Trading Notes for Today, August 8th

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. More worries about the Fed cutting stimulus? Two more Fed Presidents were out Wednesday talking about the cuts and how the economy is improving. The markets were off as much as 1% in early trading and then they slowly started to work their way higher. In the end they closed down 0.4%, but the buyers are still willing to step into stocks, at least that was my take-away on the day. Still more talk to come from the Fed and we will be watching to see how it plays out short term. Looking for the upside bias from the last half of Wednesday to continue today.
  2. Treasury yields were lower at 3.68% or down 5 basis points on the 30 year bond on Wednesday. Oil was down 1% to $104.24 or the next level of support. Gold held steady up $3 to $1285 after selling on Tuesday. Dollar was lower following through on the break below support. We added the short dollar/long euro play to the two egg model on Tuesday, and it move up on the day today.
  3. The global markets traded lower, but Europe (IEV) held the move above $42, while China broke below $34.20 in a challenging day for the country ETF. China set up a short play with FXP. Emerging markets set up short play with EEV. Looking for a follow through on the downside or a bounce from the selling.
  4. Financials were the primary leader for the broad markets, but XLF is testing support at the $20.45 mark on Wednesday. More of the same relative to worries about the Fed, interest rates, lending, etc. BAC was off 2.6% early on the lawsuit from the government on mortgage packaging and fraud. Bounced back to close lower by 0.6%. Still plenty to watch as the news plays out.
  5. The S&P 500 Model is updated. The stops on our positions are set and we are watching the extend move higher short term. I want to add to positions if we continue higher and clear resistance for the entry point and you can review the Watch List Table for the Model. Added the trade on the Volatility Index (VXX) to the model on Wednesday. Watch the early trading as the futures are up slightly.
  6. The Sector Rotation Model is updated. Banks sold lower not helping the new position, watch, take exit if the selling continues. YUM held up well after breaking higher on Monday and I still like the upside. HPQ still attempting to move higher on test of the breakout. Balance treading water as the market gets choppy.
  7. The ONLY ETF Model add VXX to the model today with the continued move higher. The volatility index continued the move off the lows with the early selling and it may well be the beginning of a jump higher if the concerns rise relative to direction short term. We hit stops on Biotech (XBI), small cap (IWM) and China (FXI). The volatility is taking our positions out as we tightened stops.
  8. The ONE EGG Model added the EAFE index or EFA on the test Monday. More selling on Wednesday, but still looking okay with Europe adding to the upside opportunity. Manage your exit if the selling continues.
  9. Watching Thursday’s activity for clarity on direction. If we follow through on a move lower we have some positions to consider taking profits and exits from. This is setting up to be a self-fulfilling prophecy on the downside with all the talk about the Fed and overvalued stocks. Manage your risk, but don’t assume anything as the buyers stepping in on Wednesday was another positive for the broad indexes.

Pattern Setups For Today:

  1. The positions below are are going to be challenged by the comments relative to valuations and the Fed cutting stimulus. Tighten you stops and protect against a short term reversal. There will be plenty of opportunities as we move forward and gain more clarity on the micro trend. We have had a choppy three days on the Fed talk, but the futures are up today, watch and see how this plays out relative to direction overall.
  2. Follow up on previous posts:
  3. GLL – break of trend reversal. Broke support and in position to retest the lows. $96.90 entry. Still watching.
  4. COG – Pennant. Entry $77.80 with continuation of the uptrend breakout.
  5. VLO – Reversal off low. We were watch this and it failed to follow through on move above $36. Nice move higher on Tuesday. Watch for upside continuation and entry of $36.75. Hit early and reversed on day.
  6. COH – Short play on gap lower pennant. Short entry at $53.
  7. CLDX – Flag – $21.50 breakout. Watch for the follow through to Monday’s attempted move higher. Tested lower with the broad indexes and held support at the lower end of the range? Watch for entry.
  8. GBX – Double bottom. Entry $23.35 breakout. Rails are transporting more oil in place of coal and outlook is positive for the sector overall. Moved through entry. Exit at $23.
  9. ED – Consolidation breakout at $60.50. Watch for upside to continue as utilities rebound from interest rate hikes impacting the stocks. Tested lower on day. Look for entry today on follow through upside?
  10. GOOG – Test of uptrend line. If it holds the test of support and the 50 DMA look for upside trade. Entry $896 on bounce higher. Hit the entry last week. Sept 900 Calls $22.05 entry (10 contracts). Test lower on Tuesday… watch and manage your exit. $880 stop.
  11. VMW – Flag gap higher. looking for a continuation of the move from the consolidation. Entry $84.10. No entry yet and continued to watch.
  12. QQQ – cup & handle. break to new high at $75.70 watch for entry on move if it develops. Entry $75.80. Stop $75.80. Hit stop with small profit on trade.
  13. PFE – double bottom. $29.70 entry on break higher. Testing lower with stop at 28.90.
  14. YUM – Weekly chart 16 month trading range breakout? Move above $74.10 looks interesting with a longer term outlook. Took entry at $74 Monday. Stop is $72.75. Tested move higher on Wednesday.
  15. CLF – Bowl pattern breakout? $19.20 was the resistance level cleared. Watch for test of the move and opportunity to add a position in the stock. Target is $23.50. Entry 19.50. $19.80 stop on play.
  16. CRM – Pennant upside. Nice move from consolidation at $39 and now digesting the move and looking to move higher short term. $42.75 entry and making the move higher. Solid gain last week, raise stop $44.45.
  17. IHI – Breakout test. The break from the trading range tested and a follow through on the upside. The entry was $81. Moved higher with nice follow through. Move stop to $82.75.
  18. RAX – cup and handle. entry at $42.35. Could fill the gap back towards the $50 mark. Nice break higher and added play. Testing? Nice continuation move on upside. $44.50 stop. HIT STOP on early selling.
  19. GXC – China – bottom reversal. Resistance at $66.30 and added ($66.50 entry) on the move through this level. Watch the volatility in the trade as China is dealing with slowing economic data. Stop 68. HIT 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
  • The stock hasn’t looked back since gapping higher on earnings. Watch and manage your upside risk. Testing the new high with the current trading environment. Looking at how to hedge the play.

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.