Trading Notes for Today, April 11th

Notes from Thursday:

Wrong! Yesterday in the notes I stated we might see two more up days before the bitter pill of earnings stepped into the mix. Wrong, Wrong, Wrong! Thursday was a reversal that accelerated lower after a positive open. Technology and biotech were at it again on the downside with the later down more than 5% on Thursday. Where does this leave investors? Concerned, simply put.

Managing money during choppy markets is difficult. The major indexes are now negative year-to-date. We have been up more than 2% and down more than 5%. That volatility is getting into the psyche of investors and the more it continues to greater the chance of mistakes and missteps in managing money. The last two days have been enough to make crazy unto themselves. For that reason, you have to step back and let this all unfold. Sometimes the best investment is cash. It is time to be extremely patient with this market.

China gets the blame for the catalyst on Thursday with their horrific economic numbers. Exports fell 6.6% versus up 4% expected. Imports fell 11.3% versus a 2.3% gain. More stimulus on the way for China? It hasn’t worked thus far. Similar to the US and Europe. Maybe all these smart economist will eventually figure out that giveaways don’t create lasting growth. Maybe supply side economics does have a place? Just maybe, they will all realize that a hand up is better than a handout.

It’s Friday, it has been a tough week for stocks and they are headed for a negative week overall. Futures are flat as I post this update, but as we saw yesterday,that can change. Investors are hoping for a bounce back from the selling. I am willing to wait and see, but the downside is gaining confidence and that is never a good thing to fight. If we confirm the downside move from Thursday, I view the trend as down and we will take the downside bias towards trading. Stops in place, cash raised and patience are the ingredients for the day.

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

Sectors to Watch:

  1. S&P 500 index tested 1840 support on Monday and reversed, but Thursday the selling resumed and the test of 1840 was back on the table with the index down more than 33 points intraday. The oversold bounce from Wednesday disappeared as the negative sentiment returned and the sellers took the upper hand. The move negated the upside moves or any entry points for the SPY trades posted. Our short position in SH for the S&P 500 model held above the stop on Wednesday and played out well on Thursday. Volatility is alive and well as the VIX index move back towards the 16 level.
  2. NASDAQ bounce comes to an abrupt halt! After climbing 2% on Wednesday the index dumped 3.2% on Thursday. The 4050 support is back in play and the buyers are nowhere to be found? The volatility index for the NASDAQ (VXN) jumped to 20.7 again and it is game on. The downside risk is in play and the sidelines are looking pretty good right now. Watching to see how it performs today and then we will take a look at any positions.
  3. The Dow Jones Index moved back to the 50DMA. Support? We will see, but it is likely to participate with the rest of the market if the downside continues short term. The sideways trading range is still in play and we will have to be patient as this all unfolds.
  4. EAFE index (EFA) was holding up well amid the selling and moved back to the high near $68 on Wednesday. As we know all too well the US markets still have influence in the global markets. Our fear was how long the global markets would hold up relative to the downside in the US markets. Stop remains at $66.50.
  5. Emerging markets (EEM) has been a positive the last two weeks. Sold off 1.1% on Thursday, but held the $1.80 support. To this point mostly ignoring the US markets. EEM stop at $41.
  6. Bond yields holding at 3.5% on the 30 year bond. 3.49% was the low two weeks ago and we are testing that mark again as this unfolds. 2.62% on the ten year bond and breaking below the 2.65% support. Flight to safety is benefiting the bonds as fear accelerated. Still not a buyer other than the fear trade short term.
  7. Retail (XRT) broke the 200 DMA and support at the $82.56. Not pretty, but then what was on Thursday.

Models:

Sector Rotation Model (updated – 4/10/14) added to watch list

ONLY ETF Model (updated – 4/10/14) added to watch list

S&P 500 Index Model (Updated – 4/10/14) added to watch list

ONE EGG Model (updated – 4/10/14) in play

Pattern Trading Setup:

Today’s opportunities:

  1. GLD – entry $126.50. Reversal off support. Fed comments are catalyst for gold short term. Gap open and didn’t the entry we wanted. Watch today.
  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. Gapped, tested blow the $38 mark and watching how it plays out.
  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. Got the test now we see how it trades today.

Pattern Trade Tracking & Follow Up:

  1. FCX – entry $34. Double Bottom breakout. Base metals/commodities sector. Stop $33.30. HIT STOP
  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 ) (sold balance at $80, out of position).
  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) (Sold balance at $28, out of the position).
  4. 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.
  5. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher. Stop $31.
  6. XLE – entry $88.50 test of breakout. Watch for a test of the move through the break from the consolidation pattern. Stop $88.50.
  7. SLX – entry $46.50. Downtrend break off January high. Reversal off low, back above the moving averages, and positive stock movement. Stop $46.50
  8. 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.
  9. 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 HIT STOP
  10. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.65.
  11. NEE – Entry $91 on the test of the breakout at $90. Stop $93.75.
  12. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. HIT STOP

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. Never got the entry point with positive direction, passed and still watching the volatility.