Trading Notes for Today, August 25th

Notes for Trading: 

We start this week with a cautious outlook after a positive week on lower volume. Last week of summer or at least August, if you live in Florida there are two more months of summer heat. The S&P 500 index is at a new high, NASDAQ is leading and heading towards the 2000 highs, and the Dow is closing in on it’s high. All is good and the worries of two weeks ago are gone. All is good on Wall Street.

Scanning the charts they look like the buyers are firmly in control and upward we go. I would like to believe that is true, but we still have to be aware of our surroundings no matter how good it looks or sounds.

The key standout in scanning charts this weekend is the resistance points for the July highs. Plenty of ‘V’ bottom patterns now looking for the upside catalyst to break through the next level of resistance. If this fails to happen a test of the upside move would be in order short term. The sentiment is positive, but the headlines are mixed relative to popular opinion. We will go with the direction of the charts, volume and sentiment.

Stay disciplined this week and take what the market gives.

Sector Notes: 

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

  • The US markets have resumed the lead after the August 7th low. But, looking across the asset classes all except commodities (DBC) have have enjoyed a solid bounce since that time line. The EAFE index (EFA) finally reversed the short term downtrend start on June 19th as Europe (IEV) turned the corner to help the upside of the index. With the reversal off the lows we now see resistance as the indexes challenge the July highs. Getting through these resistance points will be the key to continue the move off the low.
  • Biotech (IBB) is one of those at the resistance point ($266.45) and in need of a catalyst to the continue the upside move.¬†The last five¬†days have sector sitting back at¬†the July high. Look for follow through on the move higher and trade opportunity on the move. Entry $266.50. TODAY: looking for follow through on break above resistance.
  • Transports (IYT) are at resistance ($152) as well. Need catalyst and follow through on the upside this week. ¬†TODAY: watch the $152 breakout level against the July high.
  • Consumer (XRT) moved above¬†the $86 break from consolidation. Created a momentum trade nothing more at this point. Earnings are hitting on the stocks and they are mixed at best, but the issue is the forward guidance. Trade the momentum, but be aware of the issues at hand… lower paying jobs and stagnant wages are helping the sector. TODAY: trade back to the $88.69 resistance.
  • Internet (FDN) remains¬†one of the stronger sub-sectors in¬†tech. Moved above $60.70 as second¬†entry point. ($60.25 entry point on short term breakout from triangle first entry.) Stop $60.50. Large cap internet stocks adding to the upside of the of the sector and the NASDAQ 100 index. TODAY: continue upside and challenge the March highs as next resistance.
  • Housing (ITB)¬†reversed off the lows following a reversal in the data.¬†The move back to resistance is the next level of the upside move it must overcome. $24.12 is the level to break and add to the position if we break higher. TODAY: entry on break above the $24.12 mark and then the downtrend line at $24.60. Longer term outlook improving.
  • Emerging Markets (EDC or EEM)¬†– At resistance of $45.10. Need to move through this level short term to maintain the uptrend. Took¬†$44.30 entry. This has been volatile on all the news and geopolitical events it will likely to continue the volatility. $43 stop.¬†TODAY: continued break above $45.10 will add to the position.
  • Treasury Bonds (TLT) got the¬†reversal on¬†the geopolitical issues subsiding in Russia. The Fed FOMC minutes did little to change the positive view and rates remain on the downside for now.¬†TODAY: Test in yields dropping and the $116 support.
  • Small Caps (IWM) made a move back to¬†the $115 level and¬†facing¬†resistance here along with the 200 DMA. The move gives another entry point for the sector if it breaks through. $112.50 was the entry point initially for the position. Stop at $112.50 or break even. Signs of the¬†upside momentum are fading thus the break even stop. TODAY: need to resume the upside and clear the $115.5o level on some better volume.

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

Monday Trade Opportunities:
Trade Opportunities:
  1. Sector Rotation Model – updated with the opportunities discussed above in the Sector Notes.
  2. EGG Model – updated with ITB posted as trade opportunity.
  3. 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.
  4. 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.

Pattern Trade Tracking & Follow Up:

  1. PCLN Рentry $1275. descending triangle. good consolidation pattern set up to move higher again. Stop $1254. (Trade was the Jan 1270 calls @ $78.80 entry)
  2. AGN – entry $163.50. Test lower and move through resistance. drug manufacturer. Stop $158.90.
  3. ERX – entry $118.90. wedge consolidation breakout. Setting up to move higher as trade. Back to the 50 DMA would be positive. Stop $116.
  4. VXX –¬†entry $27.75. 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. Stop $27.10
  5. YHOO – entry $36.50. trading range break. Internet sector moving higher. Stop $34.40
  6. NKE – entry $77.70. trading range break. Watch for move higher prior to earning on 9/22. Stop $76.
  7. CELG – entry $89. wedge breakout. healthcare leadership short term. Stop $89.
  8. BTU – entry $16.05. double bottom reversal. Energy gained on news… got the¬†follow through for entry in the trade. Stop $$15.70.
  9. RFMD – entry $11.50. pennant upside continuation. Need semiconductors to regain positive momentum if broad markets are to regain upside. Stop $11.
  10. 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.
  11. SSO – entry $113.50. Bottom reversal on test lower. Trade on the bounce only for now. $117 target on the trade. Stop $118
  12. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $19.80
  13. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $59.
  14. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC. Stop $97.80. Use some patience on upside move.
  15. 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