Trading Notes for Today, April 21st

Notes from Monday:

Nearly one-third of the S&P 500 index reports earnings this week, if that doesn’t provide a catalyst for stocks… not much will. The cross section of sectors reporting will give clarity to what is taking place in the economy relative to corporate America.

Outlook for the Week of April 21st (Weekend Update)

Sectors to Watch:

  1. S&P 500 index closed at 1865 and resistance is just overhead at 1873. With so many earnings on tap this week the expectations are mixed. Reading reports puts the upside about 50/50, at least that is how it reads. The reality is in the earnings and the data. Be patient, keep your stops in place and let it play out this week.
  2. NASDAQ technology and small caps are holding the index back currently as they lack much in conviction on the upside. The next resistance 4130 level with 4185-4243 target on the bounce. Set your stops and let it play out this week.
  3. EAFE index (EFA) is pushing back near the $67.93 highs and resistance potentially. The global markets were looking for some resolution in Russia, but that is still in the works. Watch to see how it opens the week and what opportunities are offered.
  4. Emerging markets (EEM) is back above the $42 mark on Thursday and holding. The issues in Russia are a key to the upside continuing and I expect some volatility until there is clarity in the situation.
  5. Bond yields moved up 10 basis points Friday and rattled the fixed income sectors. The thirty-year bond moved to 3.5% and the ten-year closed at 2.72% which pushed prices lower on both bonds more than 1%. The move came on the heels of Yellen’s comments of keeping rates lower through 2016. So much for believing what the Fed has to say. Warning shot for bond positions it the upside in yields continue.
  6. Energy (XLE) moved into the leadership role last week. There is still upside opportunity in the sector going forward, but it also brings concern about the impact to higher gasoline prices. Hitting on all cylinders currently and worth digging into the leadership of the stocks. 
  7. As we stated on Thursday, the upside could gain some strength due to the Fed’s renewed commitment to keep stimulus in place in terms of lower rates. Watch to see how the week starts and what earnings hold in store relative to growth and outlook. Patience is the theme for the trading week.

Models:

Sector Rotation Model (updated – 4/20/14)

ONLY ETF Model (updated – 4/20/14)

S&P 500 Index Model (Updated – 4/20/14) added to watch list

ONE EGG Model (updated – 4/20/14) in play

Pattern Trading Setup:

Today’s opportunities:

  1. MA – entry $$75. Bottom reversal. Tested 200 DMA and trade back to $78. Earnings are 5/1.
  2. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading.
  3. IYT – entry $136.80. Trading range breakout. If markets are going higher leadership from transports will be important. 
  4. GE – entry $26.25. Trading range breakout. Value stock coming back into favor. Gapped on earnings above the entry… patience.

Pattern Trade Tracking & Follow Up:

  1. RAD – entry $7.25. Flag. Continuation on the upside for the stock. Stop $7.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher. Stop $32.85.
  7. NEE – Entry $91 on the test of the breakout at $90. Stop $95.69.

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 Wednesday and that isn’t a great thing to get in front of with a new position.