Trading Notes for Today, August 13th

Notes for Trading: 

Nothing of note really changed during the trading day except we moved in the opposite direction. The US markets continue be choppy and remains directionless. Looking across the seven asset classes it is interesting what is taking place short term. The bump higher in interest rates Tuesday was of some impact to bonds, but not enough to worry about for now as bonds remain at or near the current highs. Europe remains a train wreck with IEV attempting to hold support at the $45 mark. Germany (EWG) and Italy (EWI) have been two major drags on the asset class. The mature global markets (EFA) continue to struggle overall with the downtrend now eight weeks old. China (FXI) has been moving higher as investors like the outlook near term. That puts¬†the emerging markets in a position to break higher if the geopolitical issues can be contained. EEM is one of the positives looking forward. Global bonds have calmed this week and we don’t see the downside escalating assuming no more defaults like Argentina. This is another asset class that will react positively to some good news in the global markets. Commodities are mixed with gold being the latest to make an upside move along with the miners. Oil pushing lower along with the agriculture commodities currently and show little signs of upside near term. Last, but not least, the dollar remains positive and made a solid move on the upside the last six weeks. Overall not much is attracting money and the volatility is being stirred by the uncertainty.

Bottom line… one day at a time. Bounce play still the mode of operation for now. No clear indication of this move being anything more than that at this point. Retail sales are out today for July and they will hold some interest for the markets looking forward. The opportunities will unfold we just have to be prepared to capitalize.

Sector Notes: 

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

  • Small Caps (IWM) Monday closed above the $112.50 mark following a strong push to higher. The put the upside test in play for Tuesday and the index sold back below $112 intraday and bounced into the close to barely make the $112.50 mark.¬†That activity made me nervous to own the sector going forward. Tighten stops and manage the risk.
  • Russia remains a talking point as the Putin shuffle¬†with the¬†military¬†remains a big question mark. Quiet on the front and that is a positive for now. This is what we discussed about trading the country ETF relative to news driving direction. Currently no news is good news.
  • Volatility index¬†fell to 14.1¬†following the first two days of trading this week. 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.¬†Several of the smaller stocks TRAK and UNTD led the sector higher.¬†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. Modest weakness on Tuesday and still looking for the break higher with a confirmation follow through. 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) 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 (tested on Tuesday).¬†The interest rate concerns are weighing on the sector short term.¬†Holding for now, but keep your stops in reasonable location.
  • Short Oil (DTO)¬†with USO sitting near¬†the 200 DMA it may be ready to bounce. Tight stops on the short trade as we start with crude lower currently. The downside pressure was back on Tuesday and we watch to see how it follow through.¬†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. That is a fancy way of saying the market is trading gold on inflation concerns. The move through resistance at $126.50 failed to hold into the close Tuesday.¬†Need to make the move if we are going higher.
  • Gold miners (NUGT) the bump in gold prices helped¬†the miners move to the top end of the current trading range and broke higher on Tuesday. 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 Р8/12/14) РSPY, QQQ, IWM looking for follow through.
ONLY ETF Model (updated Р8/12/14) РSVXY РVolatility still in play on downside now.
S&P 500 Index Model (Updated Р8/12/14) РSPY trade on the bounce.
ONE EGG Model (updated Р8/12/14) РQLD is showing promise on bounce trade.
Monday Trade Opportunities:
Trade Opportunities:
  1. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play.
  2. SSO – entry $113.50. Bottom reversal on test lower. Trade on the bounce only for now. $117 target on the trade.
  3. EEM – entry $44.30. break above resistance again. upside trade still looking longer term.
  4. JCP – entry $9.65. trading range breakout. Earnings are Thursday and wants to trade higher on what is expected to be positive news.
  5. RFMD – entry $11.50. pennant upside continuation. Need semiconductors to regain positive momentum if broad markets are to regain upside.
  6. BTU – entry $16.05. double bottom reversal. Energy gained on news… looking for follow through today.

Pattern Trade Tracking & Follow Up:

  1. GLD – entry $126.50. falling wedge. economic and global activity favors a rise in price short term. Stop $125.30.
  2. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $59.
  3. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  4. 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.
  5. 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