Trading Notes for Today, April 23rd

Notes for Wednesday:

As we started the week we stated that nearly one-third of the S&P 500 index reports earnings this week¬†and we were looking for it to¬†provide a catalyst for stocks… and the upside has benefited. Six days on the upside and no signs of change coming. The belief the Fed is going to stay engaged in some type of stimulus to keep interest rates low has been a key component to the bounce off the April 11th low.

Growth stocks returned to the upside on Tuesday leading the broad market indexes higher. Small caps were up 1%, retail up 1.2% and semiconductors up 0.9%. This was a positive sign for the broad indexes as the defensive and dividend stocks were leading to this point. If the market are going to produce a new high and sustain it, they will need the growth stocks in the lead.

S&P 500 index is at the next level of resistance of 1880 and in position to test the previous highs. Is there enough upside left to establish a new high without a test of the current move? We will see and earnings will still play a critical role this week in determining the outcome.

Russell 2000 Small Cap moved above 1148 and gained some renewed momentum on the upside. The lagging of the sector has been a concern for the current move. The 50 DMA or 1166 is the next level to move through relative to resistance. Willing to add to position on move above $115 on IWM.

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

Sectors to Watch:

  1. REITs РTechnically the sector moved back above the resistance at $68.40 and could complete a breakout move from the current consolidation pattern (ascending triangle). I still want to manage this with a longer term time horizon. The dividend is still 3.6% (on entry price) and the upside in the current low interest rate environment offers more upside. Scanning the sector for the individual leadership has produced some nice plays on the upside as well.
  2. Emerging Markets – The sector remains challenged by the geopolitical issues in Russia. However, if this clears without incident I would look for a renewed push to the upside. EEM is consolidating above the $41.25 support level currently. Volume has dropped the last week as this is taking place. I am willing to be patient as this unfolds, and then take the risk of ownership with a 12-36 month outlook. Entry on upside move is $41.75 with stop at the $41 level for now.
  3. Russia – part of the emerging market sector is bouncing off the recent lows as the hope of the Ukraine incident being settled without war is becoming optimistic. RBL, RUSL and ERUS are several ways to capture the move as a trading opportunity. Remember, news driven moves take on a higher degree of volatility and uncertainty. This is a short term trading opportunity only at this point in a sector that is oversold due to the negative outlook politically if Russia acts without approval from the international community. I am not willing to take the risk currently, but felt I should discuss the opportunity.
  4. Precious Metals/Gold – The metal continues to struggle following the bounce in equities off the recent lows. The intraday break of $123.50 Tuesday is worth our attention as a confirmed break lower opens the downside for a potential test of the January lows at $114.40. A short position against the miners would be the better play selection versus shorting gold (GLL). DUST or JDST offer this in an ETF format. $1280 on the metal is the support and being tested now.
  5. Dividend/Value Stocks РWhile this is not really a sector it is a division of stocks by classification worth watching. The ETFs like FGD, MDIV, HDV  or IDV all focus on the dividend part of the equation. In reviewing these you can see the downside move over the last test or pullback was considerably less than growth stocks. This could be attractive from a longer term outlook as the investor continues to look for where to put money to work.
  6. Commodities/ Energy Рcommodities overall are still a mixed bag of emotions as traders determine how to treat prices in light of demand, inflation, geopolitical influence and the value of the dollar. Crude and natural gas have been leading the upside relative to the energy component, but gasoline is also on the rise. Tuesday crude fell nearly 2% and is trading lower this morning. That hit stops and raises the question again about demand. It fell to support at $101.54 and closed above that level with $100.50 as the next level to watch. UNG holding gains for now on break above the $26 level.
  7. Commodities/Agriculture – this component climbed nearly 20% in February as coffee (JO) took the jump higher, hit another new high on Tuesday gaining 8.6%. CORN was helping, but has tested lower of late. Soybeans (SOYB) have been rising again. DBA broke to new high above $28.85 on Tuesday giving another entry point. Upside still in play.
  8. Global markets have been looking better and have tested of late on the news with Russia. The EAFE index (EFA) is holding near the highs ($68)and looking for a breakout move short term. Some country ETFs worth tracking now are EWC, BRZU and GUR. Both EFA and IEV are trading in tandem currently and holding with IEV hitting new high on Tuesday’s close. Longer term view of the asset class is still attractive and worth building a position as the opportunity unfolds.
  9. Bond yields moved up 10 basis points Friday and rattled the fixed income sectors, but is settling some as this week progresses. The thirty-year bond moved to 3.5% and the ten-year closed at 2.72% which pushed prices lower on both bonds this week testing the move higher. 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.¬†Watching for rates to stabilize and remain in a trading range.
  10. Energy (XLE) moved into the leadership role last week. There is still upside opportunity in the sector going forward, but it needs to digest this move near term. Technically oversold, but watching and managing the stops. Hitting on all cylinders currently and worth digging into the leadership of the stocks.
  11. Pharmaceuticals (XPH) tested support near the 200 DMA, and Monday added 2.4% and Tuesday 3.1% to the bottom reversal. The sector broke above the micro downtrend that has been in play off the March highs. How high does the sector bounce and is there enough momentum behind the move is the bigger question. Moving through $92.50 was the first task and now a move above $95.35 and the 200 DMA would put the uptrend back on course. AGN has been one of the key leaders in the sector going vertical and adding 6% gains on Monday, only to follow it up with at 15.2% jump on Tuesday. Scanning the sector shows some nice pattern set up for the upside to continue. Fundamentals are still a question mark longer term.

Models:

Sector Rotation Model (updated Р4/22/14)

ONLY ETF Model (updated Р4/22/14)

S&P 500 Index Model (Updated Р4/22/14)

ONE EGG Model (updated Р4/22/14)

Pattern Trading Setup:

Today’s opportunities:

  1. IJH – entry $136.65. bottom reversal and break through resistance.
  2. MA – entry $75. Bottom reversal. Tested 200 DMA and trade back to $78. Earnings are 5/1. No follow through today, still watching.
  3. 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. SCTY – entry $57.90. bottom reversal. Tested the 200 DMA and move back to the 100 DMA target on the trade. Stop $57.35. July 57.50 Call alternative to the stock. TAN at $41.30 alternative to stock as well on same upside move with more diversification in the sector ETF. stop $42.
  2. IYT – entry $136.80. Trading range breakout. If markets are going higher leadership from transports will be important. Stop $136.80
  3. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  4. RAD – entry $7.25. Flag. Continuation on the upside for the stock. Stop $7.
  5. QLD – entry $93.85. Another test of support for the NASDAQ and bounce. Looking for a follow through on the upside bounce. Stop $96.70.
  6. 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 $104.20.
  7. 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. Stop $92
  8. NEE – Entry $91 on the test of the breakout at $90. Stop $95.16.

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)

  • 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.
  • 4/23 – It is all about earnings today. Ad revenue good stock runs higher. The option trade we discussed last week has played out nicely on the move Tuesday. Take some profit on half and carry half into earnings would be the suggested play. I will be interested to read the earning report and determine how we want to deal with the position¬†moving forward.