Trading Notes for Today, August 28th

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. The issues in Syria continued to create uncertainty in the markets on Tuesday and that sent the broad indexes lower with the NASDAQ leading the way down 2.1%. That erased the three day bounce and broke support at 3600 again. The S&P 500 index broke below 1643 and could test the 1600 level based on the current data. If the issues in Syria are resolved without incidence look for another bounce in the broad markets. Thus, uncertainty will rule the day.
  2. More lawsuits by the government against the financial services sector. Bank of America is ready to go to trial, JP Morgan is being asked for $6 billion or else, and New York Attorney General reopens suit against Charles Schwab. Need to raise the $85 billion we are floating from the Fed every month from somewhere. The sector was down 2.4% to lead the S&P 500 index lower. These developments are a cloud over a sector that can’t break free of the overhang from the 2008 crisis. Watching to see how this impacts the sector going forward.
  3. Lost in all the speculation Tuesday was economic data that showed consumer confidence much better than expected at 81.5 versus the 78 expected. Finally some good news in the housing sector as home prices continued to rise year-over-year. Today there is pending home sales out at 10 am.
  4. Volatility spiked on the Syria news sending the VIX index to 16.8. That pushed the VXX trade up more than 8% on the day. If the volatility remains on the news it will help the downside plays as well as the volatility index trade. The issues with Syria will take the primary role for now but the outlook for the U.S. economy is running a close sector. The economic data is tied directly to the Fed cutting stimulus and hopes that bad data will keep the Fed from cutting in September. Either way the volatility is likely hear to stay for awhile.
  5. Treasury yields fell lower to 3.7% on the 30 year bond, and 2.72% on the ten year bond. The worry over the Fed cutting stimulus in September has been causing challenges for bonds. Throw in the current unrest over Syria and the flight to quality is adding to the downside pressure on yields as money seeks safety. Oil likewise was benefactor from the Syria news sending oil above $109 on the news.  The breaks oil from the trading range of $103-108. OIL closed at $25.77 after testing the bottom of the range at $24.40 last week. Geopolitical issues in the Middle East are never good for consumers relative to oil prices. Gold was up $27.10 to $1420 and breaking above resistance at $1413. GLD hit the target of $137 Tuesday. The dollar moved back to $21.90 support (UUP) and holding as the downside is poised to gain momentum.
  6. The global markets equally move to the downside as the EAFE index (EFA) closed down 1.7% on the Syria news. Europe (IEV) was down 1.9%, China (GXC) was off 1.5% and the emerging markets (EEM) were down 2.3% to lead the downside again. The global markets have reacted to the Fed stimulus cuts and fear of the impact on the emerging markets. Throw in the issues with Syria and the downside did damage on the charts Tuesday.
  7. The S&P 500 Model is updated. Added the 5% additional to SH on the open today. Nice move in SH and VXX on the upside. Hit stops on XLK. Manage the downside plays as this all continues to unfold.
  8. The Sector Rotation Model is updated. Hit stops, entries and adjusted stops.
  9. The ONLY ETF Model updated. Added positions, exited positions and adjusted stops. Shorts need to be managed!
  10. The ONE EGG Model is updated. Passed on the trade with the gap open. too much risk on the trade. If you took the entry I would push stop to $38.25 and limit the risk of the trade.
  11. The market is focused short term on the news. Syria dominated Tuesday as the concerns pushed gold, Treasury bonds and oil higher. The short plays posted solid gains on the day and we hit stops against some long positions, but over all net positive for the models. Watch and manage the risk of the short positions as the move has been on news and speculation. I don’t believe the U.S. will act with force and this will drag out for weeks not days.

Pattern Setups For Today:

  1. Futures are heading higher this morning on news. The downside accelerated on Tuesday and we hit stops as a result of the move. Still looking for some clarity near term to take on the risk of the pattern trades. The leaders broke lower and it is time to regroup and find our bearings.
  2. AFOP – Breakout Test – solid move higher from the trading range at $34.50. If holds support and resumes upside advance, look for trade up to the previous high near $40.
  3. DDD – Test of breakout from trading range. $40.40 is level to hold and then look for entry. $50 max entry on the trade. Target is $54.
  4. Follow up on previous trades or posts:
  5. GDX – The trade set up is back with a break above resistance at $30.50. Hit entry barely. Sold at $30.50 on the intraday reversal on this position.
  6. 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. held up well in trading on Tuesday.
  7. 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. Sold position at $37.25 on intraday reversal.
  8. 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. Hit stop on negative day.
  9. 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. Hit stop.
  10. GMCR Рbreak 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. Held above the stop. If test holds above the stop gives an opportunity to add to the position. 
  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. Took exit on Tuesday.

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.
  • 8/27 – Nice bounce to $41.34 and new high. Tuesday reversed the move higher as markets react to speculation. Still in play and watching now for any trading opportunities off the pullback test of the move higher. Test of $39.30 level is the key to hold. If reverses back to the upside looking buy 1000 shares as trade back to $42.

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.