Trading Notes for Today, April 15th

Notes from Tuesday:

Yes it is tax day! The deadline to file taxes is today and I know everyone will want to do their part and pay more to end the deficit:) There are some key earnings out this morning before the bell with Coke, JNJ, Schwab and Northern Trust. This could set the tone for the trading day depending on how the news settles. After-hours Intel and Yahoo will let everyone know how they are doing relative to earnings. Busy day on the earnings front.

Economic news will be focused on CPI to see if the inflation issues at the producer level have made their way into the consumer prices. If inflation becomes a concern we will have to deal with another pressure point on the markets going forward. The report is pre-market as well today.

Dealing with the intraday confusion from Monday. Both the buyers and the sellers were in action and the swing up and down caught my attention, but equally left uncertainty of which direction is in control. One big takeaway from Monday was that a big sell off was avoid with the last hour bounce back to positive territory. It wasn’t enough on the volume side or move to qualify as an intraday reversal, but it did avert a major push lower. Thus, we wait to see how today unfolds? If we are going to bounce still need follow through and some volume. If selling is going to have a climax move, needs some volume and follow through. Patience as this unfolds.

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

Sectors to Watch:

  1. S&P 500 index played out like a yo-yo on Monday. An initial boost higher of more than 1% disappeared, but managed to rally into the close to gain 0.8% on the day. The index holds 1814 close on Friday and gains some breathing room. The index remains below the 50 DMA and 1790 is still the next level of support for the index. We own SH in both the Sector Rotation and S&P 500 Models. Until we can see clear of the worries, the downside is still the direction in control.
  2. NASDAQ tested the 3987 level of support held and closed at 4022. The 200 DMA is still within striking distance. It is important to let the index work through the short term event and then look for any upside opportunities that result. QQQ held $84 and bounce back near the $95 level. A move above this mark could offer a trade opportunity.
  3. EAFE index (EFA) is attempting to hold the 50 DMA for now. Nice bounce today and is back to trading with the US markets. EFA could offer a bounce trade or upside move if the US markets find a move to the upside as well short term.
  4. Emerging markets (EEM) has been a positive the last two weeks. Still holding up despite the selling all around. $41 is the stop as the upside remains a opportunity short term. 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. Financials (XLF) modest bounce as Citigroup posted solid earnings and gained 4.3%. The sector gets more information this morning with Northern Trust (NTRS) and Schwab (SCHW) reporting prior to the open.
  7. Energy (XLE) held the $88.50 support. Still looking for the upside opportunity in the sector. FCG is attempting to breakout to a new high. Added ERX as EGG Model trade today.
  8. 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 this morning and it will be of interest 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 short term remains a concern as they tax the economy.

Models:

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

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

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

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

Pattern Trading Setup:

Today’s opportunities:

  1. XLE – entry $89.90. Breakout test and bounce. Tested the $88.50 level and held, now looking for a follow through move on the upside. Egg Model as well with leveraged ETF.
  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.