Trading Notes for Today, December 2nd

The major indexes start the last month of trading in good shape and at their respective highs. This is a week of economic data and sales from black Friday and it will set the tone going forward. The indexes remain in position to continue the uptrend despite all the warning signs and challenges that lie ahead. We will focus on the short term trend and take what the market gives at this point in time and let the future take care of itself. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. NASDAQ holds above 4000 and the leadership remains the large cap stocks like Google breaking higher from the consolidation pattern of the last five weeks. Priceline, Apple and Amazon all moved to new highs as well. QQQ continued above the $85 mark.
  2. Financials struggled to end the week, but remain in a solid uptrend and consolidating near the high. The leadership is large banks (KBE), but regional banks (KRE) and insurance (KIE) have added to the upside along with the brokers (IAI). Small test on Friday and watching to see how it trades today. Want to add to our position if the test continues.
  3. Healthcare made a solid break above $54.60 and continues to be one of the leading sectors. The leadership is coming from IHF, the healthcare providers and biotech currently. I continue to like the sector and would look to add to position if the test develops. Digging into the ETF shows the best opportunities going forward.
  4. Real Estate REITs remain on the downside, but testing support again at the $63 level on IYR. If it bounces off support it could be good for a trade up to $66.25. A break lower and SRS, short trade remains the play. Worth watching here for trade this week.
  5. Biotech (IBB) has a big break from consolidation pattern to a new high. Small caps are pushing the sector, but the sector overall has been is solid uptrend. Look for test and continuation of the move higher. Scanning IBB for insight to the move is worth the trip. XBI broke higher on Monday showing the large caps moving as well.
  6. Retail is still in an uptrend, but a sector to watch this week. With the black Friday sales reports you will separate the winners from the losers for the holiday season.  This is a sector worth scanning for the leadership short term. RAD, at the top of the current trading range. WMT breaking to new high. COST breaking higher from a pennant pattern. AMZN, M, CHS also breaking higher. I like the individual stock picks in the sector for the best upside short term.
  7. Crude oil is on my watch list as it broke support $93 last week and is sitting at that number in early trading today. Watch to see if the downside resumes heading forward. It is in a tight trading range for trading, but the uncertainty makes the risk to high for my taste. However, a clear break lower interest me on the short side with DTO as the trade.
  8. Is gold ready to bounce in the downtrend? A move back to $1290 is not out of the question, but I would view that as an opportunity to add to GLL (short ETF). Watch to see how this plays out during the week and we will post the trade as it unfolds.
  9. Bonds continue to be at risk of interest rate creeping higher as the Fed pushed towards cuts in stimulus. Yields made a move lower last week??? The trend is higher, but the uncertainty surrounding the Fed and the economic picture has stalled the advance. Watching to see where the opportunity lies and we will make adjustments to any entry points as necessary.

The models are updated and with our short term view dominating the process currently we are heavy in cash as a result of hitting stops and managing our discipline. This is a week filled with news that could rattle stocks initially, but the holiday trend is in play. Plan is to watch for the news on Monday and the reaction from investors. Then we will post how we want to trade the event heading towards the Christmas holiday. We are looking for the upside to continue as we me forward and any pullback this week would help trade setups. 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.

  1. IJH – Consolidation at High. Entry $131. Continuation of the uptrend and follow the small cap push to new highs.
  2. Follow up on previous trades or posts:
  3. SOXX – Ascending Triangle. Entry $69.25. Follow through on Tuesday’s move would be a plus on the upside. Stop $68.60.
  4. BEE – Trading Range. Entry $8.90. Leisure properties attempting to move higher. Stop $8.78
  5. HBAN – Breakout from trading range. Entry $9.13 on Tuesday. 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 $8.97.
  6. YNDX – Trading range break. Entry 38.90. Watching for the upside continuation from the trading range as trade back to the previous high. Stop $37.60.
  7. TSRO – Trading range break. Entry $38.40. Biotech sector moving higher short term. Technical trade entry. Stop 35.90. Watch for some resistance at $40.70.
  8. TNA – Breakout. Entry $71.50. Stop $73.50. Small cap in position to break to new high and follow the indexes higher. This is leveraged 3X be aware of the volatility when trading. IWM is unleveraged way to trade.
  9. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $38.60.
  10. VVUS – entry $9.30. bottom reversal. move through resistance and back towards the $11 level. Drug sector moving higher. microcap stock. Stop $9.50. Break above resistance at $10 positive looking forward.
  11. XLF – $20.90 entry. Bounced off low and in position to move higher short term. Stop $20.90. Nice follow through on upside break of resistance.
  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 $29.35.
  13. MON – $109 entry. Break from current consolidation. XLB is leader. Look for follow through and leadership. Stop $112.50. Solid follow through on trade.
  14. 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 $68.50 Nice break higher as gasoline prices start to rise. Allow for some volatility with price moving.
  15. 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.
  16. COH – bottom reversal – Entry $51. Gap lower on news and reversal to gap point. The fundamental side of the stock is rebuilding. The play is to fill the gap back to $53 on the turnaround story. Stop $55.50. Nice jump as retail stocks continue to move higher.
  17. CAG – bottom reversal. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $32.

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:

  • 10/23 – At issues is earnings and a topping market short term. From the longer term outlook we go into earnings positive. However, the stock has moved a long way and that creates the problem of the data being good enough to justify the price, according to analyst. That is generally a losing battle. Short term support is $51.26 and I want to see how the stock acts today with what looks to be a negative open. (Held support on Wednesday and Thursday… watch for now.)
  • 10/24 – Small bounce held the 10 DMA and watching. Puts are still an attractive trade short term.
  • 10/28 – Earnings … this could get interesting on the results. Add Dec 52.50 Puts for $5.85 or better for earnings announcement.
  • 10/30 – Earnings were great, but too much said by the CFO and erased all the gains after-hours. My concern into earnings, they would not be good enough to please everyone. I was wrong on that account, but the conversation on the earnings call became an issue when the teen usage and not ramping up newsfeed ads. Both are issues, and examples of how when the stock price moves higher in a short period every little detail is scrutinized. Watching how this plays out today? Pre-market showing a small gain. Manage your puts against the stocks activity and be patient.
  • 11/2 – If the price closes above the $51.50 level close out your put contracts. We used our profit on the trade of stock to buy the puts and we will give up some profits for the protection we added. The news around the stock is still creating volatility be patient here as this plays out short term. No need to panic in either direction. Add Stop on 1/2 of position at $48.80. (hit stop on half of position) We still hold the balance plus the puts.
  • 11/5 – small bounce as we test support short term. There is plenty of media hype about the issues with teens leaving FB for other social media. That is all a challenge, but the reality is in the earnings and the outlook for growth. Thus far that has not changed and we will continue to manage the position moving forward. Tested on Wednesday — still watching.
  • 11/7 – Closed below the 50 DMA and on support. A break lower would be a negative with $45 the next support level to watch. This is where long term positions get to be a challenge for investors… having the patience to let the challenges work out. We are long 1000 shares, but own 20 put contracts. We sold half our position to allow half of the puts to add profit on the downside move. So far we have managed the risk accordingly and we are still in a good position going forward. Be patient and let this all unfold short term.
  • 11/13 – manage your positions… we can exercise the put options on the 1000 long shares if this falls below support and collect the premium on the balance for a profit. Watching to see how this handles support at the $45.30 level. A move back above the $47.40 mark would be a good entry point to add shares for a trade on a bounce play.
  • 11/14 – Added 1000 shares as trade on the bounce off support at $45.35. The entry was $47.50 and stop is support break $45.20. I am want to take the stop off and use the puts if this continues to move lower. Initial target is $51. The bounce was partially due to the attempt to purchase SnapChat. This is getting interesting as the media and analyst have been blasting data and speculation about the stock over the last month. We maintain our puts and other shares as planned.
  • 11/18 – ugly day of selling for the stock and now facing our support line for exiting the trade added. manage your stop and let this play out short term. The puts continue to protect our positions. If the stock moves lower we are better off to put the 2000 shares at $52.50. We paid $5.85 and anything below $46.65 it is to our advantage to exercise the puts.
  • 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.