Trading Notes for Today, April 17th

Notes from Thursday:

The markets finally spent the day on the upside Wednesday without a big intraday swing. However, now the questions start… how much upside does this bounce have before running into the same old worries about the Fed and the future growth of the US economy. The Fed’s beige book was released Wednesday and the consensus was the economy was improving in most of the country.  We can all rest assured the upside has returned and buy stocks… well at least on Wednesday. How much improvement over the months prior to winter pressures remains a bigger question altogether… Investors liked the news pushing stocks higher Wednesday following the announcement. Now comes the overbought talk next.

NASDAQ and the Russell 2000 lagging on the move Wednesday. The S&P 500 and Dow leading the move off the lows. Volume on the low side on the upside move a concern as rotation to dividend/value stocks leading the move. Leadership still coming from the defensive sectors of utilities and consumer staples. Looking at the move in CLX, CL, AEP, NEE and PG shows where the money is going. Growth still lagging for now.

Google reported after-hours and missed earnings. The stock was down 3.3% and not looking good for the technology sector. IBM missed earnings as well last night and the stock was trading lower by 4%… another bad omen for tech. QQQ was down 0.7% and will weigh on stocks as well. Sandisk was up 6% on better than expected earnings as at least one tech stock showed some improvement.

Morgan Stanley is out this morning prior to the open. We need some good news in the financials. GE, Fifth Third Bancorp, Blackrock and plenty of others announce this morning with the market closed on Friday. Three day weekend… some bad earnings last night… need something positive to balance the trading today or we could see the downside return.

Last trading day of the week with the Good Friday holiday closing the markets on Friday. Options expiration should keep it interesting on a generally slow trading day.

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

Sectors to Watch:

  1. S&P 500 index played followed through on the intraday bounce on Tuesday and gained 1% on Wednesday. This is the bounce we have discussed and it played out well with the index leading the way. A rotation to dividend/value stocks is providing the leadership to the index. The volatility dropped back near the 14 level on the VIX with the buyers were willing to put money to work . This leaves the question of how high to do we bounce? Is the downside done? 1870 resistance and downside still in play from my view. Trade the bounce, exit weaker positions on the move and look for the short set up when the sellers return. Patience is the key on both trades.
  2. NASDAQ gapped open, tested the open and then headed higher on positive data from economy and earnings. Tested again and closed higher on the day up 1.3%. Cleared the resistance 4053 level with 4185-4243 target on the bounce. Watch how the index handles the 10 DMA today on the upside? A stall at this level would be a negative sign for the bounce. Added QLD on the pattern list.
  3. EAFE index (EFA) is attempting to held the 50 DMA, and moved back above the $66.50 level and our re-entry trade at $66.75. The index is back to following the US markets with a 1.3% gain on the day. Watch and manage your risk.
  4. Emerging markets (EEM) was doing well until the Russia news rattled investors on Tuesday. That news is still a concern to the emerging markets. The bounce back today was positive, but failed to cleared the $41.50 re-entry level on the day. Still have to manage the risk and volatility associated with the Russia issues and others around the world.
  5. Bond yields holding fell to 3.4% on the 30 year bond as they started higher, but faded as the day progressed. Not a good sign for stocks. This is a new near term low for the yield as TLT rallied on the safety trade. 2.63% on the ten year bond as fear is benefiting the bonds. Didn’t bounce with equities today? Still not a buyer other than the fear trade short term if it returns following the current bounce.
  6. Financials (XLF) continue to struggle as Bank of America missed earnings. The sector ETF did trade through resistance at the $21.60 mark today and offered a short term trade on the bounce. Banks and Brokers are announcing earnings and they are mixed, not giving much to like short term outside of a trade. 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 broke out to breakout to a new high and is making strides from the higher price in natural gas. This was a delayed reaction versus the price of the commodity. Good entry point for XLE on the pattern trading list Tuesday and nice follow through on Wednesday. I still like the outlook for the sector short term.

Models:

Sector Rotation Model (updated – 4/16/14) added to watch list

ONLY ETF Model (updated – 4/16/14) added to watch list

S&P 500 Index Model (Updated – 4/16/14) added to watch list

ONE EGG Model (updated – 4/16/14) in play

Pattern Trading Setup:

Today’s opportunities:

  1. Not expecting much heading into a three day weekend. Willing to watch and make moves as they present themselves.
  2. RAD – entry $7.25. Flag. Continuation on the upside for the stock.
  3. GDX – entry $23.50 short trade. Bear Flag. Breaking down as gold reverses. Watch and be patient on the volatile metal. DUST is the leverage short ETF.
  4. GE – entry $26.25. Trading range breakout. Value stock coming back into favor. Gapped on earnings above the entry… patience.
  5. FB – entry $60.12. Bottom reversal. Clearing first levels of resistance on reversal.
  6. CMG – entry $$555. Bottom reversal. Still upside in the stock watch for clear move. Gapped on earnings above the entry… patience.

Pattern Trade Tracking & Follow Up:

  1. QLD – entry $93.85. Another test of support for the NASDAQ and bounce. Looking for a follow through on the upside bounce. Stop $93.30.
  2. SSO – entry $102.75 (above entry posted). Two tests of the 1816 support on the index and looking for a bounce move from the oversold conditions short term. Stop $102.
  3. 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.
  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. 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%.
  • 4/17 – Still looking for some positive action in the stock to warrant going long. Opened lower fought back to positive, but never showed any conviction and closed on a doji. Watch to see how it does in trading today. We could see another test of $56 before gaining any momentum on a bounce off support. Earnings are next Wednesday and that isn’t a great thing to get in front of with a new position.