Trading Notes for Today, August 23rd

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. What changed overnight that sent the broad indexes higher on Thursday?¬†Investors slept on the Fed problem and concluded it was okay to¬†buy after all…. futures were trading up with a positive sentiment from China and Europe posting positive economic data that started the positive outlook. In the end¬†sentiment turned positive on the NASDAQ, despite stopping trading most of the afternoon, which led the upside as the mega/large cap stocks provided the catalyst on the upside. This is all part of the bounce process and if there is a follow through on the upside today watch for the sellers to shift gears and¬†frustrate traders. At this point futures are flat heading into trading and a light news day on tap.
  2. Semiconductors – The sector was testing support and looking to define the direction near term. The index did manage to bounce above the support levels, but the downside has not left town yet. As this sector has gone so has the market trend and that is what we are watching near term. SOXX Support is $62.30 ($63.17 close on Thursday) and the bounce happened in response to the improving economic picture globally. Watch to see how this unfolds moving forward and the resulting opportunities up or down. SSG is the short play ($28.60 entry on the short play) and SOXX is the long play (clear $63.50 on upside).
  3. Bounce and more downside? Thursday did not change my mind yet, I was leaning towards the downside bias, but the question is will the bounce continue? Some selling into the close, but overall a positive upside day. Watch and manage your risk.
  4. The VIX index started lower and headed lower throughout the day closing at 14.8, that is support short term. No intraday volatility on Thursday, but we are still looking for the volatility index to push higher as the uncertainty looking forward remains a concern. Watch for more clarity in trading today.
  5. Treasury yields were basically flat at 3.88% on the 30 year bond, and up 5 basis point to 2.9% on the ten year bond. The Fed cutting stimulus in September remains a challenge for bonds and no clarity to speak of again on the Thursday. Oil moved to $105.07 or up 1.1% on Thursday. It is still holding within the trading range of $103-108. OIL closed¬†at $24.81 back above the support of $24.60. Bounce now in play on the upside? Gold gained $5 to $1375 and still¬†above support at the 1340 level. Watching to see how gold unfolds as it can’t find momentum only volatility currently. ¬†The dollar moved above the $21.90 support (UUP) as stimulus cuts should be a positive for the dollar. Small Caps back in play as IWM gained 1.4% on Thursday.
  6. The global markets gave up 1.1% (EFA) Wednesday gained 1% on Thursday after holding support above $60.10. Europe (IEV) was down 1.1% Wednesday, and up 1.2% on Thrusday. China (GXC) was down 1.5% (2.5% last two days) in response to the weakness in the emerging markets and, up 2.5% on Thursday. The emerging markets (EEM) were down 4.3% the last three trading day and bounced 1.6% on Thursday. The global markets have reacted to the Fed stimulus cuts and fear of the emerging markets falling. Welcome to the volatility that uncertainty creates. Watch how this trades today.
  7. The S&P 500 Model is updated. Volatility took us out the long trades, added short trades and a play on volatility. One upside day following all the negative doesn’t change anything except attitudes towards the short trading volatility. Today ends the week and we will see how it unfolds.
  8. The Sector Rotation Model is updated. The Short Dow play remains and stop is in place. Still bias towards the downside… we will see how this plays out short term and make the necessary adjustments.
  9. The ONLY ETF Model updated and remains heavy in cash. Managing the choppy trades and holding cash for now. Willing to be patient for now and gain some clarity of direction for trades.
  10. The ONE EGG Model hit the stop and looking for the next opportunity.
  11. The market is focused short term on the news relative to the stimulus with the Fed. They didn’t provide any clarity and that leaves the markets subject to interpretation and volatility and that has been in play all week. The Fed is sticking with the hope of better second half of the year story as we saw in the minutes and that brought some buyers back to the table on Thursday. The short term trading range and top is keeping us heavy in cash, but looking for the catalyst of direction short term. Flip a coin on where this goes for now. No guessing, be patient and let the trend play out.

Pattern Setups For Today:

  1. We¬†got the bounce on Thursday to follow through on¬†Tuesday with some selling on Wednesday sandwiched in between.¬†The broad markets still lack¬†clarity and that keeps me on the sidelines predominately for now.¬†We continue to manage positions with a downside bias for now. That said, looking for a follow through on the bounce Thursday. If we get it there are trades in the indexes SPY, QQQ, IWM, SOXX for example that would net 1-3% gains. If you don’t like that type of trading watching for the trend to develop is the best course of action.
  2. IWM – support bounce. Entry at $103. Looking for a 1-3% move off the current low has been one of the leaders. Trade only.
  3. BZH – bounce off low. Entry $17.95. Sector is oversold technically and Beazer is leading the bounce. A break through resistance at $17.90 would be the entry point with a target of $19.25.¬†Expect some volatility. For those of you looking for longer term positions you can hold and build… this stock offers that opportunity as well.
  4. Some of the leaders are bouncing off support and could be the key to the move short term. Watching FLIR, SBUX, GILD, AAPL, SLB, NG, KORS to name a few.
  5. Follow up on previous trades or posts:
  6. 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 added half a position. Nice follow through on Thursday.
  7. NVDA – breakout test. broke from the trading range and tested ($14.85 key level to hold). If holds the move entry at $15. Hit on Thursday, but failed to move higher.
  8. 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 (adjusted on the volatility Wednesday). Watch the volatility as markets shift.
  9. 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.
  10. 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.
  11. AAPL – V bottom breakout with test. $465 entry. Added Oct $470 call. Carl Ichan’s announcement resulted in a big move for the trade initially, now he is leaking about a meeting with Tim Cook. I don’t like the stock manipulation game.¬†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, but the we have to be aware of the talkers.
  12. 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.
  13. 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.