Trading Notes for Today, December 11th

And so the battle begins as the budget committee approves a deal for the next two years on spending. The news was released last night ahead of the Friday deadline, a miracle unto itself. Of  course now the House and Senate must vote to approve it and the comments are already starting about what it does do. Should be a interesting couple of weeks going forward. The other torn in investors sides is next week with the FOMC meeting and stimulus cuts and were again the reason the broad indexes struggled and closed lower. The indexes remain in position to continue the uptrend despite all the worries in place, but it remains a work in progress and we will take it one day at a time. We will focus on the short term trend and take what the market gives. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Despite the positive trends in play, the behind the scenes rumblings about the stimulus cuts, strength of the economy and the new budget proposal are all weighing on investors. I still believe the we have to take it one day at a time as the trend is either validated going forward or the sellers take control. The transition is a process and we have to be patient as it unfolds.
  2. NASDAQ remains in the best shape of the major indexes and remains in position to continue the uptrend. 10 DMA is holding and the Semiconductors moved to a new high. The modest test on Tuesday doesn’t change anything at  this point and the index is in position to lead to the upside. QQQ held the move above $86 and in an uptrend as well.
  3. Small Caps (IWM) tested again on Tuesday dropping 0.9% to lead the major indexes on the downside. The volatility in the sector has been more noticeable versus the NASDAQ and we will continue to watch how this unfold moving forward. Holding the $111.30 support is the first level followed by $110.50, but a break of the 50 DMA would be an exit signal for me on any short term (3-9 months) positions. I am still looking for the upside to continue, but the leadership of the sector is not at the forefront.
  4. Mid Cap (IJH) tested the $128.50 support and bounced back near the previous high of the current range. I Still like the upside trade if it can find the momentum to break through resistance.
  5. Semiconductors (SOXX) gapped higher at the open Friday and hit the entry point on the upside. Got the confirmation move on Monday and still looking for the leadership from the sector going forward. Patience is a virtue.
  6. Financials (XLF) the give back of the break higher came on worry, regulations and just a dislike of the sector by many. Imagine with government wanting to fix the problem that investors would be worried about the outcome to earnings in the financial stocks. The approval on Tuesday of the new Volker rules didn’t help the outlook. The financial stocks remain the pinata of the markets five years later. The renewed talk about increasing the demands of too big to fail is spooking the sector again. Nice bounce on Friday on test of support, but the worries remain in place as does our stops should the selling continue.
  7. Healthcare (XLV) is still in a strong uptrend, but tested lower last week. The test at $54.20 did bounce back above the 10 DMA and near the previous high. The bigger question for the sector will be what happens with the Affordable Care Act. With another year delay of the disaster called “affordable care” I don’t expect much change short term, but we still have to manage our downside risk in the sector.
  8. Real Estate REITs (IYR) broke support at the $63, tested to $62, held and bounced back above $63. This is a sector for the patient investor with a longer term outlook. The dividend of 4% plus the potential upside longer term is worth watching. Nice follow through and some resistance at the 63.85 are what we watch today.
  9. Retail (XRT) was attempting to hold 86.10 support, but the retail news is not impressing investors currently. Speculation is again in the headlines. Support at the $86.25 mark gave way on Tuesday and closed below the 30 DMA. I am still of the belief the individual stocks are where the winners will reside despite the overall data. You will have to do some work to dig and find the best opportunities. As for the overall sector stops have been hit on trade positions (0-13 weeks).
  10. Crude oil (OIL) – Another sector where speculation is driving price. The outlook for increased demand pushes the price back to $98.51 and to the 200 DMA. Downtrend off the September high was broken, moved through the top of the trading range/base… must be a trend reversal? Technically yes, but we have to watch how this bounce plays out going forward. Moved to $22.90ish resistance and continued higher Tuesday giving another buy signal for crude. As long as the speculation story has legs the upside is in play.

The models are updated and with our short term view dominating the process currently. This week is unfolding as a week to speculate on the FOMC meeting next week. The news has put stocks in a tug-o-war of the cut versus no cuts to stimulus crowds. Now the budget battles begin to add some flavor as well. Throw in the holiday trend play and we have enough speculation to make any prognosticator proud. My focus is to watch the news/events as they unfold and the reaction from investors, then take what the market offers. The pattern list is where we are posting most trades short term as a result of the current market environment. Technical trades and avoidance of speculation on news. We are looking for the upside to continue as we move forward and any pullback would help trade setups. Manage the risk on trades more aggressively and monitor your longer term holdings with trailing stops to account for any rise in volatility.

Pattern Setups For Today: We continue to manage the risk of the market and make our adjustments as necessary. Too much intraday noise for my taste and willing to be patient as the setup plays out. The Jobs Report on Friday has the attention of traders in reference to Fed and stimulus cuts. We are in good positions and willing to take this slow for now.

  1. FFIV – break from trading range. Entry $85.55. Technology asserting itself on upside.
  2. BRCM – Breakout from Trading Range. Entry$28.20 on test of the move. Watch for the test and follow through. Max entry today is $28.35. Be patient.
  3. KO – Break from consolidation resistance. Entry $40.50. Consumer Staples taking lead?
  4. Follow up on previous trades or posts:
  5. LNKD – breaking from the trading range. Entry $235.10. The trade is on the move back to the previous high. Regaining some momentum. Stop $226.90.
  6. IYR – Entry $63.85. Bottom reversal. Oversold and an end to the Fed speculation would help the sector. Stop $62.90.
  7. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40. Stop $48.70. Nice move higher on trade of being added to the S&P 500 index.
  8. GMCR – Trend reversal test and follow through. Entry $71.50. Move to $77 as follow through. Defensive sector. Stop $71.50. inching way higher, raised stop.
  9. DIA – Entry $159.50. Test of the uptrend. If bounce take the entry, but could test lower to the $158 support. Stop $158.
  10. IJH – Consolidation at high. Entry $130.20. Continuation of the uptrend and follow the small cap push to new highs following the current test. Stop $130.
  11. FDN – Consolidation at high. Entry $56.55. Taking on leadership role again. Stop $56.55.
  12. SOXX – Ascending Triangle. Entry $69.25. Follow through on higher move would be a plus on the upside. Stop $69.55. Nice breakout finally on Friday.
  13. HBAN – Breakout from trading range. Entry $9.13. Not much test, but steady trading. If no test, max entry is 9.20. Be patient with the upside as this the stock has a pattern of breaking higher, run and then consolidate. Stop $9.15.
  14. YNDX – Trading range break. Entry 38.90. Watching for the upside continuation from the trading range as trade back to the previous high. Stop $39.05.
  15. TSRO – Trading range break. Entry $38.40. Biotech sector moving higher short term. Technical trade entry. Stop 37.50. Watch for some resistance at $40.70.
  16. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $39. HIT STOP
  17. XLF – $20.90 entry. Bounced off low and in position to move higher short term. Stop $21.10. Tested the move higher and back on the upside again.
  18. LINE – entry $29.40. Test of the break higher. Holding support at the breakout $28.80. If we hit the entry looking f or at trade back to the 200 DMA. Stop $29.40.
  19. PSX – 65.70 entry. Flag breakout. Consolidation after break higher. Refiners are leading in energy sector. Lower oil prices help margins, etc. Patience and expect volatility. Stop $69.50 Nice break higher as gasoline prices start to rise. Allow for some volatility with price moving.
  20. ORCL – $34.50 Entry. Completing a break higher above resistance near the $34 level. Earning 12/16. Volatility alive and well in the stock. Stop $34.50.
  21. CAG – bottom reversal. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $32.25.

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.

Facebook (FB) Update:

  • 11/25 – Still sitting on support and we remain in the same strategy as above. We will decide in the next two weeks how to treat our options based on the movement. Patience for now.
  • 11/27 – With the break of support on Monday we will look to exercise our options on the stock we currently hold in December and that will give us zero shares and a nice profit in the position. The initial break lower on Tuesday was interesting, but some buying followed to push back above the support at$45.50. Micro downtrend still in play without some buying to reverse.
  • 12/2 – Got a reversal and looking to exit the put contracts and hold the stock. Sold @ $6 on stop.
  • 12/5 – Watching to see how the stock follows through on the rumor mill of being added to the S&P 500 index. Expect a test or pullback after the news settles. I am looking at the put contracts out to the March/April timeline  again if we don’t hold support.
  • 12/9 – Mixed trading day on Friday that ended lower. The reversal is being driven by the sector and the S&P 500 addition. Looking for a potential move back to the previous high.  Added position (See Above Pattern Trades) and we will manage it accordingly. This is a trade position only.