Trading Notes for Today, April 16th

Notes from Wednesday:

Earnings continue to provide a mixed review. Some are doing well and others and not getting a good reception. There is still plenty to digest as we saw last night with Yahoo and Intel. Yahoo is up 7% in the pre-market. Throw in some intraday volatility which remains an issue in both trading days this week the indexes have moved more than one percent up and down. Tuesday was the opposite with a nice rise early, sold to support levels again and then came back into positive territory with some sectors closing higher than they started. We are still proceeding with caution and taking baby steps towards establishment of a trend short term. The futures are currently pointing higher as a continuation of the move off the low on Tuesday afternoon.

Economic news was another mixed bag of data. The Empire State manufacturing data was much worse than expected at 1.3 vs 8. Homebuilder confidence fell as well despite lower interest rates currently. There are plenty of reasons for the decline, but the challenge will come in the sector going forward. One primary rationale for the drop is the expectation the Fed will have to raise interest rates. On the inflation front, CPI was still fairly tame with a hike of 0.2% on both the top line and core readings. As I stated earlier this week, it is a concern for the markets overall looking forward.

What about Wednesday? More of the same or does the market finally make a move to the upside off the recent lows? The buyers look ready to start the day on the upside following some positive earnings reports. The growth stocks have the attention of most investors relative to the bounce or trade higher. Can the market sustain a rally with the growth stocks? Only time will tell, but I would count the idea out. Take what the market gives today, but be mindful of the negative undercurrent in the trend off the March 4th high.

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

Sectors to Watch:

  1. S&P 500 index played out like a yo-yo again on Tuesday with some help from the geopolitical issues with Russia and Ukraine. How does it all play out? That is what we are watching today. The intraday selling testing the lows again with a nice bounce back into the close helped put a positive spin on the negative start. The index remains below the 50 DMA and 1790 is still the next level of support for the index. Moved back above the 1840 level on the close Tuesday… watch to see how it plays out.
  2. NASDAQ tested the 200 DMA and then bounced along with the other broad indexes. Back to 4050 resistance and an opportunity to bounce higher on the oversold conditions. It is important to let the index work through the short term event and then look for any upside opportunities that result. QQQ tested $83.30 and bounced back near the $85 level. A move above this mark could offer a trade opportunity.
  3. EAFE index (EFA) is attempting to hold the 50 DMA, but the Russia news sent the index lower and it did bounce off the lows near the $65.75 level. If we get a bounce today, it 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, but the Russia news rattled investors and sold below the $41 stop we had posted. It did manage to rally back above that level into the close on Tuesday, but still have to be cautious for now. $41.50 is level to consider buying the ETF back short term.
  5. Bond yields holding fell to 3.43% on the 30 year bond intraday as fear impacted bonds relative to the Russia/Ukraine conflict. 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. If stocks put together a bounce rally, a short trade may be in line on the long bond. (TLT)
  6. Financials (XLF) continue to struggle as NTRS missed earnings and SCHW beat. The sector ETF needs to trade through resistance at the $21.60. Banks and Brokers are announcing earnings and they are mixed, not giving much to like short term. Worth scanning to see if their are any opportunities in either direction.
  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. Good entry point for XLE on the pattern trading list this morning. I still like the outlook for the sector short term.

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. Could get a gap open for the market based on the futures. Watch the entry points and don’t chase things in this market environment.
  2. SSO – entry $102.30. Two tests of the 1816 support on the index and looking for a bounce move from the oversold conditions short term.
  3. QLD – entry $93.85. Another test of support for the NASDAQ and bounce. Looking for a follow through on the upside bounce.

Pattern Trade Tracking & Follow Up:

  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. 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. HIT STOP
  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.
  • 4/16 – Consolidating and looking for a bounce trade to come from the near term support. The Sept 57.5 Call options look good at $8 or less currently (50 contracts). We will watch how they open this morning and then make our decision on the trade and the amount. A short term target of $63.30 looks reasonable. That would equate to about a $2 move in the option or approximately 25%.