Trading Notes for Today, April 24th

Notes for Thursday:

Not much changed on the day today and we continue to watch how this unfolds. Some modest selling in the S&P 500 index and Dow to test the moves higher, but all it amounted to was an inside trading day for both. The NASDAQ was down 0.8% on the day as the internet and software sectors began selling again. The move erased the gain on Tuesday, but after-hours Apple beats both top and bottom line and announces a stock split sending the stock up 8%. That will shift the futures back to the upside for the index.

Technology fell 1% on Wednesday with the internet down 1.7% and software down 1.2% to lead the sector lower. The Apple effect will push the sector back to the upside, but that will not change the influence or weakness in these sub-sectors. Watch how this plays our going forward. I have been scanning both sectors look at the short opportunities.

S&P 500 index remained 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? Wednesday gave a modest test and inside trading day. Today will open higher, but will it be able to hold the upside throughout the day? Do the sellers take a shot here opening positive from Apple, yet the economic data is on the weaker side. Housing numbers were awful. Watch how the day unfolds it could be interesting.

Russell 2000 Small Cap dropped 0.7% as the selling pressure was back, but the Apple effect has future trading higher again. 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. Watch how this trades early, if holds higher 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 РThe 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. Intraday test lower on Wednesday, but closed at $41.34. We have to be patient as this unfolds, and let the opportunity present itself. Still have a 12-36 month outlook on the sector.
  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¬†was¬†becoming optimistic, but no news causes worry. US presence now isn’t helping matters. 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.¬†RUSS is the short side of the trade if things get ugly.
  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. Wrote our post last night on this issue with gold and the miners
  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, DVY  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. Tuesday crude fell nearly 2% and is holding support near the 50 DMA. Watching the downside as a trade opportunity.
  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 has tested lower of late, but bounced back on Wednesday. Soybeans (SOYB) have been rising again. DBA broke to new high above $28.85 on Tuesday giving another entry point and followed through on Wednesday. Upside still in play, but manage the volatility of the parts. Adjust stop on DBA to break-even at $28.50.
  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 has since declined back to 3.46% on the thirty-year bond and the ten-year closed at 2.68% which pushed prices higher on both bonds. Watching for rates to stabilize and remain in a trading range despite what looks like uncertainty on the economy vs stock values.
  10. Energy (XLE) moved into the leadership role last week and continues to follow through on the upside. The pause on Tuesday shows a need to test the move higher, but it will have to wait. Be cautious and adjust your stops. A test could create an opportunity to add to positions. Technically oversold, but watching and managing the stops.
  11. Pharmaceuticals (XPH) tested support near the 200 DMA, and Monday added 2.4% and Tuesday 3.1% as follow through to the bottom reversal. Tested lower Wednesday down 1% at the 50 DMA. Still looking better off the low. 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. Use the move to add to or add a position in XPH. 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 Р4/23/14)

ONLY ETF Model (updated Р4/23/14)

S&P 500 Index Model (Updated Р4/23/14)

ONE EGG Model (updated Р4/23/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Let the initial gain on the Apple news get out of the way the first half hour and see how this is going to trade today. Slight, very slight, chance the sellers take a stab at an intraday reversal on the opening buying.
  2. IJH – entry $136.65. bottom reversal and break through resistance.
  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.
  • 4/24 – Sold lower by 2% into earnings. Earnings were positive and stock gains the 2% back after-hours. Watching the open today. Need to hold the move above $63 and willing to add a longer term position back in the stock with 1000 shares.