Trading Notes for Today, April 2nd

The willingness on the buyers part to step in and take advantage what is viewed as an oversold condition in growth stocks continued on Tuesday with the NASDAQ up 1.6% for the day. The economic data was positive, barely, but enough to keep the buy side interested in stocks. The fact that profit warnings are near all time highs investors continue to buy in the face of first quarter earnings. The fact that companies warn doesn’t mean earnings will be a mess, but it odd that with valuations at or near highs, investors still want to buy stocks. As the saying goes, “it ain’t over ’til the fat lady sings!”

What are we looking for Today?

More buying? The biggest question on investors minds, will the bounce last? Do comments from Yellen give enough reason to rally base on the Fed remaining involved in QE or other stimulus? With all the questions, and little in terms of direction we have to go with the current pricing of stocks and manage the volatility of the markets in the interim. 

The resurgence of growth stocks has put technology, biotech and small caps back in the forefront of the market. XLK closed at new high, IBB reversed off low, and IWM cleared $116.65 resistance on the reversal. Test or follow through? Watching for the next move in the current reversal. Bounce or renewed optimism in stocks near term?

Outlook for the Week of March 31st (Weekend Update)

Sectors to Watch:

  1. S&P 500 index watching to hold 1840-1850 support and 1885 resistance (closed at that mark). Made upside progress breaking to a new high and breaking through the consolidation. We now have the task of following through after two solid days of buying. Watch how this unfolds and be patient with the buy side today.
  2. NASDAQ recovers from selling to support with three solid days of buying to push the index back above 4250 mark. That was the previous support and we will see how it plays from here. FDN, IGN, IGV and SOXX were all higher on the day with the SOXX ETF hitting a new high on the day. Growth buyers are back for the moment and we are watching how this unfolds short term.
  3. EFA held support ($64.50 ) and moved through the entry point of $66.50, and followed through on the upside buying. Thus, we look to see how this trade plays out today with resistance at $67.75. If we get through that level we are headed to new highs for the index.
  4. Emerging markets (EEM) Broke the downtrend line back to the upside and shows interest from investors short term. We hit the entry point and it gapped higher on Friday followed by solid gain on Monday and Tuesday. Watching to see how it acts at resistance of $41.75.
  5. Bond yields moved off the newly minted low of  3.49% and are now at 3.6%. The short side of the bonds are attractive from a longer term outlook. If the yields continue to advance the short trade on bonds will be next.
  6. Biotech (IBB) bounced on Monday from the oversold technical indicators. Will this return to the previous highs following the selling? Worth watching, but the risk remains on the buy side. Entry for a trade would be a move through the $245 level.
  7. Energy (XLE) is on the move as it broke through $88.50 on Friday and held the move higher this week. Rotation of money has been one reason for the gains along with sustained moves higher in oil prices. Tuesday oil prices tumbled to $99.74 giving up 1.8% on the day. Watching to see if it impacts stock prices in the sector. 


Sector Rotation Model (updated – 4/1/14)

ONLY ETF Model (updated – 4/1/14)

S&P 500 Index Model (Updated – 4/1/14)

ONE EGG Model (updated – 4/1/14)

Pattern Trading Setup:

Today’s opportunities:

  1. IBB – entry $245. Bottom reversal. Previous leader finding buyers. Need follow through.
  2. IHF – entry $99.70. New high breakout and uptrend continuation.
  3. FDN – entry $60.60. Bottom reversal. This support and reversing? Watch for the follow through on the move.
  4. DBA – entry $28.50. Flag pattern. Continuation of the uptrend on break higher.
  5. CORN – entry $34.50 test of the breakout from cup and handle pattern. Don’t chase, no test/no trade today.
  6. IM – entry $29.65. Consolidation breakout.
  7. MS – entry $31.50, Bounce of support (50 DMA) and continuation of uptrend. Tested early and never got momentum. Watch today.

Pattern Trade Tracking & Follow Up:

  1. XLF – entry $22.35. Test of trendline off February low. Looking to hold longer term and manage the volatility of the position. Stop $21.30
  2. XLE – entry $88.50 test of breakout. Watch for a test of the move through the break from the consolidation pattern. Max entry from test is $89.25.
  3. SLX – entry $46.50. Downtrend break off January high. Reversal off low, back above the moving averages, and positive stock movement. AKS as example. Watching as it failed to follow through on the day.
  4. EDC – entry $25.50 ($26.10). Trading range breakout. Finally got the move higher in the emerging market index and looking for the follow through this week. Stop $25.45.
  5. JNJ – entry $96 ($95.75). trading range breakout. Look for test of the move and entry near $96. If higher don’t chase. Added after opening test. Stop $95
  6. WDC – entry $90. trading range breakout. Follow through on upside move. Stop $88.50.
  7. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  8. STX – entry $52.23. base, descending triangle. technology sector. Stop $54. Raised stop to see how this breakout plays out. Tested Thrusday watch today and take exit if fails.
  9. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $59
  10. SMH – entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop $44.25.
  11. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  12. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  13. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $12.75. Adjust your stop.

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)

  • 2/18 – Raise stop to $58.95 currently and manage the move to the new high according to your risk. With the price moving through the top of the Bollinger bands some downside activity may be on the horizon or a continuation of the top consolidation.
  • 2/19 – $16-19 billion acquisition of WhatApp pushed the stock down 2.5% after the announcement in after-hours trading. Watching to see how investors react in trading today.
  • 2/24 – Continuation of the upside momentum. Plenty of news and comments on the stock, but the buyers remain confident short term. Looking at adding a trade on the stock with options. Watch to see how it trades today.
  • 3/1 – rolling top? Watching to see how this plays out short term and will look for a hedge on the remaining position this week. Raise stop to $63.75.
  • 3/5 – Target upgrade and stock runs higher on the move. Move stop to $65.90 and what how this plays out from this point patiently.
  • 3/12 – Setting up to add a $70 put contract for June at $6.85. 20 contracts. Looking at how we trade the balance of the week and if any weakness develops in the stock.
  • 3/13 – Added 20 puts @ $70 for June at $7.05 today. This will act as a hedge against the position and add some profit if the shares break support.
  • 3/24 – Holding support at the $66.50 level. If we break lower the downside could accelerate towards the $60 mark. Keep stop in place on the shares and manage your put contracts. HIT STOP and held out put contracts. Watch to see how this plays out going forward. Look to lock in gains on half of the position if the selling accelerates.
  • 3/26 – Sold on buyout news and hitting next level of support? Bounce in play. Watch the puts and look to sell half to lock in nice gain and hold half with stop at $62.90 on stock.
  • 3/27 – Sold half (10 contracts) in the morning decline and bounce at $12.6o locking is a gain of $5.55 per contract. Nice gain on the position. We hit stop on the remain 1000 shares at $63.75 and still own 10 puts. Looking to exit the puts today if the stock moves higher and then we will address how we want to play the stock moving forward. Looking at selling puts with a strategy of having the stock put to us if it drops near the entry level we would like town the stock. This would assume the risk on the downside has played out near term.
  • 3/31 – Still maintaining our puts for now as the consolidation at the lows builds. Maybe a bear flag pattern developing? Watch and set your stop on a move in the stock above $62.90 as noted earlier.
  • 4/2 – Watch stop on remaining options contracts with stock moving higher with the broad market. Bottom reversal setup on the move currently. $63.30 add 500 shares long. Held the 100 DMA and continuation of the reversal we will add to the shares.