Trading Notes for Today, December 20th

Hangover day from Wednesday with some testing overall, but not much happening in the end. Housing data was disappointing for existing home sales. Rising rates having an impact, despite the Feds efforts. Weekly jobless claims rise again for the third straight week and showing some slowing in job growth would be the indication. The economic data following the Feds action will be watched closely. The cuts start in January and we are reporting November data? It will be February before we see the impact if any. However, it does make a good escape goat for any bad data looking forward. Expect a continuation of the digestion of the Fed comments and actions with some kind of follow through up or down going forward. Remember the holidays are here and that will skew trading somewhat over the next two weeks. My focus remains to be patient and 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 held support at 1775 and the bounce on Wednesday put the index back at the previous highs and nothing changed with the close at 1809 on Thursday. Still watch to see if we hold and move higher going forward? We did not add any positions on the news and we were watching the top end of the range for a probable test of the move back near the 1800 level Wednesday and it hit 1801. Still looking at a possible trade on the upside if the conviction grows following the Fed move.
  2. NASDAQ remains in the uptrend, closed at 4058 giving up 12 points on the day, but still near the previous highs. This has been the stronger of the major indexes, but we did close with a doji candle which is worth watching the follow through today. Technology and large cap stocks have been the leaders and both are in position to move higher. Watching today for further test of the move and a trade opportunity short term.
  3. Small Caps (IWM) the Russell 2000 index hit resistance at the 1133 level and tested on Thursday. Still in position to continue the move higher with the uptrend remaining in play. There was an opportunity to add to the IWM position on Wednesday, but we had not posted the trade. A follow through of the test and confirmation of a move above the 1133 level is what I am watching today.
  4. Financials (XLF) are back at the top of the trading range and resistance. Looking for a move through the previous high to continue the uptrend. The regional banks (KRE) and brokers (IAI) were leading the sector and the insurance stocks (KIE) are making a move as well.  Patience with the move going forward.
  5. Energy (XLE) bounced off support of $84.80 and moved through the buy point at $86.15. The sector has been mixed of late and a test of the move and confirmation move higher would be a good sign for energy. The refiners remain the strongest sub-sector currently.
  6. Technology (XLK) tested the 30 DMA and bounced back towards the previous higher. A move above the $34.95 level would be a positive and set up a ‘J’- hook pattern. The upside is the opportunity and a reversal lower would negate the opportunity. The semiconductor sector (SOXX) is leading the upside and followed through on the move above the top end of the trading range.
  7. This has been a week fixated on the Fed and what actions they would take towards stimulus.The conclusion of the FOMC did provide some clarity near term relative to the Fed actions. The challenge is the next three months to see what the impact of those actions will be and what future action they will take. All of the same worries are in play with the holidays next up for investors to deal with. Sales reports for December will add to the mix going forward. For now Be patient and take what the market gives.

The models are focused on a short term view dominating the process currently. This week continues to focus on the FOMC meeting and the results. The news Wednesday put the buyers back in control and today we confirm if they want to be in control going forward. My focus remains to let this unfold and then take what the market offers. I am adding a couple of plays that the entries are based on a test of the move Wednesday and confirmation of the upside reversal off the test lower the last two weeks. The bounce off support was helpful to calm the nerves earlier this week and the jumps back to the previous highs on Wednesday was a case of too much and we now look to test the move and give us some entry points. 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. FFIV – Trading Range. Entry 85.50. Looking for momentum to pick up in technology sector.
  2. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry.
  3. KEG – support reversal. Entry $7.68. Energy stocks bounced, based still building? Watch and let this develop.
  4. Follow up on previous trades or posts:
  5. XLE – Trading Range bounce. Entry $86.15. Watch for test and then entry. Early test and entry at $86.30. Stop $86.
  6. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Small early test for the market. Stop $34.15.
  7. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $16.90
  8. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $85.15
  9. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $51
  10. 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. HIT STOP
  11. 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. HIT STOP
  12. 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.
  13. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40. Stop $53.70. Nice move higher on trade of being added to the S&P 500 index.
  14. 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.
  15. 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 $72.50. 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. STOP @ $52.13.
  • 12/18 – Raise stop %53.70 on trade taken off the low.