Trading Notes for Today, April 7th

Today starts the new week, but the hangover from Friday is still priced into the futures as we start this post. The NASDAQ is off 0.8% and that could bring the 4077 support into play today. If it holds up for the day it could be the beginning of some ugly events on the downside as investor sentiment turns quickly negative. Remember bad news is easier to believe when the downside accelerates. We have to proceed with caution and manage stops on any positions left in portfolios.

What is the catalyst for this move? The details in the job report on Friday is getting the brunt of the blame versus the headline number of 192k new jobs added. Wages grew at 0%, only 1000 new manufacturing jobs created, temporary help was 29k, and in all they jobs created in March they were dominated by low-wage paying part-time work. Not to mention the issues of underemployment, labor participation rates and the long-term unemployed numbers. Yes, it wasn’t pretty when you dug into the details of the numbers, but that has been true for some time. However, this time it bothered investors as the anticipation of growth relative to earnings in the first quarter are not great and that news starts this week.

Today is a new day and we have to hope for the best and prepare for the worst.

Outlook for the Week of April 7th (Weekend Update)

Sectors to Watch:

  1. S&P 500 index fell to 1865 breaking the near term support at 1973. We have been watching 1840-1850 as a key support level along with the 50 DMA. Breaks of these levels opens the downside as a trading opportunity with some longer term holding periods and a target of 1750 to start. Today we are looking at investor sentiment and if it continues to build downside momentum. SH in the S&P 500 Model.
  2. NASDAQ falls 110 points and it doesn’t look finished. The support at 4070 is in play. A break below that level and the wheels could come off quickly based on the willingness to sell Friday. Broke the trendline from November 2012 and that only adds to the technical views on the downside for the index. Adding a allocation to the downside with QID is worth our consideration going forward.
  3. The Dow Jones Index fell less than others, but that doesn’t make it worthy of putting money to work. The support at 16,355 is in play, but 16,100 is the level to watch going forward. The rotation to large cap value stocks is not likely to continue this week, but still worth watching as the negative sentiment dies down.
  4. EAFE index (EFA) held up last week amid the selling, but that is not likely to remain as the US markets will overlap into the global markets. That said, watching to see if money rotates to what is deemed to be safer ground short term. Adjust stops to $66.50 on EFA.
  5. Emerging markets (EEM) has been a positive the last two weeks and the break higher has remained in play. Watch the reactions this week to the US. Still looking for the upside to play out as a value or alternative investment to the US markets. EEM stop at $40.50
  6. Bond yields headed lower again at 3.58% on the 30 year bond. 3.49% was the low last week and we may test that mark again as this unfolds. 2.77% on the ten year bond and 2.65% support. Flight to safety may benefit the bonds this week if Friday’s fear accelerates. TLT could be a trade opportunity relative to the fear trade.
  7. VIX index accelerated on Friday’s selling as you would expect. However, the 14 reading isn’t exactly high and that leaves plenty of room for the fear factor to accelerate on further selling. We are watching for trade in VXX if the sentiment gains negative traction.

Models:

Sector Rotation Model (updated – 4/6/14)

ONLY ETF Model (updated – 4/6/14)

S&P 500 Index Model (Updated – 4/6/14)

ONE EGG Model (updated – 4/6/14)

Pattern Trading Setup:

Today’s opportunities:

  1. QID – entry $60.20. bottom reversal. Negative sentiment in NASDAQ continues.
  2. SDS – entry $28.40. bottom reversal. Negative sentiment in the S&P 500 index.
  3. VXX – entry $42.15. bottom reversal. Sentiment shifts to negative and fear factor in play.
  4. 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. HIT STOP
  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. HIT STOP
  5. 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
  6. 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.
  7. SLX – entry $46.50. Downtrend break off January high. Reversal off low, back above the moving averages, and positive stock movement. Stop $46
  8. 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.
  9. 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
  10. WDC – entry $90. trading range breakout. Follow through on upside move. Stop $92.30. HIT Stop.
  11. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  12. STX – entry $52.23. base, descending triangle. technology sector. Stop $55. Raised stop to see how this breakout plays out. Exit today if selling continues.
  13. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $59
  14. SMH – entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop $45.40. HIT STOP
  15. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  16. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50.
  17. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $13. Adjust your stop. Hit 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.
  • 4/6 – downside accelerating and looking for support now at $54.87.