Trading Notes for Today, August 19th

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. We ended the week with back to back selling days. 1655 and the 50 DMA for the S&P 500 index. It is time for investors to decide… up or down. Looking for a bounce off support and then the selling to resume short term. Thus, the downside is where we are looking going forward. That means we will use the bounce to close out positions that are not doing well and lock in profit on those that have. The key is to be patient and let this all play out. As stated above, what we believe is where we start, what the market does is how we act.
  2. The Statisticians are out again with the Dow down 7 of last 10 sessions, NASDAQ 6 of last 10 and S&P 8 of last 10… must be time for a statistical rally? Relief rally? Bargain rally? At least their is strategy behind the thinking… right?
  3. VIX index is up again or is it? 14.75 is the level to watch on the upside and break would add to our play on VXX.
  4. Treasury yields moved higher to 3.85% on the 30 year bond, and 2.82% on the ten year bond. The worry over the Fed cutting stimulus in September is causing challenges for bonds. The TBF trade is still working on this move. Oil moved to $107.50 and holding as it seems to be willing to build a trading range of $103-108. OIL closed at the previous high $25.40 and we are watching for a break higher or retest of support at $24.40. Gold gained $14 to $1375 and above resistance at the 1340 level. It broke above resistance of $130 on GLD and moving towards the target of $137. The dollar moved back to $21.90 support (UUP) as all the Fed worries creep into the dollar. Question… Why is the dollar dropping if the Fed is cutting stimulus and economy is better? Watch the support level and see how the dollar plays out. Base metals (DBB) broke higher as well adding to the upside in commodities.
  5. The global markets are holding their own after an initial reaction to the US markets dropping last week. Europe (IEV) ended week even with the previous weeks close versus the S&P 500 index ending down 2.1% for the week. China (GXC) was up 2.6% on the week. The emerging markets (EEM) were flat or unchanged. Australia (EWA) was was up 1%. Global markets remain positive (data) and worth owning if they don’t react to the US markets completely going forward.
  6. The S&P 500 Model is updated. Stops were hit on XLP, XLY, XLE, SPY, XLV and XLF last week and we are watching the downside to start the week and we have added the opportunities to the Watch List in SH and VXX. We will also monitor any upside opportunities as this unfolds going forward. The stops on the balance of our positions are set and we are watching the short term to make the necessary adjustments.
  7. The Sector Rotation Model is updated. Watch stops on EEM and T as we start the week, if we get a bounce we will use it to take some exits as necessary. The Short Dow play remains and I adjusted the stop for the move. Looking at some downside opportunities on the bounce for entry points.
  8. The ONLY ETF Model updated and heavy in cash. We added SKF (short financials) last week and managing the risk moving forward. If the downside continues we will add more short opportunities this week. Patience is the key.
  9. The ONE EGG Model in cash and looking for the best short opportunity to start the week.
  10. Too much talk about the market outlook and not enough understanding in the choppy reactions. That leaves us with plenty of cash on hand and no willingness to chase the ups and downs relative to news. Looking for the catalyst of direction short term. The bias is towards the downside and that is the direction we are leaning, but the market still has to validate the move. Set you stops accordingly and focus on what is happening versus what others are saying.

Pattern Setups For Today:

  1. The downside is in play. Looking for a short term bounce, but then a continuation of the trend lower. Use the bounce to exit trades that are not working currently. We have added several short trades that are working well, manage the risk of the markets on each.
  2. UNG – Reversal off low. Trade opportunity with entry at $18.15 and target of $20. Technically oversold bounce play.
  3. GDX – Base reversal. Has been building a base at the low since April. Look for a break above the $30.35 resistance with a target at $35.80. Expect volatility in this controversial sector.
  4. ATVI – Pennant – Support at $17.20 with entry at $17.40 ish. Stop at $16.85. Watch for the upside to continue.
  5. Follow up on previous trades or posts:
  6. SLB – Flag/Channel. Uptrend in play off the June bottom and looking for a continuation play on the upside. Entry $82.75
  7. TBF – Ascending Triangle Breakout – Interest rates rose again on Tuesday. Look for a breakout confirmation on the inverse ETF. $32.70 entry. Took half a position (unfortunately). Stop $32.70.
  8. 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. The test at $14 is key today. If it holds look to add to the trade, if it breaks lower exit the trade at $13.95.
  9. AMZN – Set up short on break of support. Entry at $290 with stop at $298. Gapped down on the lower open Thursday. Friday tested back to the upside at $288+, took the short entry at $287.25. Manage the trade and use the original stop for now.
  10. 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. Manage the position as the stock still wants to go higher.
  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. Nice gain on Thursday and raise stop to $33.50 and watch as we hit the target.
  12. 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 on the move lower following positive data. Stop at $53 or break even.

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
  • 8/13 – 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. If the stock falls we can put our stock to someone at $37 prior to expiration in December.
  • 8/18 – Nice bounce on Friday. Watching to see if this establishes a new level of support after the gap higher from earnings.

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.