Trading Notes for Today, April 28th

Notes for Monday:

No changes in the world over the weekend which allows us to start the week without news driving the market direction. Futures are pointing modestly to the upside and the all seems peaceful for now. We still have many of the same issues facing us, but nothing worrying to start.

Friday’s selling left a mark on the sentiment, but investors have had two days to rethink and determine how they want to approach the markets. The debate over buy the rally or sell the bounce is still being waged in the media and we are not likely to get a resolution today. However, this is the end of April and that brings all the economic data back to the forefront relative to growth and jobs. It could offer a short term catalyst if the numbers have improved.

As we discussed on Friday the short side of the market is setting up and baring any positive catalyst the sellers are going to take their shot going forward. As we know the downside happens faster and with greater anxiety than the upside which is why you have to plan for the best, but always be prepared for the worst. Take what the market gives and don’t fight the trend.

Outlook for the Week of April 28th (Weekend Update)

Sectors to Watch:

  1. REITs – The sector moved back above the resistance at $68.40 and stalled. We are still looking for a move above the previous high at $69.40. I still want to hold and manage this position with a longer term time horizon. Scanning the sector for the individual leadership has produced some nice plays on the upside as well. Dividend is still 3.8% currently.
  2. Emerging Markets – The sector remains challenged by the geopolitical issues in Russia. The move back below $41 is a negative and we did hit our stops on the position, but this will resume the uptrend if and when the Russia issue clears. I am keeping it on my sectors to watch as the upside bias remains… at least for now. Still have a 12-36 month outlook on the sector.
  3. Russia – News and speculation returning last week sent sent the country ETF lower. RBL, RUSL and ERUS are ETFs that reflect the negative impact of the selling. I suggested RUSS for the short side of the trade if things got ugly and they have at least in the news. Raise your stops to $19.80 on any positions.
  4. Precious Metals/Gold – Held the $123.50 support last week and managed to bounce. As we discussed last week, the volatility is a result of speculation. The gold miners and the metal have returned to trading in the same direction for now. We closed the week with an upside bias and we look that direction to start the week. Move above $125.50 would be a continuation of the upside bounce.
  5. Dividend/Value Stocks – The asset class remain on our watch list as a upside opportunity. 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. For longer term positions these are worth the consideration.
  6. Commodities/ Energy – The price of crude oil declined last week, but held at the $100 level of support. It also held the short term uptrend off the January low. It is trading back above the $101 level over the weekend and is poised to start the week on the upside. Watching to see how it unfolds today, and will trade accordingly.
  7. Commodities/Agriculture – this component climbed nearly 20% in February as coffee (JO) took the jump higher, hit another new high last week. DBA broke to new high above $28.85 last week as well and remains in play. Manage the volatility of the parts and let it run. Adjust stop on DBA to break-even at $28.50.
  8. Global markets 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 EWA. The longer term view of the asset class is still attractive and worth building a position as the opportunity unfolds.
  9. Bond yields moved down last week as stocks sold. The thirty-year bond fell to 3.43% hitting a low not seen since last June. The ten-year hit 2.66% and remains in the range it has been trading since January. Rally in the bond is the result, but I would still be cautious and treat this as a trade on the yield move and nothing more.
  10. Energy (XLE) remains a leader, but it is looking ready to stall or pause short term. Be cautious and adjust your stops according to your time horizon. A test could create an opportunity to add to positions. Technically overbought, but watching and managing the stops.
  11. Pharmaceuticals (XPH) Positive test and bounce back to resistance near the 50 DMA. Looking for a follow through on the bounce as the earnings have been mixed, but positive. The biotech sell off has been impact the sector overall, but look for the upside to follow through. $95 is the level willing to add to positions.


Sector Rotation Model (updated – 4/26/14)

ONLY ETF Model (updated – 4/26/14)

S&P 500 Index Model (Updated – 4/26/14)

ONE EGG Model (updated – 4/26/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Hit plenty of stops on trading Friday. I am of the opinion to watch Monday and see how the sentiment returns from the weekend. The futures are pointing to the upside slightly, but willing to see how it unfolds for now. Always willing to be patient during periods of uncertainty.
  2. SCO – entry $27.75. bottom reversal. Oil is struggling to maintain support. Trade lower. ONLY ETF Model post. Gap Open and passed on the trade.
  3. YUM – entry$78. consolidation breakout. Positive news impacting the short term momentum.

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. HIT STOP
  3. IYT – entry $136.80. Trading range breakout. If markets are going higher leadership from transports will be important. Stop $136.80 HIT STOP
  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. HIT STOP
  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. HIT STOP
  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. HIT STOP
  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.