Trading Notes for Today, April 3rd

The good news… markets held the move higher. The interesting news… the value rotation is turning towards discounted sectors like energy, financials and retail. The value move is taking on two pronged approach currently with the large cap dividend stocks and the discounted stocks that are technically oversold. Money continues to look for a home in stocks, but it wants the downside risk to be limited relative to the current market climate. We continue to look for the opportunities and for now that is where money flow leads. Keep it simple and don’t over analyze the short term trading opportunities, but focus on how to protect your downside risk should all of this fail and the bottom fall out short term. Practice Patience.

Closed out the Facebook put contracts on Wednesday with the follow through upside move. This stock since last June has been a great long term position along with the trading opportunities we have capitalized on. The bias remains on the downside short term, but watching how we want to play this near term.

What are we looking for Today?

A test of the move off the recent low has to come at some point. That doesn’t mean the bounce/rally is over, just that no move goes straight up. Simply put, be aware of your surroundings.

Energy REITs have some nice pattern setups and worth tracking currently for the breakout and dividend plays. AMLP is attempting to break through resistance at the $18 level. Skimming though the holiding BWP, TCP, WPZ, DPM, CQP and PAA are all breaking from consolidation patterns. The dividend payments range from 3-5% and fit the model for the value rotation taking place in the broad markets.

SHLD made a move above the 200 DMA and looks ready to make a move on the upside short term.

CLF is making a gradual climb off the recent lows and is now in position to break the downtrend line from the November high. The stock has been under pressure from analyst, but the buyers keep attempting to rally the stock. Nice trade set up technically.

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

Sectors to Watch:

  1. S&P 500 index the 1840-1850 support and broke through the 1885 resistance to hit a new high and validate the short term moves higher in the broad index. Made upside progress breaking to a new high and breaking through the consolidation. 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. The afternoon test met with more buyers on Wednesday to keep the index on the positive side of the ledger. Networking (IGN), semiconductors (SOXX) and software (IGV) are back moving to the upside for now.
  3. The Dow Jones Index is pushing towards the previous high as well. It is currently only 16 points away from the new highs short term. Value is driving the action and the stocks are driving the index higher at this point.
  4. 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 (hit on Wednesday). If we get through that level we are headed to new highs for the index.
  5. 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.
  6. Bond yields moved off the newly minted low of  3.49% and are now at 3.65%. 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.
  7. Biotech (IBB) bounced on Monday and Tuesday from the oversold technical indicators. Will this return to the previous highs following the selling? Not yet as it gave up some of the gains on Wednesday. Worth watching, but the risk remains on the buy side. Entry for a trade would be a move through the $245 level.
  8. 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% and Wednesday they tested to $98.76 before bouncing back to even. Is oil poised to move higher on the intraday reversal? Worth watching for now.

Models:

Sector Rotation Model (updated – 4/2/14)

ONLY ETF Model (updated – 4/2/14)

S&P 500 Index Model (Updated – 4/2/14)

ONE EGG Model (updated – 4/2/14)

Pattern Trading Setup:

Today’s opportunities:

  1. SSYS – entry $112. Bottom reversal. moved above the 200 DMA. Hold and move higher. Trade to $117-122 mark and take profit. 
  2. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher.
  3. IBB – entry $245. Bottom reversal. Previous leader finding buyers. Need follow through.
  4. IHF – entry $99.70. New high breakout and uptrend continuation.
  5. DBA – entry $28.50. Flag pattern. Continuation of the uptrend on break higher. tested back to support on Wednesday. Watch to see how it pans out today. Break lower gets very interesting.
  6. CORN – entry $34.50 test of the breakout from cup and handle pattern. Don’t chase, no test/no trade today. Tested deeper than expected on Wednesday, watch for the upside entry point on the bounce back.

Pattern Trade Tracking & Follow Up:

  1. MS – entry $31.50, Bounce of support (50 DMA) and continuation of uptrend. Hit entry, stop $30.98.
  2. IM – entry $29.65. Consolidation breakout. Stop $29.40.
  3. FDN – entry $60.60. Bottom reversal. This support and reversing? Watch for the follow through on the move. Stop $59.55.
  4. 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
  5. 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.
  6. 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.
  7. 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.
  8. 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
  9. WDC – entry $90. trading range breakout. Follow through on upside move. Stop $88.50.
  10. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  11. 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.
  12. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $59
  13. 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.
  14. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  15. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  16. 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)

  • 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. HIT STOP on remain contracts and now watching the current setup for the stock.
  • 4/3 – Added 500 shares at $63.30 on early move higher. Watch how the stock acts moving forward off the low. The stop on the trade is $60.50.