Trading Notes for Today, August 5th

Notes for Trading: 

Star the week with a slow volume day with modest bounce off the lows does little to influence the scans for today. We started the week with no economic data, little happening on the geopolitical front, global markets were positive, and basically it was quiet day overall which allowed the buyers in the afternoon to push stocks higher. We will see how this plays out today with a resumption of economic data and other issues. One day at a time. I am not making much of the low volume bounce Monday until we see evidence the sellers are back in hibernation.

Sector Notes: 

Below are some key notes on Monday’s events¬†and what we are watching looking forward:

  • Russia/Ukraine… the issue remains and it is far from over¬†as worries rise about sanctions from the US and Europe. The Russia ETF (RBL) bounced Monday, but still in a downtrend short term. Watching to see how it unfolds. RUSS¬†is the short ETF for the country and we have been willing to step into the trade when appropriate relative to the risk. $13.26 is breakout level to watch.
  • Volatility spiked¬†to 17.5 last week¬†as the anxiety rose relative to interest potentially rising sooner than later. The index fell to 15.1 Monday as the fear subsided on the quiet day. Watch to see how it unfolds today. Raise stop on the SVXY trade on Monday to break even. (below)
  • Small Caps (IWM)¬†short interest rose¬†last week last the ETF tested the $110 support level on Friday. Early test today, but the upside ¬†moved to $111.66 on the close. Watching for a possible reversal to lead the broad indexes higher or continues the downside to lead them lower. Downside in play currently.
  • Housing is another sector which the data has confirmed a slowing with the decline in new home sales and pending sales.¬†The short interest and the negative sentiment has grown and taken sector below support. Looking at the weekly chart of ITB the next level of support is $21.55. Small bounce on Monday and holding support currently. This is a barometer for the health of the economy as well looking forward.
  • Coffee (JO) is moving off the lows and I like the upside opportunity in the commodity on the speculation around the rising cost based on supply and demand. $34.20 entry point and tested the break higher today. Still like the longer term upside as the opportunity, but you will need to deal with the volatility of the commodity short term.
  • China (FXI or YINN) moves higher on Monday and is back near the previous high. The upside remains positive and we may look at adding the position back based on the resilience in the country short term.¬† Watch for the next opportunity in the country ETF if the upside remains in play.
  • Emerging Markets (EDC or EEM)¬†– we got¬†the break higher last week¬†in the sector and we again gave up the gains with¬†Argentina is weighing on the sector as they default on bonds. Broke the¬†$44.25 support and hit stops Thursday. Bouncing back now and above the entry point again?¬†Patience.
  • Base metals (DBB)¬†still gaining in the uptrend and bounced nicely today following last weeks test. Hold and manage stops. Watching to see how this unfolds. I still like the upside here.

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

RESEARCH MODELS:

The models can be linked to below and each has been updated for the current outlook:

Sector Rotation Model (updated Р8/4/14)

ONLY ETF Model (updated Р8/4/14)

S&P 500 Index Model (Updated Р8/4/14)

ONE EGG Model (updated Р8/4/14)

Monday Trade Opportunities:

Trade Opportunities:

  1. Modest bounce and low volume. I remain cautious about the outlook short term. We will take what the market gives and keep our stops close by.
  2. SOCL – entry $20.15. cup and handle pattern. Held up well in the selling last week.
  3. VMW – entry $100.50. trading range breakout and test. Upside value along with EMC.
  4. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week.

Pattern Trade Tracking & Follow Up:

  1. QQQ – entry $95 on reversal bottom started on Friday. QLD is leverage trade ETF. ($116 entry) Stop $115.90 as took the QLD trade.
  2. SVXY – entry $74.75 on reversal bottom. Initial target is $78 and then $82. Stop $75.90.
  3. JO – entry $34.80. Bottom reversal. Breaking the downtrend line off the April high and looking for upside follow through. I like the outlook. Stop $34.80.
  4. CLF – entry 16.20. Trading range. The bottom reversal has been consolidating the last three weeks and looking for a clear break higher. Stop $16.50.
  5. QID – entry $46.88. Bottom reversal. The break lower in the semiconductors is a negative for the index and earnings from Amazon will impact the index today. Watch for downside trade as NASDAQ looks toppy. ¬†7/31 – added to position –¬†entry $47.50 – bottom reversal. Volatility in the index has been slowly rising the last week and concerns in the large caps are rising as well. Hedge for other positions.¬†Stop $47.50. both positions
  6. PLUG – entry $5.10. Base breakout. Looking for the move from the base to accelerate as the trend is drifting higher. Stop $5.10
  7. DBB РEntry $16.75. Break resistance and continuation of reversal. Cooper reversing along with steel. Added position on test lower and continuation of upside.  Stop 17.50.

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:

  • NO current positions in Facebook (FB) – see note page for history.