Trading Notes for Today, August 20th

Notes for Trading: 

Another positive day for stocks across the board. The leaders continued to add to the upside and some laggards accelerated on data. Plenty of talk about the NASDAQ hitting levels not seen since March 2000. I still have a newspaper clipping that stated it may take 15 years for the index to match the highs of that year. It has been very close to the call on time, but equally important is no one saw the second blow to the index in 2008. Still plenty of work to be done on the upside and there is still plenty to worry about as investors. All we can do is take it one day at a time and manage our risk accordingly.

Six of the last eight trading days have ended on the positive side as the markets bounce off the August 7th low. We are not out of the woods yet… stay focused and disciplined in how you approach the future.

FOMC minutes out today. This will give some of the missing information needed from the meeting. Raising rates and when is the information many are looking for.

Question: Is it time to start taking some of the gains from the bounce? It all depends on your objective, but from a trade viewpoint, yes would be my answer. Cutting 25-33% of positions and locking in some gains would b prudent at this point.

Sector Notes: 

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

  • Biotech (IBB) remains one of the positives for the upside move. The last five days have pushed the sector back to the July high. Look for follow through on the move higher and trade opportunity on the move. Entry $266.50. (Hit the entry point on Tuesday and still looks positive.
  • Transports (IYT) jumped 1.7% Monday… cleared $149 resistance and looks prepared to move higher. Positive sign for the transports to move higher. Airlines leading the way. Worth watching the parts as well as the whole.
  • Consumer (XRT) moved above the $86 level and continued higher. This is a trade on momentum nothing more. Earnings are hitting on the stocks and they are mixed at best, but the issue is the forward guidance being lower by WMT, JWN, and TJX to name few that matter in the space. Trade the momentum, but be aware of the issues at hand… lower paying jobs and stagnant wages.
  • Treasury Bonds (TLT) watch for reversal if the geopolitical issues subside in Russia. The uptrend in the bond long term remains in play, but the downside short term to test the trendline is trade-able with TBT as a short trade on the bond.
  • Small Caps (IWM) made a move through the $115 level and the next resistance along with the 200 DMA. the move gives another entry point for the sector if it holds in trading today. $112.50 was the entry point and managing the risk with a first target of $115 now attained. Stop at $112.50 or break even. Signs of some upside momentum finally.
  • Russia remains a talking point as the Putin continues the game war with Ukraine. Peace talks? Rumors only at this point, but it is enough to rally the sector. Hit entry at $24 on Monday. Nice follow through on Tuesday with 1.7% gain. Stop to $24 or break even on the trade.
  • Internet (FDN) remains one of the stronger sub-sectors in tech. Moved above $60.70 as second entry point Monday.  $60.25 entry point on short term breakout from triangle first entry. Stop $59.50. Tuesday continued to add to the upside on the trade. Large cap internet stocks adding to the upside of the index.
  • China (FXI or YINN) The upside remains positive and continuation of move last week gave another opportunity for adding the position back based on the resilience in the country short term. Added at $40.50 and added again with confirmed close above $41.25. Now watching to see if we can hit new highs and beyond. Stop $40.25.
  • Emerging Markets (EDC or EEM) – Bounced off the lows and looking for a follow through on the upside at $44.30 entry. This has been volatile on all the news and geopolitical events. If they remain in the headlines this will remain a volatile trade. $43 stop as result.
  • Real Estate (DRN) tested support near the $58.40 mark. Entry $61 on trade. Managed to bounce off the lows and has now regained the upside momentum with the move back above the $62.85 resistance and held. 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 $61 or break even.
  • Housing (ITB) jumped and broke through resistance on the starts and permits data reported on Tuesday. One interesting stat in the data was a 33% rise in mulitfamily housing (condo or apartments). Renting is still on the rise due to lower wages and the damage done in the 2008 lending wreck. This helps REITs as many of these projects are packaged in this format.

Practice patience and let this new chapter of the markets story unfold.

Monday Trade Opportunities:
Trade Opportunities:
  1. TXMD – entry $5.50. break from consolidation. In the drug sector and in position to move higher. be patient and watch the volume it sometimes falls during day.
  2. ITB – entry $23.50. bottom reversal. The data is showing some signs of bottoming. There is more data out today on permits could help upside. Gapped over entry and watching for test to take the entry. Move above $24.10 offers alternative entry point as well.
  3. VXX – entry $27.60. back near lows on VIX and bottom support. Looking for some volatility following more than a week of peace and quiet. $28.60 trade target for position.
  4. ERX – entry $118.90. wedge consolidation breakout. Setting up to move higher as trade. Back to the 50 DMA would be positive.

Pattern Trade Tracking & Follow Up:

  1. XME – entry $43.50. Break from consolidation. Stocks are moving in the producers and miners logically would follow. max entry $43.80. Stop $43.
  2. YHOO – entry $36.50. trading range break. Internet sector moving higher. Stop $34.40
  3. NKE – entry $77.70. trading range break. Watch for move higher prior to earning on 9/22. Stop $76.
  4. CELG – entry $89. wedge breakout. healthcare leadership short term. Stop $85.
  5. BTU – entry $16.05. double bottom reversal. Energy gained on news… got the follow through for entry in the trade. Stop $$15.70.
  6. RFMD – entry $11.50. pennant upside continuation. Need semiconductors to regain positive momentum if broad markets are to regain upside. Stop $11.
  7. 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.
  8. SSO – entry $113.50. Bottom reversal on test lower. Trade on the bounce only for now. $117 target on the trade. Stop $113.50.
  9. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $19.80
  10. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $59.
  11. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  12. 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