher has remained in play. Tuesday gapped higher and held. Tested lower on Wednesday and then added to the upside move. To this point ignoring the US markets. EEM stop at $41.
  6. Bond yields headed holding at 3.56% on the 30 year bond. 3.49% was the low last week and we are may test that mark again as this unfolds. 2.68% on the ten year bond and 2.65% support. Flight to safety is benefiting the bonds this week as fear accelerated. Stocks moving higher may adjust this thinking going forward, but the Fed minutes helped the bond to remain low. I would be cautious as bonds look overbought, Not willing to step into the elevated risk of the bond short term.
  7. Retail (XRT) declined to the 200 DMA as the doubt in the consumer builds into earnings. Watching how this unfolds, but small bounce on Tuesday gives some breathing room short term. The selling can resume at any point, but move above $84.45 could be trade point for the sector short term. High risk trade, but available if willing to accept the risk. (RETL posted to ONLY ETF Model)
  8. Dollar dumped against the euro again and now is sitting back near the March lows. Commodities are reacting and the overall impact isn’t immediate, but worth watch how this unfolds looking forward for global implications.

Models:

Sector Rotation Model (updated – 4/9/14) added to watch list

ONLY ETF Model (updated – 4/9/14) added to watch list

S&P 500 Index Model (Updated – 4/9/14) added to watch list

ONE EGG Model (updated – 4/9/14) in play

Pattern Trading Setup:

Today’s opportunities:

  1. GLD – entry $126.50. Reversal off support. Fed comments are catalyst for gold short term.
  2. GDXJ – entry $38.50. Reversal off support. Gold moving on Fed comments. Target $41
  3. S – entry $8.85. Test of support and 100 DMA. Looking for bounce back towards previous high on the move.
  4. EGHT – entry $10.65. Bounce off support within trading range. telecom sector. Look for test of the move higher early or wait for the confirmation at $11. Traded between both and looking today for the decision.

Pattern Trade Tracking & Follow Up:

  1. FCX – entry $34. Double Bottom breakout. Base metals/commodities sector. Stop $33.30.
  2. PCLN – entry $1180. Bottom reversal at support. Oversold bounce trade. May 1180 call option (entry $55, stop $80) is alternate way to trade the move with leverage. Stop 1165. (Sold half of option position today on the gain at $87 = $32 profit )
  3. NFLX – entry $345. Bottom reversal at 200 DMA. Oversold bounce trade. May 345 call option (entry $25.80, stop $25.80) is another way to trade this move with leverage. Stop 336.45 (Sold half of the option contracts today at $31 = $5.20 profit)
  4. DBA – entry $28.55. Flag pattern. Continuation of the uptrend on break higher. tested back to support on Wednesday. Stop $28.33.
  5. VXX – entry $42.15. bottom reversal. Sentiment shifts to negative and fear factor in play. Stop $41.70. HIT STOP
  6. SDS – entry $28.70. bottom reversal. Negative sentiment in the S&P 500 index. Stop $28.35. HIT STOP.
  7. QID – entry $60.20. bottom reversal. Negative sentiment in NASDAQ continues. Stop $59.90 HIT STOP.
  8. CORN – entry $34.50 test of the breakout from cup and handle pattern. Don’t chase, no test/no trade today. Tested deeper than expected on Wednesday, watch for the upside entry point on the bounce back. Stop 33.85.
  9. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher. Stop $31.
  10. XLE – entry $88.50 test of breakout. Watch for a test of the move through the break from the consolidation pattern. Stop $88.50.
  11. SLX – entry $46.50. Downtrend break off January high. Reversal off low, back above the moving averages, and positive stock movement. Stop $46.50
  12. EDC – entry $25.50 ($26.10). Trading range breakout. Finally got the move higher in the emerging market index and looking for the follow through this week. Stop $27.30.
  13. JNJ – entry $96 ($95.75). trading range breakout. Look for test of the move and entry near $96. If higher don’t chase. Added after opening test. Stop $97.60
  14. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.65.
  15. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  16. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50.

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.

Facebook (FB) Update: (see Facebook research page for archive of posts)

  • 3/31 – Still maintaining our puts for now as the consolidation at the lows builds. Maybe a bear flag pattern developing? Watch and set your stop on a move in the stock above $62.90 as noted earlier.
  • 4/2 – Watch stop on remaining options contracts with stock moving higher with the broad market. Bottom reversal setup on the move currently. $63.30 add 500 shares long. Held the 100 DMA and continuation of the reversal we will add to the shares. HIT STOP on remain contracts and now watching the current setup for the stock.
  • 4/3 – Added 500 shares at $63.30 on early move higher. Watch how the stock acts moving forward off the low. The stop on the trade is $60.50.
  • 4/4 – Hit stop on position and sold back to the previous lows. Watching to see if the downside is back in play and if our put contracts should be bought back for a trade on the selling.
  • 4/6 – downside accelerating and looking for support now at $54.87.
  • 4/8 – Bounce off support? Trade set up if the broad indexes bounce. Watching today.
  • 4/9 – big follow through on NASDAQ rally. Back to near term resistance at the $62.40 level. Watch to see if the upside is temporary. $63 entry point for trade on upside.