Trading Notes for Today, August 14th

Notes for Trading: 

Another opposite day on Wednesday with the broad indexes posting gains. The NASDAQ 100 index was the leader on the day as both technology and biotech pushed higher with solid gains on the day.

The retails sales were flat and ex-autos only gained 0.1% which was the weakest number in six months. XRT has dropped lower the last two days and is back in position to test support at the $83.70 level. The sector had gained some momentum heading into earnings, but has turned south again. A break of support would not be good for the sector or the broad market outlook. Macy’s was off 5.5% on the day.

Crude oil sold lower to start the day, but the inventory data help boost the price off the lows. $97.59 was only a 22 cent gain on the day, but it did erase the 0.8% decline. USO is still trading below the 200 DMA and the downtrend is firmly entrenched currently. Natural gas closed Wednesday down 3.7% and never showed signs of a bounce. $2050 is the support level to hold in the commodity for now.

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. Weekly jobless claims to headline the pre-market. Friday will the headliner day for economic data with PPI, Empire State index, Industrial production and Consumer Sentiment. 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. Made a nice move upside on Wednesday to keep the dream alive. Stop at $112.25 for now.
  • 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. Closed at the upside resistance of $23.80. Watch the ‘V’ bottom recovery. Russia isn’t done yet.
  • Volatility index is back on the downside and testing the next level of support at 12.90. SVXY as we posted is the current trade in the VIX.
  • 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 stocksP and DWRE 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. Hit the entry trade.
  • China (FXI or YINN) The upside remains positive and continuation move on Monday gave another 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. Gapped higher on Wednesday with nice follow through upside.
  • Emerging Markets (EDC or EEM) – Bounced off the lows and looking for a follow through on the upside at $44.30 again and got the break through on Wednesday. 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 has now regained the upside momentum with the move back above the $62.85 resistance. The interest rate concerns are being pushed to the side for now and looking to move higher. Holding for now, but keep your stops in reasonable location.
  • 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.

The models can be linked to below and each has been updated for the current outlook:
Sector Rotation Model (updated – 8/12/14) – SPY, QQQ, IWM looking for follow through.
ONLY ETF Model (updated – 8/12/14) – SVXY – Volatility still in play on downside now.
S&P 500 Index Model (Updated – 8/12/14) – SPY trade on the bounce.
ONE EGG Model (updated – 8/12/14) – QLD is showing promise on bounce trade.
Monday Trade Opportunities:
Trade Opportunities:
  1. NKE – entry $77.70. trading range break. Watch for move higher prior to earning on 9/22.
  2. YHOO – entry $36.50. trading range break. Internet sector moving higher.
  3. BTU – entry $16.05. double bottom reversal. Energy gained on news… looking for follow through today.

Pattern Trade Tracking & Follow Up:

  1. RFMD – entry $11.50. pennant upside continuation. Need semiconductors to regain positive momentum if broad markets are to regain upside. Stop $11.
  2. EEM – entry $44.50. break above resistance again. upside trade still looking longer term. Stop $44 for now, but give some room if the volatility picks up.
  3. SSO – entry $113.50. Bottom reversal on test lower. Trade on the bounce only for now. $117 target on the trade. Stop $112.
  4. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $19.80
  5. GLD – entry $126.50. falling wedge. economic and global activity favors a rise in price short term. Stop $125.30.
  6. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $59.
  7. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  8. 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.
  9. 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