Trading Notes for Today, December 16th

Last weeks activity leaves us in position for more downside? That is the way we left it on Friday and the futures are pointing in that direction currently. With the results of the FOMC meeting not until late Wednesday the uncertainty in the market is pushing the indexes lower. My focus remains to 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 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. How much downside is the primary question? We are prepared to add the short side as a trade, but the risk of the trade is high.
  2. NASDAQ remains in the uptrend, attempting to hold the 4000 level to start the week. This remains the stronger of the major indexes thus far. Break lower will put the short term trendline in question. Watching to see how it plays to start the week.
  3. Small Caps (IWM) is sitting on the 50 DMA and testing the $109 support level. A break of the this level would be an exit signal for any short term (3-9 months) positions. Downside Leadership by the small caps is a big negative from my view heading into year end and the new year.
  4. Financials (XLF) moved back to $21.1o support. Setting up short trade with SKF, but the risk of the trade is high as we have a news event just around the corner. Watch to see how this trade sets up.
  5. As we start the trading week the noise around the FOMC meeting is drowning out the rest of the data. This bring uncertainty and a lack of clarity for the broad markets. When this takes place the best course of action is to be patient, play some golf, go Christmas shopping, anything other than making yourself crazy attempting to predict the outcome. It is like roulette… 38 possible outcomes and you may or may not be right, but the odds are against you. Be patient and let this unfold and some clarity be gained.

The models are updated and with our short term view dominating the process currently. This week continues to focus on the FOMC meeting. The news has put stocks in a tug-o-war of the cut versus no cuts in stimulus crowds. 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 is signaling exits 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. 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:

  1. STX – Entry $50.20. Continuation within the range. Setting up to continue higher, but we will be patient on the entry and let this unfold.
  2. SKF – Entry $19. Bottom reversal. The financials are showing weakness and leading on downside.
  3. Follow up on previous trades or posts:
  4. DOG – Entry $27.45. Bottom reversal. The Dow is leading the selling short term and the trade set up is in play. Stop $27.20. Manage the risk of the trade.
  5. SDS – Bottom reversal. The downside trade setup for the S&P 500 index is worth watching here. Entry $32.20. Stop $31.90. Manage the risk of the trade.
  6. BRCM – Breakout from Trading Range. Entry$28.20 on test of the move. Watch for the test and follow through. Be patient. Got the entry on the breakout test Thursday. Stop $27.50.
  7. 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.
  8. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40. Stop $49.40. Nice move higher on trade of being added to the S&P 500 index.
  9. 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. HIT STOP
  10. 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.
  11. 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.
  12. 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.
  13. 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.

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.
  • 12/13 – nice follow through on upside… watch as this is news drive move. Raise your stops accordingly. See Above in the pattern trades for details.