Trading Notes for Today, August 22nd

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. Welcome to a clear understanding of the Fed Minutes released Wednesday at 2 pm, see chart below. Yea… we understand how the Fed is going to treat the stimulus cuts… Well, maybe we don’t understand what this really means. The buying and selling was pure entertainment from my view! SELL, NO Buy, NO SELL! A lack of clarity always creates volatility. When it was all said and done on the day the S&P 500 index lost 9 points to 1643 down 0.5% for the day. The NASDAQ did the same except with a sharper climb and fall closing down 0.4%. The Dow moved back above 15,000 briefly but was down 107 points losing 0.7% on the day. When the day ended the downside remained in play and the bounce, I have been looking for, not likely… Investors slept on the problem and concluded today to buy after all…. futures are trading up with a positive sentiment towards stocks to start the day? We will watch and see how this unfolds…
  2. SP 5 Min
  3. Semiconductors – The sector was testing support and looking to define the direction near term. We are still slightly above the support levels, but the downside looks to be in control for now. As the sector has gone so has the market trend. SOXX Support is $62.30 ($62.48 close on Wednesday) and the bounce happened on the Fed minutes, but it could hold on to the gain with the index down 0.75%. Watch to see how this unfolds moving forward and the resulting opportunities up or down. SSG is the short play and SOXX is the long play.
  4. Bounce and more downside? I was leaning towards the downside bias, but the question is will the bounce materialize? That puts the short plays back on the table unless things shift gears in today’s trading? Watch and manage your risk.
  5. The VIX index moved up to the 16.5 level on the early selling Wednesday, but it retraced back to support on the rally, but closed at 15.9. That would be intraday volatility, but we are still looking for the volatility index to push higher as the uncertainty looking forward gains momentum. Manage your risk of VXX position.
  6. Treasury yields were basically flat at 3.88% on the 30 year bond, and 2.85% on the ten year bond. The worry over the Fed cutting stimulus in September remains a challenge for bonds and no clarity to speak of on the Wednesday release of the minutes. The TBF trade is still worth holding for now. Oil moved to $103.89 or down 1.1% on Wednesday. It is still holding within the newly established trading range of $103-108. OIL closed at $24.53 and at the near term support of $24.60. Watch for bounce if futures hold. Gold lost $7 to $1365 and still above support at the 1340 level. The uncertainty at this point is a lack clarity from the Fed on stimulus.  The dollar moved above the $21.90 support (UUP) as all the Fed worries continue to creep into the dollar. Stimulus cuts should be a positive for the dollar.
  7. The global markets gave up 1.1% (EFA) Wednesday, but held support above $60.10. The pressure from the US markets as well as interest rates are impacting Europe (IEV) was down 1.1% Wednesday showing the concerns moving forward. China (GXC) was down 1.5% (2.5% last two days) in response to the weakness in the emerging markets again. The emerging markets (EEM) were down 4.3% the last three trading day and leading the way lower on fear stimulus cuts will impact the sector. The global markets have reacted in advance of any cuts. Europe is trading up 1% today watch to see if it holds on the bounce.
  8. The S&P 500 Model is updated. Stops were hit and exits made over the last four days of trading. The bounce on Tuesday was positive, but didn’t change anything short term as the index resumed selling again on Wednesday down 0.5%. We hit stop on XLB and are close on XLK. We are holding here for now and we will take what the market gives going forward with our downside protected and our stops in place.
  9. The Sector Rotation Model is updated. The Short Dow play remains and I adjusted the stop. Looking at some downside opportunities on any bounce for entry points. If the upside plays out today we will adjust the short entry points.
  10. The ONLY ETF Model updated and remains heavy in cash. SKF (short financials) advanced nicely and trading sideways despite the FOMC minutes. Patience is the key as this choppy volatility plays out.
  11. The ONE EGG Model hit the entry for QID as intraday volatility on Wednesday left the entry questionable. Watching this morning as the bounce develops for a follow through on the downside. We may have to adjust the stops lower to give some room for this to play out.
  12. The market is focused short term on the news relative to the stimulus with the FOMC minutes. They didn’t provide any clarity and that leaves the markets subject to interpretation and volatility and we experienced Wednesday afternoon. The Fed is sticking with the hope of better second half of the year story… we will see, knowing anything less could lead the markets lower. The short term trading range and top is keeping us heavy in cash, but 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. Watch how the positive futures play out today.

Pattern Setups For Today:

  1. ¬†Volatility is in play intraday now as the uncertainty move to a new level. I got the bounce I was looking for Tuesday with not follow through on Wednesday. The Fed made sure we didn’t understand anything relative to the future actions to be taken on cutting stimulus. Managing positions with a downside bias for now. If the upside resumes today on the bounce, give some room on short plays to let any hope dissipate. Not adding any new patterns today as we see how this transitions.
  2. Follow up on previous trades or posts:
  3. LL – Cup & Handle – broke above the 98.50 high and held into the close. The homebuilder sector bounced again on Tuesday and helping. Watch for test of the move and continuation of the breakout with target at $107 and entry of $99.50. Tested and held the $99.50 all day added half a position.
  4. NVDA – breakout test. broke from the trading range and tested ($14.85 key level to hold). If holds the move entry at $15.
  5. 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) close, but not quite there. Be patient this will develop if the downside resumes.
  6. 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. Stop $80. Added on Tuesday’s move higher. Watch the volatility as markets shift.
  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. Went higher on the FOMC minutes.
  8. AMZN – Set up short on break of support. Entry at $290. Adjust stop to $290. Tested back to the upside at $288+, took the short entry at $287.25 (last week). Attempted to bounce, but gave up the gains and still in the short. Manage the trade.
  9. AAPL – V bottom breakout with test. $465 entry. Added Oct $470 call. Carl Ichan’s announcement resulted in a big move for the trade. Raising the stop to $40 (option) for now (that is a double and I don’t want to be greedy). Manage the position as the stock still wants to go higher. Nice gain on Monday, but gave it back on Tuesday. Holding here watch for upside or head for the exit on a reversal.
  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. Took the play with the Dow moving lower. Nice gain and raise stop to $34.35 and watch as we have 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. Small bounce on retail news, expect the downside to resume.

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.
  • 8/21 – Nice bounce back near the high of $39. Watching to see is this establishes a new uptrend 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.