Trading Notes for Today, August 12th

Notes for Trading: 

Monday closes higher on lower volume, but the bounce continued regardless. Investors are still acting timid about the future, but willing to buy some valuations that looked oversold. There are some concerns about the drift lower in the afternoon as half or more of the gains were given up. It remains a time to be cautious and take what the market gives one day at at time. Today the futures are currently pointing higher and we will focus on what gives the best opportunity… up or down.

Sector Notes: 

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

  • 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 and Monday closed above the $112.50 mark.¬†Need to hold the move higher and close above the 200 DMA.
  • Russia remains a talking point as Putin shuffles military enough to bring hope. No news is good news on Monday and RBL bounced 1.6%. This is what we discussed about trading 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. Currently no news is good news.
  • Volatility index¬†fell to 14.2 on the move higher Monday. If the bounce continues look for a test in the 12.5 range and SVXY would be the trade on the lower volatility.
  • Internet (FDN) was one of the stronger sectors in trading on Monday. Attempting to break from the consolidation pattern on the upside. as Priceline and Soufun Holdings led the sector. Look for upside trade on the move short term. Too difficult to see beyond that for now. $60.25 entry point on short term breakout.
  • 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 with a not so great follow through on Monday. Looking at the weekly chart of ITB support is $21.55.¬†Watch for trade opportunity back to $23.75 short term. Still in position to make a move to the upside on the bounce.
  • China (FXI or YINN)¬†two days of selling takes out the support at the $40.30 mark. The upside remains positive and continuation move on Monday gave opportunity for¬†adding the position back based on the resilience in the country short term. Added on Friday. $41.25 next level to take out and add to position.
  • Emerging Markets (EDC or EEM)¬†–¬†Bounced off the lows and looking for a follow through on the upside at $44.30 again and need to break through this level. 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) tested support near the $58.40 mark. Managed to bounce off the lows and looking to regain upside momentum with the move back above the 50 DMA.¬†The uptrend line is broken and the interest rate concerns are weighing on the sector short term.¬†Holding for now, but keep your stops in reasonable location.
  • MLP index (AMJ) jumped from the selling on the consolidation move from Kinder Morgan (KMI) up 9%. Watch to see how it follows through after the news settles.
  • 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 with crude lower currently. 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 – 8/11/14) –
ONLY ETF Model¬†(updated – 8/11/14) –
S&P 500 Index Model (Updated Р8/11/14)
ONE EGG Model (updated Р8/11/14)
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. JCP – entry $10.00. trading range breakout. Earnings are Thursday and wants to trade higher on what is expected to be positive news.
  3. RFMD – entry $11.50. pennant upside continuation. Need semiconductors to regain positive momentum if broad markets are to regain upside.
  4. BTU – entry $16.05. double bottom reversal. Energy gained on news… looking for follow through today.

Pattern Trade Tracking & Follow Up:

  1. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $59.
  2. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  3. 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.
  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
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