Trading Notes for Today, August 11th

Notes for Trading: 

Welcome back to a new week of trading and what looks to be a new attitude towards stocks. Nothing big to report over the weekend and the futures are currently trading higher and pointing towards a positive open. Following a positive trading day on Friday I am looking for a follow through on the start of a bounce.

Sector Notes: 

Below are some key notes on events and what we are watching looking forward:

  • Major indexes bounce off support and hold to start the week. S&P 500 index cleared he 1925 level on the close and Russell 2000 moved back to 1130. Both moves put some optimism short term back into the index. As we know that doesn’t change the short term trend, but it put them back on the upside opportunity list.
  • Russia remains a talking point as Putin shuffle military enough to bring hope. RBL bounced 2.8% on the news and RUSS falls 7.5%¬†. This is what we discussed about trade the country ETF relative to news driving direction. Nothing is settled and the ETF will continue to trade up and down based on the news relative to Ukraine.
  • Volatility index is back as the VIX remains elevated closing at 15.7 on Friday. The upside was gaining¬†momentum¬†until Friday, but may trade lower to start the week. The flag pattern will give some indication on the break.
  • Small Caps (IWM) the short interest rose¬†last week¬†and the¬†ETF tested the $110 support level. It has been volatile intraday, but Friday¬†managed to move¬†back above the $112¬†level. Watching for a possible reversal to lead the broad indexes higher. $112.50 entry for trade on bounce.
  • Housing sold lower the last five weeks on weaker sales data.¬†The short interest and the negative sentiment has grown and taken sector below support, but it has made a bottom reversal attempt on Friday. Looking at the weekly chart of ITB support is $21.55.¬†Watch for trade opportunity back to $23.75 short term.
  • China (FXI or YINN)¬†two days of selling takes out the support at the $40.30 mark. Flag pattern¬†breaks lower, but not much conviction in the selling.¬†The upside remains positive and we may look at adding the position back based on the resilience in the country short term.¬† Watch for the opportunity in the country ETF if the upside remains in play. Added on Friday.
  • Emerging Markets (EDC or EEM)¬†–¬†Bounced off the lows and looking for a follow through on the upside. This has been volatile on all the news and geopolitical events. If they remain in the headlines this will be a volatile trade.
  • Real Estate (DRN) testing support near the $58.40 mark. This is setting up the sell signal should it break lower. The uptrend line is being challenged and there is plenty to deal with short term. Interest¬†rates are putting pressure on the sector near term.
  • Utilities (XLU)¬†tapped the 200 DMA and bounced last week. Interest rates tested lower and buyers stepped back into the sector. Trade only for now and tight stops on any trades.
  • Short Oil (DTO)¬†with USO sitting on the 200 DMA it may be ready to bounce. Tight stops on the short trade as we start the week with crude at $97.70. Upside could materialize is the news around the globe continues to be negative. Strong dollar is keeping price in check as well.
  • Gold finds buyers as the rumors of the Fed not timing the hike in rates correctly or the economy not being able to deal with the hike in yields and stalling going forward. That is a fancy way of saying the market is trading gold on inflation concerns. The 2% gain the last was¬†was nice, but didn’t solve anything relative to the longer term outlook for the price of the commodity. A move above $126.50 on GLD would worth our attention short term for a upside trade.
  • Gold miners (NUGT) the bump in gold prices helped¬†the miners move to the top end of the current trading range. I like this trade better if gold prices are going to hold up. Again this is speculation and the trading range is well established over the last four weeks with the uncertainty about the outlook for gold prices. Keep Stops in place.

Practice patience and let this new chapter of the markets story unfold.

RESEARCH MODELS:
The models can be linked to below and each has been updated for the current outlook:
Sector Rotation Model¬†(updated – 8/8/14) –
ONLY ETF Model¬†(updated – 8/8/14) –
S&P 500 Index Model (Updated Р8/8/14)
ONE EGG Model (updated Р8/8/14)
Monday Trade Opportunities:
Trade Opportunities:
  1. GLD – entry $126.50. falling wedge. economic and global activity favors a rise in price short term. Low risk trade with stop at $123 support. (Gapped open and watching for the test of the move to establish an entry point.)
  2. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week.

Pattern Trade Tracking & Follow Up:

  1. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  2. CLF – entry 16.20. Trading range. The bottom reversal has been consolidating the last three weeks and looking for a clear break higher. Stop $16.50.
  3. QID – entry $46.88. Bottom reversal. The break lower in the semiconductors is a negative for the index and earnings from Amazon will impact the index today. 7/31 – added to position –¬†entry $47.50 – bottom reversal. Volatility in the index has been slowly rising the last week and concerns in the large caps are rising as well. Hedge for other positions.¬†Stop $48.65¬†both positions. Nice gain on selling in broad markets. HIT STOPS
  4. PLUG – entry $5.10. Base breakout. Looking for the move from the base to accelerate as the trend is drifting higher. Stop $5.10
  5. DBB РEntry $16.75. Break resistance and continuation of reversal. Cooper reversing along with steel. Added position on test lower and continuation of upside.  Stop 17.50. 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.
Long Term Opportunities:

  • Facebook (FB) – Testing the break higher and has held up well in the recent selling. $73.15 entry point to add 1000 shares back on the long term outlook. (see note page for history. ADDED shares on 8/7 – $73.15 — Stop $71.50