Trading Notes for Today, December, 18th

Next up, the Fed! The FOMC meeting concludes today and everyone is ready to hear the verdict on the state of the economy and stimulus. I would like to see them start and put an end to the speculation and comments about this that have been in play since May. Anything is possible, but the focus remains on what actions if any the Fed will take today. As with any event expect the worst and hope for the best. Manage your positions into the announcement and following. Expect some knee jerk reactions if it isn’t according to plan. My focus remains to take it one day at a time and today is a big day. 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 continued to hold support at 1775 and now we see how it manages the meeting this afternoon. The fear factor is in play and will determine the near term outcome in conjunction with the Fed’s decision going forward. I hate decision points that are over watched, they never work out well in the end.
  2. NASDAQ remains in the uptrend, closed at 4023 and above support to keep the upside in play. This remains the stronger of the major indexes and will be key in how we proceed following the Fed’s stimulus decisions. Technology and large cap stocks have been the leaders.
  3. Small Caps (IWM) was sitting on the 50 DMA and testing the $109 support level. The bounce pushed the Russell 2000 index back towards 1120 resistance. The uptrend remains in play following the test. Watch to see how the sector reacts to the FOMC announcement.
  4. Financials (XLF) moved held the $21.1o support again and don’t look good relative to strength. The regional banks (KRE) and brokers (IAI) are leading the sector and keeping the uptrend in play currently.  Watch to see how this sector sets up going forward. A break of support and SKF comes into play on the downside.
  5. Energy (XLE) is tracking lower similar to financials, a break of support near the $85 level would be a significant shift in the sector and put the short term trendline in jeopardy of being broken.
  6. Technology was up on Monday and flat on Tuesday into the meeting. The semiconductor sector (SOXX) is leading the upside as it held above the top end of the trading range. Networking (IGN) produced a nice reversal off the low from Friday and is leading as well.
  7. As we progress through the trading week the noise around the FOMC meeting is drowning out the rest of the data. The economic news on Monday helped the broad markets bounce off support and hold the uptrend. When investors and traders get fixated on an event the best course of action is to be patient. The wait is over and the markets will speculate on both sides heading into the announcement today don’t get caught up in the hype. Be patient and let this unfold, tomorrow afternoon all will be a little clearer at least concerning the Fed short term.

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 to let this unfold and then take what the market offers. The bounce off support was helpful to calm the nerves for the announcement today. Nothing changed, but breathing room relative to the support levels. 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 of trades more aggressively and monitor your longer term holdings with trailing stops to account for any rise in volatility.

Pattern Setups For Today:

  1. KEG – support reversal. Entry $7.68. Energy stocks bounced on Monday? Watch
  2. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology.
  3. VMW – Flag. Entry $87.45. Looking for continuation of the upside.
  4. Follow up on previous trades or posts:
  5. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $50.50
  6. 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. Gap open and let it play through out the day with the first hour low ($27.18) as the exit point. Never hit and using the same stop today.
  7. 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. Same as DOG, first hour low Monday ($31.67) was the exit point and same today.
  8. 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.
  9. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40. Stop $52.13. Nice move higher on trade of being added to the S&P 500 index.
  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. 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 $71.60. 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. STOP @ $52.13.