Trading Notes for Today, April 29th

Notes for Tuesday:

Roller-coaster day for the markets on Monday, but they managed to find their way higher before the close. The worries over banks and some more issues in Ukraine prompted the selling, but the buyers seemed to be willing to step in and take advantage of prices on rumors of Russia withdrawing in Ukraine. The news relative to Russia is as volatile as the market. How does it play out following the bounce intraday? Flip of the coin, however it will matter how we open in the morning, technically it is a high  probability to set the direction of the day. A couple of indexes and a stock to watch at the open for some insight on the day:

Dow closed at 16,448, but with the intraday reversal set up a bullish harami (candlestick technical data point) which theoretically,¬†if opens on the upside this morning, will make a move higher… target of 16,575 on the move and possible trade opportunity. DIA is the simple way to play the move or a call option on the index.

NASDAQ Composite index closed at 4074 and the NASDAQ 100 both left a doji (candlestick setup) which if it opens on the upside this morning will move higher as well with a target of the 50 day moving average. QQQ is the simple way to play the move or a call option on the NDX.

Google (GOOG) traded lower and closed at the 50 DMA with a doji (candlestick setup) and if it opens positive will give a continuation off the intraday trade reversal on Monday with a target of $545. Negative open could trade down to $487.

Since the market is choppy and new driven the short term trade opportunities setting up are worth watching today. We are still looking for some clarity as we close out the month and start the April economic reports on Thursday. Maybe it will bring some clarity and direction to the market near term. Proceed with caution and take what the market gives one day at a time.

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 (close on Monday). 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 last week was a negative and we did move back and closed at $41.02. I am keeping it on my sectors to watch as the upside bias remains… at least for now, letting the Russia issues unfold before getting whipped around in the sector. Still have a¬†12-36 month outlook on the sector.
  3. Russia РNews and speculation sent sent the country ETF lower. RBL, RUSL and ERUS are ETFs that reflects the negative impact of the selling. RUSS is the ETF for the short side of the trade if things get ugly again (Hit stop on Monday. Watch and see how today plays out.
  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. Both closed lower on Monday. Move above $125.50 would be a continuation of the upside bounce. Not much in terms of conviction towards the metal currently. Cautious about anything but a trade.
  5. Dividend/Value Stocks РThe 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 tested 50 DMA support early on Monday, but closed 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. Tested lower on Monday, keep stop in place and let it play out.
  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 up slightly on the mixed stock day. The thirty-year bond¬†rose to¬†3.45% Monday bouncing off the new low not seen since last June. The ten-year hit 2.67% 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. Holding our bond positions, but aware that yields could rise short term… manage your stops and risk.
  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. Small give back on Monday, but still favorable outlook.
  12. Consumer Staples (XLP) broke higher on Monday with a solid move of 1.2% (big move for the sector) adding to the upside and the defensive stocks story line. Raise stop and manage the gains in the position.

Models:

Sector Rotation Model (updated Р4/28/14)

ONLY ETF Model (updated Р4/28/14)

S&P 500 Index Model (Updated Р4/28/14)

ONE EGG Model (updated Р4/28/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Still a volatile market. There are some trades if we follow through on the bounce. Watch, manage the intraday volatility and remember these are trades not long term plays. Taking a quick profit is the objective.
  2. WNR – entry $42.40. break from consolidation. Look for test on move Monday and take the entry as the refineries move higher.
  3. YUM – entry$78. consolidation breakout. Positive news impacting the short term momentum. Close early, but failed to recover and break higher. Still looks attractive short term.
  4. FXC – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade
  5. CQP – entry $34. Flag. continuation of the uptrend following consolidation.
  6. PCLN – Point of interest… Tested the 200 DMA, bounced back intraday to $1139 (previous support), climax selling volume. Should trade back near the $1200 mark. Watching how it opens and making a determination on any trade.
  7. FB – sold to support at the $54.80 level held and closed at $56. bounce back to $58.30+ or test the 200 DMA. In position to break lower if the selling in the growth stocks continues.

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. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  3. 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
  4. 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.
  • 4/28 – Tested support at the $54.85 level. Watch to see if it breaks support. If it does the downside trade in order.