Trading Notes for Today, August 20th

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. No upside for the broad indexes Monday. The NASDAQ tried to lead the way higher, but reversed to close down 0.4%. The new debate now revolves around a pullback or correction? It may be too soon for that discussion, but the selling is putting most on investors on notice. The buy on the dip crowd was not interested on Monday, but a bounce is still anticipated. If not, watch for the downside to accelerate as the tension builds relative to Fed cutting stimulus. This week is the FOMC meeting and there will be plenty of speculation heading into the announcement on Wednesday afternoon. For now keep your focus on where the exits are.
  2. We stated yesterday that 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… there were plenty more quoted on Monday with my favorite being Dow logs first four day losing streak of 2013. Not sure what they mean, but at least their is a strategy behind the thinking… right? We can add one more down day to the tally. The key will be what investors do with stock ownership going forward.
  3. The VIX index was up again as we clear resistance at the 14.5-14-8 level. The break resulted in adding to our play on VXX.
  4. Treasury yields moved higher to 3.9% on the 30 year bond, and 2.88% on the ten year bond. The worry over the Fed cutting stimulus in September remains a challenge for bonds. The TBF trade is still working on this move. Oil moved to $107 and holding as it seems to be willing to build a trading range of $103-108. OIL closed near the previous high $25.40 and we are watching for a break higher or retest of support at $24.40. Gold lost $5 to $1366 and still 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. Watch the support level and see how the dollar plays out.
  5. The global markets gave up 0.75% (EFA) Monday as the traders start to react to the US market result. Europe (IEV) was down 0.85% Monday in response to the continued selling. China (GXC) was down fractionally and still looks positive short term. The emerging markets (EEM) were down 1.8% leading the way lower on fear stimulus cuts will impact the sector. We hit stops on most of our holdings in the global markets and watching to see how this unfolds going forward.
  6. The S&P 500 Model is updated. Stop was hit on XLB Monday to add to last week exits from XLP, XLY, XLE, SPY, XLV and XLF.  I added to VXX on the move higher in volatility and added SH to hedge the balance of the positions in the model. 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. The Short Dow play remains and I adjusted the stop for the move. Looking at some downside opportunities on the bounce for entry points. Hit exit point on EEM on Monday.
  8. The ONLY ETF Model updated and heavy in cash. SKF (short financials) advanced nicely on Monday 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. Close on the entry for QID Monday, look for the move today to add the position.
  10. Too much talk about the market reaction to cutting stimulus 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. If no bounce today, it could accelerate on the downside.

Pattern Setups For Today:

  1. The downside is in play. I am looking for a short term bounce, but then a continuation of the current move 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 position.
  2. SSG – break from consolidation base. Short semiconductors if they fail to hold support. No volume in the ETF. If you don’t want to deal with this just short SMH. Entry $28.60. stop $27.50. (See Only ETF Model for SMH trade)
  3. GMCR – break from top of trading range. The stock has been added to the NASDAQ 100 index and should get a boost on the upside enough to break higher. Entry $82.15.
  4. Follow up on previous trades or posts:
  5. UNG – Reversal off low. Trade opportunity with entry at $18.15 and target of $20. Technically oversold bounce play. Gapped at the open Monday above the entry and watching to see if we test the gap otherwise pass.
  6. 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.
  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 $33.
  8. AMZN РSet 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. Attempted to bounce, but gave up the gains and still in the short. Manage the trade and keep the original stop for now.
  9. AAPL – V bottom breakout with test. $465 entry. Broke on Monday and looking at the Oct $470 call. Added the position last week. Carl Ichan’s announcement resulted in a big move for the trade. Raising the stop to $27 for now. Manage the position as the stock still wants to go higher. Nice gain on Monday.
  10. 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 and raise stop to $33.70 and watch as we hit the target.
  11. 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. 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.
  • 8/18 – Nice bounce on Friday. Watching to see is 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.