Trading Notes for Today, April 14th

Notes from Monday:

What does the week have in store for traders and investors? First, the sellers have gained control and it will be tough for the buyers to get it back as we start a new week of trading. The focus will be on earnings season kicking off in earnest. Investors are focused on what’s on the horizon and questioning the direction as the cuts to stimulus, potential rate hikes and a slowing housing market in response to higher rates… all are adding pressure on the market currently. As we know, but sometimes forget, the markets trade based on the future not today. Today’s trading only validates what the masses believe to be true about the future… The Fed free money stimulus is being withdrawn and the economic picture remains weak. Thus, we start the week cautious and looking for support across the broad indexes.

Outlook for the Week of April 14th (Weekend Update)

Sectors to Watch:

  1. S&P 500 index broke 1840 support this week and and reversed the short term trend to the downside. The index is now trading below the 50 DMA and 1790 may be the next level of support for the index. We own SH in both the Sector Rotation and S&P 500 Models. Watch for more downside as financials continue to announce plenty of earnings. The start was mixed with JPM missing and WFC beating… watch to see how it effects the broad index.
  2. NASDAQ fell to the 4000 mark taking out the trendline and the 50 DMA. The 200 DMA is within striking distcance, but the 4000 level is one of the key support areas for the broad index. It is important to let the index work through the short term event and thsn look for any upside opportunities that result.
  3. EAFE index (EFA) was holding up well amid the selling, but it tested lower as it again looks to trade in conjunction with the US markets. Europe moved lower as well with both indexes breaking the first level of support. EFA could test the $65 support level and if it does, look for the US to test lower as well.
  4. Emerging markets (EEM) has been a positive the last two weeks. Some selling on Thursday and Friday, but it has held up well and we continue to keep the stop at $41 for now. Be patient and let it all unfold.
  5. Bond yields holding fell to 3.47% on the 30 year bond. This is a new near term low for the yield as TLT rallies on the safety trade. 2.62% on the ten year bond and breaking below the 2.65% support. Fear is benefiting the bonds as downside in equities accelerated. Still not a buyer other than the fear trade short term.
  6. We will watch all the sectosr as this week starts. Financials will offer the first short opportunity if eanrings are weaker than expected. SKF is the leveraged short ETF. There will be more opportunities in Technology and Consumer services if earnings don’t create a bounce off support in those sectors as well.
  7. Inflation watch! PPI was much higher than expected, but was lost in all the worries about the Fed’s future actions. Cost to produce goods eventually finds its way to the consumer. The CPI will be reported on Tuesday and it will be of interest to me to see if there is an advance in the cost of goods. We all know things are more expensive than the government numbers, but the rise in gasoline prices of late remains a concern from my view as they tax the economy.

Models:

Sector Rotation Model (updated – 4/11/14) added to watch list

ONLY ETF Model (updated – 4/11/14) added to watch list

S&P 500 Index Model (Updated – 4/11/14) added to watch list

ONE EGG Model (updated – 4/11/14) in play

Pattern Trading Setup:

Today’s opportunities:

  1. Watching to see how Monday unfolds before we add short or long positions. Patience!
  2. GDXJ – entry $38.50. Reversal off support. Gold moving on Fed comments. Target $41

Pattern Trade Tracking & Follow Up:

  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.
  2. 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.
  3. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher. Stop $31.
  4. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.85.
  5. NEE – Entry $91 on the test of the breakout at $90. Stop $93.75.

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.