Trading Notes for Today, August 29th

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. Wednesday we managed to fight back and end on a positive note as investor fear subsided. This does not end the issue or those that were in play previous to the announcement Monday. Downside is still the direction of the micro-trend despite the bounce on Wednesday. There is plenty to watch as laid out in the notes the last two days and we are looking for the best opportunity presented from any one of them. Futures are up as we head into the trading day as all seems calm for now.
  2. Financials attempted to bounce, but by the close it had given back all the gains but couple of pennies. The government fighting against the financial services sector and treating the banks like a pinata. The keep beating on them until money versus candy falls out. Bank of America, JP Morgan, and Charles Schwab are in beating distance. Watching to see if the sector can regain any upside momentum or is the downside still the play. We own SKF which on the five minute chart closed with a nice cup and handle pattern. Watch to see if there is an opportunity to add to our short play or do we close the position and look for the bounce?
  3. Volatility spiked on the Syria news sending the VIX index to 16.8, only fell to 16.4 on Wednesday. The VXX trade gave up some ground, but still in play. If the volatility remains 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 second. 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.
  4. Treasury yields gained on Wednesday to 3.75% on the 30 year bond, and 2.78% 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 again from the Syria news sending oil to $109.48.  OIL closed at $25.96 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 flat at $1418 and holding the break above resistance at $1413. GLD hit the target of $137 Tuesday. The dollar moved back to $21.90 support (UUP) and bounced on Wednesday, but still not making much progress.
  5. The global markets equally move to the downside as the EAFE index (EFA) closed flat, but remained lower on Wednesday. Europe under pressure from oil prices moving higher which pushed Europe (IEV) down as well. China (GXC) was flat after an attempt to move higher and the emerging markets (EEM) were up, but failed to hold the gains closing flat on the day. The global markets have reacted to the Fed stimulus cuts and fear of the impact on the emerging markets. Watching the downside risk in the global markets short term.
  6. 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.
  7. The Sector Rotation Model is updated. Still watching this mess unfold.
  8. The ONLY ETF Model updated. Manage the risk of the trades on the short side today. I added financials to the watch list.
  9. 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.
  10. The market is focused short term on the news. The lack of any new developments with Syria is pushing stocks higher for now, but the uncertainty remains which creates volatility. Watching the upside bounce again today as the buyers continue to be willing to nibble at this level.

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. AAPL – The buyers are still in play. bounce off the $485 level is of interest short term. Looking at the $495 Oct Call on reversal and move higher. Move above $493 would be the entry point.
  3. CLDX – Breakout Test – $21.70 support tested on Wednesday and looking for a bounce back to the $24 high. $22 entry.
  4. SBUX – Test of support $70. Tested and bounced. Looking for a move above $71.30 for the entry.
  5. Follow up on previous trades or posts:
  6. 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. added $35. stop $34.
  7. 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. added at $49.70. stop $48.50
  8. 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.
  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. Held above the stop. If test holds above the stop gives an opportunity to add to the position. added $8425 additional to original trade. same stop

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.
  • 8/28 – 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. Added 1000 shares at $39.95 for trade. Stop on that trade is $39.20.

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.