Trading Notes for Today, December 12th

Interesting twist of events with the budget approved in committee and the head to a vote as soon as today, investors worried it would be more ammunition for the Fed to cut stimulus… and stocks sold lower. This is a clear indication that any December cut is not priced in and the adjustments are being made. How big will the adjustments be? That is not clear at this point, but today should give more insight on the subject. The indexes remain in their present uptrend despite the selling on Wednesday, 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. S&P 500 index moved back below the 1800 level and showed higher volume on the selling Wednesday. Can it hold support at 1775 mark or does it move lower? The fear factor is in play and will determine the near term outcome. Is this a short set up for the index? Technically, yes. How much downside is the primary question and the risk of the trade is worth evaluating. Watching SDS at $32.20 entry.
  2. NASDAQ remains in the uptrend, but a move below 4000 opens a downside trade opportunity as well. The FOMC meeting could be the catalyst regardless of the amount if the speculation continues to grow. The short and long term trend is up, but the micro term selling could accelrate for a trade and we have to watch how it plays out.
  3. Small Caps (IWM) tested lower on Tuesday dropping 0.9% to lead the major indexes on the downside. We referenced support at $111.30 as first level followed by $110.50, but a break of the 50 DMA would be an exit signal for any short term (3-9 months) positions. It went through all three and opens the downside first and leadership by the small caps is a big negative from my view heading into year end and the new year.
  4. Semiconductors (SOXX) gapped higher at the open Friday and hit the entry point on the upside. Got the confirmation move on Monday, but Wednesday erased all of that and gave up the gains. Watch today for downside follow through or bounce. Adjust your stops and protect the against the rising fear factor.
  5. Financials (XLF) gave up their gains as well moving back to $21.1o support. The regulations being put in place aren’t helping either and we are near out stops on current positions. The approval on Tuesday of the new Volker rules hasn’t helped the outlook.
  6. Healthcare (XLV) fell 1.7% similar to the small cap sector. The influence of the biotech stocks is being felt currently. The break of near term support would be the exit signal from short term trades. 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 near term.
  7. Retail (XRT) was attempting to hold 86.10 support, but the retail news is not impressing investors currently. Add the worries over the Fed cuts and you break support and hit stops on the sector. Speculation is again in the headlines. Support at the $86.25 mark broke and closed below the 30 DMA. Stops hit.
  8. Crude oil (OIL) – Another sector where speculation is driving price. The retraction of Tuesday’s gains came on the Fed worries. If the speculation is shifting now is the time to worry about the short term bounce that just took place in crude. Watch to see how it reacts or follows through today. more downside is a negative. Manage your downside stops on positions.

The models are updated and with our short term view dominating the process currently. This week continue to focus on and speculate about the FOMC meeting next week. The news has put stocks in a tug-o-war of the cut versus no cuts to stimulus crowds. On Wednesday the cut side got the upper hand and the selling in the broad markets was the result. This triggered some stops and brought others close. My focus remains watching the news/events as they unfold and the reaction from investors, then take what the market offers. The break of support on some key sector (see above) is showing exit for trade positions, and warnings on longer term holdings. 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 were looking for the upside to continue as we move forward and any pullbacks as potential trade setups. I am still looking in that direction, but with the action on Wednesday we may add a couple of short trades on the break of support. 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. Waited as the broad markets were in sell mode.
  3. KO – Break from consolidation resistance. Entry $40.50. Consumer Staples.
  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. Stop Hit.
  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. Stop Hit
  11. FDN – Consolidation at high. Entry $56.55. Taking on leadership role again. Stop $56.55. Stop Hit
  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. Stop Hit
  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. Stop Hit
  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. Stop Hit
  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. Stop Hit
  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.