Trading Notes for Today, August 26th

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. New week same old issues facing the market. The bounce is in play and as we have discussed in the weekend update, Still looking at the downside bias. The VIX index dropped below 14.5 and if it drops lower and sentiment shifts again the bounce may be more than expected short term. Why the shift? Bad news from the economic data will keep the Fed from starting the stimulus cuts. The old bad news is good news for stocks! The move will only make the ultimate decline worse, but you have to follow the money short term. Thus, we start the week watching for a follow through on the bounce.
  2. Housing data on Friday shifted the outlook in the sector as they decline showing the impact of higher rates on sales. The headlines call the report a plunge! The drop was 13.4% to the lowest pace in nine months. XHB fell 1.4% and ITB was off 2.3% on the news. Based on the chart of ITB the sector is off 19% since the May 14th high. I would like to say this is an opportunity long term, but we will have to see how this unfolds going forward.
  3. Treasury yields fell on the housing news Friday! This is good news to bonds? Bad news is good news? Yes, when it is deemed the Fed will reconsider their choice of when and how much to cut the stimulus. This is another area of concern moving forward, but I don’t see this as a buying opportunity for bonds. It does impact the TBF position we own as it hits the stop at $33. The yield fell to 3.8% from 3.88% on Friday.
  4. Volatility is short lived as the VIX index falls below 14.5 or support near term. There is still rumblings about the outlook for the US economy, but stocks are putting in another concerted effort to rally back from the recent selling. SVXY will be a trade opportunity if the index continues below support.
  5. Treasury yields moved lower to 3.8% on the 30 year bond, and 2.83% on the ten year bond. The worry over the Fed cutting stimulus in September has been causing challenges for bonds. The question now is will the housing data have a bigger impact? Oil moved to $106.32 and holding as it seems to be willing to build a trading range of $103-108. OIL closed at $25.07 after testing the bottom of the range at $24.40 last week. Gold gained $25 to $1396 of Friday after testing all week. GLD continues to move towards the target of $137. The dollar moved back to $21.90 support (UUP) after a little bump from the FOMC minutes. The decline was in conjunction with the housing data pushing bonds lower on hopes the Fed would delay QE infinity again.
  6. The global markets gave up 1.1% (EFA) Wednesday gained 2% on Thursday and Friday after holding support above $60.10. Europe (IEV) was down 1.1% Wednesday, and up 1.8% on Thursday and Friday. China (GXC) was down 2.5% in response to the weakness in the emerging markets and, up 2.5% on Thursday. The emerging markets (EEM) were down 4.3% the first three trading day of the week and bounced 2.6% on last two days. The global markets have reacted to the Fed stimulus cuts and fear of the emerging markets falling. Welcome to the volatility that uncertainty creates. The bounce is in play following the pull back and test of support.
  7. The S&P 500 Model is updated.
  8. The Sector Rotation Model is updated.
  9. The ONLY ETF Model updated.
  10. The ONE EGG Model is updated.
  11. The market is focused short term on the news. The buyers are grabbing onto any positive news they can find. The sellers are looking for the definitive catalyst on the downside. The tug-o-war is making investors crazy and day traders are loving it. I am of the opinion that the sidelines look great as this gets resolved. The Fed provided zero relative to the stimulus cuts in the FOMC minutes. The next update will be from the Jackson Hole retreat. I don’t expect much from that to help the overall clarity of direction. Mixed data from economics, earnings and speculation is keeping everything in a jumbled mess. Flip a coin on where this goes for now. No guessing, be patient and let the trend play out.

Pattern Setups For Today:

  1. The market indexes bounced on Thursday and held on Friday with the NASDAQ leading the upside. The broad markets still lack clarity and that keeps me on the sidelines predominately for now. Trades are setting up on the upside with a follow through to the bounce. That said, I am still of the opinion the downside bias is not dead. Friday I stated the major indexes may bounce 1-3% and that is in progress. Watching to see how we start the week. The futures are flat, and we may see a day of jockeying for position.
  2. GDX – The trade set up is back with a break above resistance at $30.50.
  3. FST – Cup & handle breakout. Entry is $5.60. Natural gas stock, sector reversing on rise in commodity price.
  4. XME – Bottom reversal at resistance. Entry $38. The base metals are moving higher and helping this volatile ETF. expect volatility and give room on stop.
  5. Follow up on previous trades or posts:
  6. IWM – support bounce. Entry at $103. Looking for a 1-3% move off the current low. Stop $102
  7. NVDA – breakout test. broke from the trading range and tested ($14.85 key level to hold). If holds the move entry at $15. Stop $14.80. Testing the move.
  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 $81.70. Nice follow through on Friday.
  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 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.
  10. 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 but, 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.
  • 8/23 – Nice bounce to $40.55 and new high. The resumption of the upside is a continuation of the gap higher. The shift in the mobile ad market has continued to bring high marks from analyst. Watch as this story continues to unfold.

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.