Trading Notes for Today, August 15th

The Watch List and Play List have been updated for today. Review and execute according to your risk and investment objectives. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Wednesday the sellers came back, but still could not take the market lower with any conviction. The Dow was the biggest loser off 0.7% or 113 points, the NASDAQ was off 0.4% and the S&P 500 index was down 0.5% for the day. The Dow continued to form the rolling top we discussed last night and 50 DMA is coming into view on the downside. No technical damage was done, but the move lower did erase the gains from Tuesday. The blame once again went to the Fed for the consensus voting that they would start to cut stimulus in September. Interest rates were a concern following Tuesday’s jump in yields again. Worry would be the best way to state what moved the markets lower. After-hours Cisco disappoints with guidance and the stock is down 10% heading into today’s trading. This is will have an impact on the NASDAQ watch the downside risk relative to the negative sentiment building.
  2. PPI data showed no increase at the wholesale level for goods. That was much better than the 0.3% increase expected. The core rate rose 0.1% and was better than the 0.2% expected. The offset was the decline in energy prices led by natural gas. Food was cheaper, but drugs were up.
  3. Treasury yields were essentially unchanged at 3.75% on the 30 year bond, and 2.71% on the ten year bond. The reaction in stocks was delayed as investors digest the move in rates on Tuesday. Oil moved to $106.98 and holding as it seems to be willing to build a trading range of $103-108. Gold gained $15 to $1335 and back to Monday’s close. It remains near resistance of $130 on GLD and looking for a catalyst over the hump. The dollar held $21.90 support (UUP) and is holding near the $22.10 level short term. The short dollar/long euro play hit the stop on the two egg model.
  4. The global markets have traded higher with Europe (IEV) gaining strength and hit new 12 month high. The upside remaind in play, but watching as the US weakness is likely to have impact short term. China managed to regain its upside mojo on positive economic data. GXC was up 6.1% the last five trading days to bounce off support at $67.50 and leaves the uptrend off thee June low in play. The emerging markets reversed as well from the selling, but needs to break above $40 (EEM) which it accomplished today and added the position. Australia (EWA) was up 5% the last five days on stimulus as the central bank cut rates. A move above $24 (accomplished today) and added an upside position today. All of this news pushed the EAFE index (EFA) above $61.25 resistance and continued higher, and it is the EGG Model play currently which moved above $62. Global markets remain positive and worth owning currently.
  5. Financials are a sector to watch this week as they turned lower, but seem to have found support at the $20.35 mark which held again today. There is hesitancy towards the sector as the government continues to attack the banks and brokers. Watch for the sector to maintain it’s upside momentum with volatility. A break below support would be a big negative to the broad markets short term. SKF is still on the watch list for entry as the banks struggle to find the upside. The risk of the sector is growing and the inverse ETF will act as a hedge if the downside accelerates.
  6. The S&P 500 Model is updated. There were no sectors in the green today and the downside has to be addressed looking forward. The stops on our positions are set and we are watching the extend move higher short term. We are watching 1675 as the level to hold short term. Mange your stops and see how this plays out going forward.
  7. The Sector Rotation Model is updated. This is still a choppy market and one to respect short term. We did hit stop on KBE and YUM as the volatility picks up in both. This is where the chop hurts trading. We added DXD which is the UltraShort Dow 30 ETF. The Dow was the leader on the downside today and showed why we wanted to add this downside play. Choppy markets create choppy results.
  8. The ONLY ETF Model is under invested, but it better than attempting to time the micro trends or false moves based on emotions and news. We are updating the Watch List and being patient going forward. We added SKF (short financials) on the test and move higher today. The sector is still acting like there is downside going forward. Mexico is testing the break higher and we will watch how it plays out.
  9. The ONE EGG Model added the EAFE index or EFA last week. Nice bounce back from the early push lower. The outlook is still positive for Europe adding to the upside opportunity. Nice move on Tuesday above the $42 level. Manage the risk, by raising the stop today. Manage and let this play out accordingly.
  10. Too much talk about the downside of the market. Analyst and the talking heads in the media are beating the drum. This can be a self-fulfilling prophecy so manage your risk, but respect the trend in play. Set you stops accordingly and focus on what is happening versus what others are saying.

Pattern Setups For Today:

  1. SLB – Flag/Channel. Uptrend in play off the June bottom and looking for a continuation play on the upside. Entry $82.75
  2. RAX – Test of the uptrend. Entry $47.15. We were stopped out of the position and looking for re-entry on the test.
  3. Follow up on previous posts:
  4. TBF – Ascending Triangle Breakout – Interest rates rose again on Tuesday. Look for a breakout confirmation on the inverse ETF. $32.70 entry. On the entry points with small test Wednesday? Took half a position with the Wednesday’s activity.
  5. MU – Double Bottom Breakout – Semi’s broke higher on Tuesday helping lift the stock through the entry point of $14.15. The target is $16.15 and look for entry on test of the move near $14.50. Don’t chase the trade, but look for the test entry and opportunity. Still watching with modest test on Wednesday.
  6. AMZN – Set up short on break of support. Entry at $290 with stop at $298. Got close, but still watching.
  7. AAPL – V bottom breakout with test. $465 entry. Broke on Monday and looking at the Oct $470 call. Added the position on the open Tuesday. Carl Ichan’s announcement resulted in a big move for the trade. Raising the stop to $27 on the move Wednesday.
  8. NKE – Flag – entry $66.60. Watch for break higher and continuation of the move. Fell – Pass.
  9. SOXX – descending triangle – support at the $63.75 level and $64.75 is the entry point. Hit the entry point on Tuesday and the stop is $63.80. Watch as reversed on Wednesday. This could be a negative indicator for the broad market indexes as well.
  10. SLW – Bottom base. A break above resistance at $23.60 is the trade opportunity. Silver prices are picking up short term and this is a trade opportunity only. Gap open and watching still to see if it holds the jump higher. Tested some on Tuesday, but still watching how it move. Pass, not going to chase the upside.
  11. DXD – Short Dow. In the worst shape of the major indexes. Rolling top and break of support creates the short trade. $32.95 entry for trade with target of 33.95. Opened near the entry, but then traded lower. Took the play on Wednesday with the Dow moving lower on the day.
  12. WFM – Consolidation, double bottom. 56.20 entry on breakout higher. Moved lower on Wednesday, pass for now.
  13. VLO – Reversal off low. We were watch this and it failed to follow through on move above $36. Nice move higher. Watch for upside continuation and entry of $36.75. Still consolidating no upside – tighten stop to $36.25.
  14. COH – Short play on gap lower pennant. Short entry at $53. Good sales data, but the negative bias from earnings remains. The downside play is worth watching. Added short Monday on the move lower following positive data. Stop at $54.
  15. VMW – Flag gap higher. looking for a continuation of the move from the consolidation. Entry $84.10.  Modest upside and stop now at breakeven.
  16. PFE – double bottom. $29.70 entry on break higher. Testing lower with stop at 28.90.
  17. CLF – Bowl pattern breakout? $19.20 was the resistance level cleared. Watch for test of the move and opportunity to add a position in the stock. Target is $23.50. Entry 19.50. Gained 8.9% on Thursday and 10.6% on Friday! Watch and manage the profit on the trade. Hit target… use that for the stop.
  18. CRM – Pennant upside. Nice move from consolidation at $39 and now digesting the move and looking to move higher short term. $42.75 entry and making the move higher. Solid gain last week. Stop $44.
  19. IHI – Breakout test. The break from the trading range tested and a follow through on the upside. The entry was $81. Moved higher with nice follow through. Move stop to $82.95.

Facebook (FB) Update:

  • Facebook – The sentiment towards the stock has shifted as it found support at the $22.80 level and moved to the top of the trading range before breaking higher and adding positions. The move above $24.50 was entry for position.
  • Added position at $24.75 (1000 shares). Stop is $22.75 for now. A move back above the 200 day moving average and we will add to the position. (Added 1000 shares at $25.65 on break) Sentiment towards the stock short term is gaining. Consolidating at the current levels and holding. Still like the upside near term as it is gaining positive comments from analyst.
  • Earning beat expectations on Wednesday and the stock jumped 29%. Here is where greed versus objective comes into play. This is a long term play and if the gains hold up today in trading the upside gain on the position is tempting. We will now have to design a way of protecting or realizing part of the gain short term. Be patient with the position on the upside as you are on the downside. Interesting link on earnings for facebook
  • The stock broke lower from the pennant. Watch and manage your risk. As stated yesterday we are going to establish a hedge to protect the downside risk. Add a December $37 Put on FB @ $3.35. In addition sell a December $37 Put on FB @ $3.35.  If the stock falls we can put our stock to someone at $37 prior to expiration in December.

NOTE: The pattern trades above are setups that I see for a potential swing trade or 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. All investing comes with risk. Our job as investors is to manage the risk. Keep your focus and discipline in place.