Trading Notes for Today, August 27th

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. Durable goods orders were worse than expected and Kerry rattles markets with comments to Syria. End result late day reversal from the news pushed stocks lower and in some cases into negative territory. The futures remains slightly negative, but you still have to watch for the bounce effect off news driven selling. The Dow remains the weakest of the major indexes and has been the leader on the downside thus far. The S&P 500 index and the NASDAQ have held up well. Watching today to see how they respond relative to the current events and outlook. Keep your stops in place and let this unfold one day at a time.
  2. The early move higher put some of the watch list posts at the entry points and above on the open. We did not chase any of these, but waited to see if the entries would retrace or test. We added where the entries made sense and we are watching others on the selling reaction to afternoon market events.
  3. Volatility spiked on the Syria news sending the VIX index back near 15. This is one area to watch as we open trading today. If the volatility remains on the news it will help the downside plays. VXX moved back above $15 on the move Monday. There is still rumblings about the outlook for the US economy, but investors continue to look for a positive driver short term which would drive volatility lower. The NASDAQ has been the leader, but still looking for more of a downside test from the S&P 500 index.
  4. Treasury yields were flat at 3.81% on the 30 year bond, and 2.81% 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 or other economic data have a bigger impact on where yields move? Oil moved to $105.92 and holding as it seems to be willing to build a trading range of $103-108. OIL closed at $25.11 after testing the bottom of the range at $24.40 last week. Gold lost $3 to $1393 and testing the move higher from last week. GLD continues to move towards the target of $137. The dollar moved back to $21.90 support (UUP) and holding as the downside is poised to gain momentum.
  5. The global markets gave up a small downside move as the EAFE index (EFA) closed down 0.7% on the Syria news. Europe (IEV) was down 0.6%, China (GXC) was off 0.2% and the emerging markets (EEM) were down 1.1% to lead the downside. The global markets have reacted to the Fed stimulus cuts and fear of the emerging markets falling. The bounce is still in play, but the current developments could add to the downside pressure going forward.
  6. The S&P 500 Model is updated. Look to add to the SH (short) position if the downside resumes.
  7. The Sector Rotation Model is updated. SLW, FCG, BAC, XOP, IWM all moved above the entry points at the open. Adding was a challenge based on the positive open. The late day reversal on the news pushed each below the entry points, but still in decent shape. Watching today to see how they play out and looking for entries if the bounce continues. The size of the entries were reduced based on the current risk and to add if they pullback gives the opportunity.
  8. The ONLY ETF Model updated. Added positions, but need to manage the balance going forward. The short entries need to be watched at the open. Be smart here as the volatility is back on the Syria news.
  9. The ONE EGG Model is updated.
  10. 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. Mixed data from economics, earnings and speculation is keeping everything in a jumbled mess. Adding Syria yesterday didn’t help matters and if anything skews the markets towards the downside again. No guessing, be patient and let the trend play out.

Pattern Setups For Today:

  1. Futures are heading lower this morning on news. I don’t like to trade news as it invites guessing and I am not wired that way relative to the risk associated. Watching to see how this unfolds today and if the downside accelerates.
  2. Watch for the short entries posted to the ONLY ETF watch list.
  3. Follow up on previous trades or posts:
  4. GDX – The trade set up is back with a break above resistance at $30.50. Hit entry barely. Stop at $29.75
  5. FST – Cup & handle breakout. Entry is $5.60. Natural gas stock, sector reversing on rise in commodity price. Hit entry and faded back with the broad market reactions. Stop $5.30.
  6. 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. Hit entry and tested.
  7. IWM – support bounce. Entry at $103. Looking for a 1-3% move off the current low. Stop $102 – looked good until the Syria news. Manage the risk.
  8. 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.
  9. 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 $82.75. Nice follow through.
  10. 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.
  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 but, expect the downside to resume. Hit Stop early in day and then reversed.

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 $41.34 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.