Trading Notes for Today, April 25th

Notes for Friday:

We stated Thursday morning in the notes to let the opening euphoria over Apple trade out in the first half hour. It did exactly that with an assist from Russia putting more military pressure on the Ukraine. That erased the opening jump and allowed for some buys on positions we had posted earlier this week and last night. After a test of the morning lows the markets bounced back to close positive overall, but still suspect as to what is on the horizon.

Jobless claims rose 24k to add to the morning surprises. It was lost in the news relative to Russia, but it is worth our attention going forward. The durable goods numbers were better than expected growing 2.6% versus the 1.8% estimate from economist. The economic data remains a challenge for investors as the growth many expected to show up this year has not materialized.

Skimming the major sectors shows it is still any ones opinion on direction as the broad markets approach the previous highs. Technology is still trying to find it’s leadership form, but has struggled to hold the 50 DMA following the bounce from the recent lows. Utilities, Consumer Staples, REITS, MLPs and Energy have been the leadership, but they are the defensive sectors. Not saying it is bad, just saying it is not the leadership you want for a run at a new high and beyond. Small Cap, Healthcare, Financials and Consumer Services are still the laggards and have a hangover from leading the run higher off the 2012 lows. We have spent the last few days consolidating and holding steady. A trading range may be the new reality moving forward, and something we need to adjust to if it is the new reality.

The Dow is in position to break out to a new high. 16,529 resistance and the the 16,572 high is in play. All eyes are fixed, hope is being whispered for a new high to give the broad index some momentum. Patience may be rewarded.

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. Thursday got a open move higher, but failed to hold much of the gains. Watch to see if the sellers try again to push the indexes lower.

Russell 2000 Small Cap dropped 1% as the selling pressure was back the last two days. The Apple effect did nothing to help the sector. The lagging of the sector is 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, if holds higher, willing to add to position on move above $115 on IWM.

The futures are trading slightly lower this morning as the worries about Russia remain. As I stated in my blog post last night, this is news and speculation until something happens. The bottom line is news and speculation come from uncertainty and the market hates uncertainty as it creates a lack of confident, which leads to the speculation.

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 need to move above the previous high at $69.40. That would complete a breakout move from the current consolidation pattern. I still want to manage this position 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. Tested $41 at the open on Thursday and held to close at $41.40 with a hammer doji reversal? If the Russia issue clears without incident I would look for a renewed push to the upside. That may be a big if, but we continue to watch and see how it is playing out. Still have a 12-36 month outlook on the sector.
  3. Russia Рpart of the emerging market sector bounced off the recent lows on the hope of the Ukraine incident being settled without war. However, that is now an optimistic view with the new reality a a conflict starting. News sent markets lower at the open on this issue Thursday. 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 РThe metal continues to struggle following the bounce in equities off the recent lows. Opened at $122.85 on Thursday, but the jumped higher on the Russia news and the metal closed at $124.56 and above the $123.50 support. News driving and not interested at this point to put money at risk in uncertainty. The miners jumped on Wednesday and I Wrote a post on the outlook Wednesday. For now willing to watch and see what opportunity if any comes from this current activity.
  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.
  6. Commodities/ Energy – commodities 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 fell nearly 2% earlier this week and bounced on the worries in Russia Thursday. Watching the downside as a trade opportunity, however, it the worries grow, the upside may be back in play. Still holding support at $101.30. UNG fell 1% and watching. Energy stocks continue to trade in uptrend.
  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. SCO – entry $27.75. bottom reversal. Oil is struggling to maintain support. Trade lower. ONLY ETF Model post.
  2. IJH – entry $136.65. bottom reversal and break through resistance.

Pattern Trade Tracking & Follow Up:

  1. GE – entry $26.30. Trading range breakout. Value stock coming back into favor. Gapped on earnings above the entry… patience. Got the test early and added the position. Stop $25.70.
  2. 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.
  3. IYT – entry $136.80. Trading range breakout. If markets are going higher leadership from transports will be important. Stop $136.80
  4. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  5. RAD – entry $7.25. Flag. Continuation on the upside for the stock. Stop $7.
  6. 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.
  7. 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.
  8. 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
  9. 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. Attempted to make the move higher, but traded lower on the day. Plenty of opinions on the stock currently keeping it in check and a bottoming trading range. Patience as it all plays out.