Trading Notes for Today, April 30th

Notes for Wednesday:

Another month comes to a close and the markets continue to move up and down on worries. Ukraine and Russia continue to do the war dance, the economic picture was not stellar in the least, the Fed continues to cut stimulus (expected to cut further at today’s FOMC meeting), earnings have been hit and miss (overall positive, but suspect) and high beta growth stocks are out of favor for the new low risk stocks (no such thing, but Wall Street makes it sound good). The April showers through last night have produce a 0.4% loss for the S&P 500, a 0.2% loss for the Dow, and the NASDAQ fell 3.9% as the biggest loser! Technology and biotech have been under pressure and produced a 9.3% loss for the internet sector and 5.9% loss for the biotech sector. The downside risk is still in play and the trade off has been to rotate money towards the dividend and defensive sectors. Consumer Staples rose 2.8%, Utilities rose 5.2%, Energy was up 5.1% and the Dividend sector (DVY) was up 1.7%. Definitely signs of rotation! Now we get to see if investors decide to sell in May and go away?

Tuesday produced a positive day across the broad markets with all the major indexes and sectors experiencing a solid boost and continuation from the Monday intraday reversal. Now the pressure is on Wednesday for the markets to produce another follow through and test the previous highs on the Dow and S&P 500 indexes. Earnings may put a damper on the upside to start the day.

Twitter after-hours tumbles as user growth falls short and sending the stock lower by 10% on Tuesday night. Yesterday’s gains in the technology and internet sectors will be challenged today to return to the downside. Adding insult to injury EBay showed a loss, but revenue rose, the results sent the stock lower by 4% and will also impact the technology sector. Not what a sector with existing downside pressure needed.

The Dow added 86 points to close at 16,535. We discussed last night the intraday reversal (Monday) set up a bullish harami (candlestick technical data point) which theoretically, if it opens on the upside (it did on Tuesday) will make a move higher… target of 16,575 on the move and possible trade opportunity (it was). DIA was the simple way to play the move or a call option on the index.

NASDAQ Composite index gained 29 points to close 4103. Last night we addressed the NASDAQ 100 left a doji (candlestick setup) which if it opens on the upside (it did on Tuesday) would potentially move higher as well with a target of the 50 day moving average. QQQ was the simple way to play the move or a call option on the NDX.

Google (GOOG) traded lower and closed at the 200 DMA with a doji (candlestick setup) on Monday and if it opens positive will give a continuation off the intraday trade reversal on Monday with a target of $545 (it did as well trading higher). $520 entry on the stock or the 520 June Calls. Stop would be the 200 DMA break for now.

Since the market is choppy and news driven the short term trade opportunities setting up are worth watching again today. I covered two in the video upside last night relative to the earnings on EBay and Twitter. You can view that video for more details. The short trade on TWTR is going to have to bounce off the initial open if the 10% downside holds into the open. $37.83 would be a new low for the stocks since the IPO. $38.50 entry would be a good starting point for any short play. EBAY open at $52.18 would take out support. If that holds the short side would set up for a trade. $53 is the entry point I would look for, if it accelerates lower, not willing to chase.

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. Future are pointed lower to start the day.

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 is inching higher. We are still looking for a move above the previous high at $69.40 (close on Tuesday by a penny at $69.41). 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 above $41 Tuesday ($41.41) was a reversal of the negative moves last week. 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. Watch for some consolidation near term. Still have a 12-36 month outlook on the sector.
  3. Russia – News 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 this plays out and for the next trade set up on the news.
  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. GLD closed flat on Tuesday and still in limbo not making any upside commitment. GDX (miners) gained 1.3%, but still in range near current lows… no conviction on upside either.  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 – 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 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, but recovered on Tuesday, 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) pushed to new highs (above $68 barely) 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. IEV hit new high on Tuesday as well.
  9. Bond yields moved up slightly on the mixed stock day. The thirty-year bond rose to 3.49% Tuesday bouncing off the new low not seen since last June. The ten-year hit 2.69% 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. close on a reversal downside Tuesday watch to see how that trades going forward.
  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.
  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. Small test on Tuesday.


Sector Rotation Model (updated – 4/29/14)

ONLY ETF Model (updated – 4/29/14)

S&P 500 Index Model (Updated – 4/29/14)

ONE EGG Model (updated – 4/29/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Weak earnings news last night is weighing on the futures. Downside in favor. We will look to see how it opens the first half hour or so and then make any decisions on how to play it today. Adding  a couple of short opportunities below.
  2. QID – entry $59.10. Test of uptrend line off the March low. The rally tested the trendline on Tuesday, held and is going to react to the earnings news today potentially. Be patient with the entry.
  3. TZA – entry $17.55. Continuation of the uptrend test. Small cap sector remains under selling pressure and break of the 200 DMA in play.
  4. NRF – entry $16.30 break through resistance. Attempted to move on Monday, tested and now moves higher or fails.
  5. PBR – entry $14.25. Breakout cup and handle. Upside follow through in this energy stock worth a trade.
  6. GLW – entry $21.30. Breakout from consolidation patter or triangle. Upside positive in negative sector, be patient with the entry.
  7. 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.
  8. 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. Positive test at open and entry signal at $1146 for trade. Didn’t trade it as too many other trades for the day that looked better. Look for follow through today and tight stops.
  9. 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. Bounced following a negative open and under pressure from the sector doing poorly. Needs to hold support or downside is the trade.

Pattern Trade Tracking & Follow Up:

  1. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  2. WNR – entry $42.40. break from consolidation. Look for test on move and take the entry as the refineries move higher. Stop $41.
  3. 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.
  4. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  5. 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
  6. 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. (SEE NOTES ABOVE)