Trading Notes for Today, April 4th

We were looking for a test of the recent move, but the NASDAQ showed there is still plenty of nervousness in the growth stocks. The small caps, biotech, software and internet stocks led the broad index down 1.2% intraday and closed off 0.8%. We will see how the index finishes the week, but the move reinforces the current volatility at play in the growth stocks.

The infamous jobs report is out this morning prior to the open and will likely set the tone for the day. Some optimism about the report is milling around the analyst, but I would not be surprised if it is disappointing again. Corporations are still not in

What are we looking for Today?

First, the NASDAQ to hold support above the 50 DMA.

Second, are we back to the NYSE large caps and Semiconductors doing okay, and the NASDAQ and Small Caps rotating out.

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

Sectors to Watch:

  1. S&P 500 index held the 1840-1850 support and broke through the previous high resistance to to close at a new high. Testing on Thursday stayed well within the range of tolerance for the current range and attempt to move higher. Watch how this unfolds and be patient with the buy side today as the jobs report will create some stir initially.
  2. NASDAQ recovers from selling bouncing off the trendline support. It rallied back above the 50 DMA and today tested lower to the 50 DMA again, but managed to hold. This has become volatility central for the broad market indexes. Networking (IGN) and semiconductors (SOXX) held their own and managed a positive result on the day, but software (IGV) and internet (FDN) were both off more than 2% on the day. They remain the week links on the index.
  3. The Dow Jones Index is pushing towards the previous high, but failed to get there again on Thursday. 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 and tested on Thursday). 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 last week followed by solid gains this week. Stalled on Thursday and tested the $41 level again to rally into the close down 0.4% for the day. 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 3.62%. 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. Be patient here as stock volatility plays out.
  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 Thursday. 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 last week and held the move higher this week. Rotation of money has been one reason for the gains along with higher oil prices. XOP, IOE and IEZ are all moving higher as the stocks see money rotation short term.

Models:

Sector Rotation Model (updated – 4/3/14)

ONLY ETF Model (updated – 4/3/14)

S&P 500 Index Model (Updated – 4/3/14)

ONE EGG Model (updated – 4/3/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Watching the test on the NASDAQ and Jobs. It’s Friday and we will see how it unfolds today.
  2. 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.

Pattern Trade Tracking & Follow Up:

  1. 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. Stop 33.85.
  2. IHF – entry $99.70. New high breakout and uptrend continuation. Stop $97.25.
  3. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher. Stop $29.48.
  4. MS – entry $31.50, Bounce of support (50 DMA) and continuation of uptrend. Hit entry, stop $30.50.
  5. IM – entry $29.65. Consolidation breakout. Stop $29.40. HIT STOP
  6. FDN – entry $60.60. Bottom reversal. This support and reversing? Watch for the follow through on the move. Stop $59.55. HIT STOP
  7. 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
  8. 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.
  9. SLX – entry $46.50. Downtrend break off January high. Reversal off low, back above the moving averages, and positive stock movement. Stop $46
  10. 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.
  11. 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
  12. WDC – entry $90. trading range breakout. Follow through on upside move. Stop $88.50.
  13. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  14. 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.
  15. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $59
  16. 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.
  17. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  18. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  19. 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.
  • 4/4 – Hit stop on position and sold back to the previous lows. Watching to see if the downside is back in play and if our put contracts should be bought back for a trade on the selling.