Trading Notes for Today, August 15th

Notes for Trading: 

The worries have not disappeared they are just on the sidelines for now. The move higher on Thursday was not earth shattering with modest gains of 0.35% and the volume was the lowest of the week. The sellers are still around so¬†don’t be lulled into believing they have given up. A catalyst is all they need and that is where having a willingness to accept the risk of the current market environment comes into play. Caution is advised and tight stops a must.

On Wednesday natural gas fell more than 3% and negated the bottom reversal… I noted that inventory data may change that and that is what transpired early in the day. That does not make me smart just observant. The 2% gain did not change much as the bottom or base is still being built and we will see if this presents and opportunity going forward. FCG the natural gas stocks ETF fell 1% on the day in sympathy with the energy sector. This may¬†be something to watch as well, especially if the commodity continues to move higher.

Treasury bonds moved higher on the day with TLT hitting a new 12 month high. Since January the bond ETF has gained 14.2%… not shabby at all. The issue is that bond prices were supposed to decline according to analyst. The Fed cutting stimulus and the renewed vision of interest rates ticking up in the first quarter of next year would provide the catalyst… that has not occurred and may not any time soon. The bidders offered to buy 2.6 times the amount of bonds offered¬†Thursday at the auction with a yield of 3.22%. The demand is strong and the statistic shows supply is low… thus higher prices on bonds. Who is buying? Just about everyone and that is putting pressure on the on bond yields to decline. So much for analyst projections this year.

Crude continued to decline Thursday after bouncing late on Wednesday in response to the supply data. Why the reversal today? Europe is my rationale. The German bond fell to 1% on the 10-year bond, (that influenced the US treasury bond as well.) and that is putting pressure on the economic picture, which in turn makes the projections for oil demand decline. The 2% decline put the price near the $95.60 level and support on the downside is $95.10. The break lower could put further pressure on the commodity. DTO is the short ETF trade for crude and cleared the $32.85 resistance on the move today.

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. Today is¬†the headliner day for economic data with PPI, Empire State index, Industrial production and Consumer Sentiment.¬†Last day of the trading week and we will advance with caution.

Sector Notes: 

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

  • Small Caps (IWM)¬†has now moved back to the 200 DMA and stalled. Need to push through the upside and reverse the downside trend. $112.50 was the entry point and managing the risk with a first target of $115.¬†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 above¬†the upside resistance of $23.80. Watch the ‘V’ bottom recovery. Russia isn’t done yet in either direction.
  • Volatility index back¬†on the downside and broke¬†support at 12.90. SVXY as we posted is the current trade in the VIX.
  • Internet (FDN) was one of the stronger sub-sectors in¬†tech this week. Attempting to break from the consolidation pattern on the upside. Some of the bottoming stocks are bouncing and helping the sector maintain a positive bias for now.¬†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 for trade.
  • China (FXI or YINN) The upside remains positive and continuation move this week¬†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.¬†Reversal on Thursday, but the upside is still in play.
  • 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 on speculation towards the Fed. 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. Dropped nearly 3% on Thursday as the price of gold is stalled. Manage your risk.

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 – 8/14/14) –
ONLY ETF Model¬†(updated – 8/14/14) –
S&P 500 Index Model¬†(Updated – 8/14/14) –
ONE EGG Model¬†(updated – 8/14/14) –
Monday Trade Opportunities:
Trade Opportunities:
  1. CELG – entry $89. wedge breakout. healthcare leadership short term.
  2. NKE – entry $77.70. trading range break. Watch for move higher prior to earning on 9/22.
  3. YHOO – entry $36.50. trading range break. Internet sector moving higher.

Pattern Trade Tracking & Follow Up:

  1. BTU – entry $16.05. double bottom reversal. Energy gained on news… got the¬†follow through for entry in the trade. Stop $$15.70.
  2. RFMD – entry $11.50. pennant upside continuation. Need semiconductors to regain positive momentum if broad markets are to regain upside. Stop $11.
  3. 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.
  4. SSO – entry $113.50. Bottom reversal on test lower. Trade on the bounce only for now. $117 target on the trade. Stop $113.50.
  5. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $19.80
  6. GLD – entry $126.50. falling wedge. economic and global activity favors a rise in price short term. Stop $125.30.
  7. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $59.
  8. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  9. 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.
  10. 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