Trading Notes for Today, December 27th

The upside remained in play on Thursday with the Dow leading the way up 0.75% on the day. The upside in the major indexes remain in sync with the time of year and the positive momentum from the FOMC meeting. The clarity keeps the buyers engaged and the upside moving. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. S&P 500 index closed at a new high again at 1842. The optimism and clarity relative to the stimulus cuts and the Fed is pushing stocks higher as the optimism gains momentum yet again on the upside.
  2. NASDAQ hit a new closing high as well at 4167 with the large cap stocks continuing to set the pace along with technology chipping in to push the index higher. This has been the stronger of the major indexes and it continues the push to the upside.
  3. Small Caps (IWM) the Russell 2000 index cleared the previous high to close at 1162 and follow through on the breakout technically. The upside puts the index back in a leadership role for the broad markets. Still looking for the January effect in the small cap stocks as we head into the new year.
  4. Financials (XLF) barely cleared the top of the trading range and resistance at $21.64. The move through the previous high continues the uptrend, but it has not instilled confidence on the move. The sector has not participated very much since the move higher from the Fed meeting last week. The banks (KRE) and brokers (IAI) were leading the sector and the insurance stocks (KIE) are attempting to make a move as well. Patience with the sector going forward. I would like to see some conviction in the move higher.
  5. Energy (XLE) bounced off support of $84.80 and moved through the buy point at $86.15 and finally followed through on Thursday. The sector has been mixed of late and a test of the move and confirmation move higher would be a good sign for energy, and with the move on Thursday this is worth our attention moving forward. The refiners remain the strongest sub-sector currently.
  6. Technology (XLK) tested the 30 DMA and bounced back to the previous high and Thursday made the move to $35.52 to follow through on a ‘J’- hook pattern. The semiconductor sector (SOXX) is leading the upside and methodically following through on the move above the top end of the trading range.
  7. Europe is following the US markets again on the upside with a move back near the previous highs. Made the move Tuesday above the $46.50 high and held the advance on Thursday as a follow through to the move higher. Europe is tracking higher with the US markets and presents a trading opportunity.
  8. Crude oil is in position to break higher as the commodity continues to find buyers. $101 target for the move in oil short term is not unreasonable on the current bounce off the November lows. Not looking for a runaway move. See below for the trade.

The models are updated and our short term view continues to dominate the process currently. Last week was focused on the FOMC meeting and the reaction by investors remains positive as we conclude the trading week. The news from the Fed took some of the fear out and restored some confidence in the uptrend. I am not changing my focus from the events as they unfold and the opportunities they give as a result. The pattern list is where we are posting most trades short term as a result of the current market environment. With the holiday shortening the trading week and the lack of volume the week between Christmas and New Years we will keep our focus on what lies in front of us in the new year and not just the next two weeks. Manage the risk on trades more aggressively and monitor your longer term holdings with trailing stops to account for any rise in volatility.

  1. OIL – Entry $23.35. 3-5% move on the breakout from resistance and follow through on upside.
  2. AAPL – Entry $570. Breakout above resistance. In position to benefit from the holiday sales.
  3. ZQK – Downtrend (micro) break upsiEV – $46.60 Entry. The break above resistance and follow through.de. Retail bouncing back. Entry $8.75.
  4. Follow up on previous trades or posts:
  5. HPQ – Entry $28.20. break to new high. The test in the uptrend has followed through back to the previous high. Looking for a break and continuation of the trend. Stop $27.75.
  6. IEV – $46.60 Entry. The break above resistance and follow through. Stop $46.10.
  7. T – Entry $34.80. bottom reversal. Telecom gaining momentum on wireless mergers. Stop $34.45.
  8. INFN – Entry $9.50. Consolidation breakout. Sector is breaking higher. Stop $9.28.
  9. SKUL – Reversal follow through resistance. Entry $6.12. Sector bouncing back. Gapped open with Entry at $6.30 and stop now at the same level with a no risk trade.
  10. KEG – support reversal. Entry $7.68. Energy stocks bounced, based still building? Watch and let this develop. Stop $7.50.
  11. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $23.15
  12. FFIV – Trading Range. Entry $85.50. Looking for momentum to pick up in technology sector. Stop $85.
  13. XLE – Trading Range bounce. Entry $86.15. Watch for test and then entry. Early test and entry at $86.30. Stop $86.
  14. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Small early test for the market. Stop $34.15.
  15. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $16.90
  16. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $85.15
  17. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $51
  18. 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.
  19. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40. Stop $54.70. Nice move higher on trade of being added to the S&P 500 index.
  20. 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.
  21. 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) $48.70 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.
  • 12/24 – Nice gain again and raising stop on trade to $54.70.