Trading Notes for Today, April 8th

More selling for most of the day on Monday to add to Friday’s sell-off. Some afternoon buying wasn’t a surprise and the fade into the close could set up a bounce for the market overall. The leaders on the downside ended with some positive action on the day and left some hope that biotech and technology could see a reversal low… at least for now.

From a trading perspective today could setup a reversal. There could be some modest upside met with some more selling and then an intraday reversal. Why? Technically the market is setting up to test the selling and intraday reversals are not uncommon ways to experience a near term low and then some buying. That said, this is just a bounce opportunity and not a run to the previous highs. The market is working working through the short term issues and to this point has not decided on direction. But, the break of the 50 DMA on some indexes is giving the sellers more control and the possibility of a trend change a higher probability going forward.

Patience is the key. I expect the buyers to give the upside a shot in a bounce format. Then we see how it unfolds from there. Earnings will have a big influence going forward and could be the deciding factor for many on the future direction for the market overall. That is enough prognosticating for today. Remember… it is important to know what you believe about the market, but it is essential to let the market validate your belief before you take on the risk of any trades.

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

Sectors to Watch:

  1. S&P 500 index tested 1840 support on Monday after breaking 1873 on Friday. Held the support and small bounce into the close, but still looking for buyers who are willing to step into the decline. 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.
  2. NASDAQ falls 75 points intraday and managed to bounce 25, but that added to the loss of 110 points Friday. As we stated Monday the index didn’t finished. Maybe this is support or does it test the 4000 level? Broke the trendline from November 2012 and that only adds to the technical views on the downside for the index. Watch to see if late day reversal holds today?
  3. The Dow Jones Index declined through 16,300 support and put 16,072 in play. Still looking for support and buyers. If the buyers don’t show the downside trade will have legs to carry the index lower.
  4. EAFE index (EFA) holding up well amid the selling, but that is not likely to remain as the US markets will overlap into the global markets if the selling continues. 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. Holding for now.
  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 and seeing the upside is playing out as a value or alternative investment to the US markets. EEM stop at $40.50
  6. Bond yields headed lower again at 3.55% on the 30 year bond. 3.49% was the low last week and we may test that mark again as this unfolds. 2.69% on the ten year bond and 2.65% support. Flight to safety is benefiting the bonds this week as Friday’s fear accelerates on Monday. I would be cautious as bonds look overbought and the NASDAQ oversold. TLT could be a trade opportunity relative to the fear trade. If reversal in stocks takes place, the move in bonds will reverse with it… watch the risk.
  7. VIX index accelerated on selling as you would expect. However, the 15.2 reading isn’t exactly high and that leaves plenty of room for the fear factor to accelerate on further selling. We added a trade in VXX if the sentiment gains negative traction. Watching the afternoon drift higher in stocks… VIX will reverse if the buyers remain. VXN is the NASDAQ volatility index and is higher overall due to the current selling leadership in the index. Both indicators will show how fear plays out short term.
  8. Retail (XRT) declined to the 200 DMA as the doubt in the consumer builds following all the winter stories. Watching how this unfolds at support short term. Expecting a near term bounce and then possible selling to continue into earnings. $85.25 target on bounce, then we see how it goes. XLY fell in conjunction with the retail stocks.

Models:

Sector Rotation Model (updated – 4/7/14)

ONLY ETF Model (updated – 4/7/14)

S&P 500 Index Model (Updated – 4/7/14)

ONE EGG Model (updated – 4/7/14)

Pattern Trading Setup:

Today’s opportunities:

  1. PCLN – entry $1180. Bottom reversal at support. Oversold bounce trade. May 1180 call option is alternate way to trade the move with leverage. 
  2. NFLX – entry $345. Bottom reversal at 200 DMA. Oversold bounce trade. May 345 call option is another way to trade this move with leverage.
  3. 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. VXX – entry $42.15. bottom reversal. Sentiment shifts to negative and fear factor in play. Stop $41.60.
  2. SDS – entry $28.70. bottom reversal. Negative sentiment in the S&P 500 index. Stop $28.35.
  3. QID – entry $60.20. bottom reversal. Negative sentiment in NASDAQ continues. Stop $59.90
  4. 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.
  5. CQP – entry $30.25. Trading range breakout. Energy REIT moving higher. Stop $30.25.
  6. XLF – entry $22.35. Test of trendline off February low. Looking to hold longer term and manage the volatility of the position. Stop $22 HIT STOP
  7. 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.
  8. SLX – entry $46.50. Downtrend break off January high. Reversal off low, back above the moving averages, and positive stock movement. Stop $46.50
  9. 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.
  10. 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 $97.60
  11. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.65.
  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. HIT STOP
  13. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $59 – STOP HIT
  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.
  16. 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.
  • 4/8 – Bounce off support? Trade set up if the broad indexes bounce. Watching today.