Trading Notes for Today, December 30th

We ended the week on a negative note, but the outlook for the year end is still positive for the broad markets overall. With the end of the trading year fast approaching the outlook for next year remains positive short term. There are plenty of headlines to the contrary as analyst fear a test of the big move in 2013. As we face another week with a holiday midweek investors will be focused on the hopes of an improving economic picture in 2014. With a cautious eye we will see how the final two days unfold for 2o13. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Is it time to take some profit on short term trades? The simple answer is yes, but that does not mean the markets cannot rally higher. The technical data is showing a pullback potential building near term, but the longer term view is still positive. The buyers remain in control for now, but there is still plenty to worry about near term.
  2. S&P 500 index closed near the new high at 1841. The optimism and clarity relative to the stimulus cuts and the Fed continues to push stocks higher. Watch and manage your risk on trades as we close of the year.
  3. NASDAQ hit a new closing high at 4167 Thursday and closed the week at 4156 with some modest selling. The large cap stocks continue 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.
  4. 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.
  5. 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. Why are we still interested? Fundamentally the sector offers a value opportunity, but the technical set up is not helping the upside short term. Patience with the sector going forward. I would like to see some conviction in the move higher.
  6. Energy (XLE) bounced off support of $84.80 and moved through the buy point at $86.15 and finally followed through on Thursday and Friday. 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 weaker dollar has offered some upside movement in the sector near term. The refiners remain the strongest sub-sector currently, but the conglomerates made a solid move last week on the upside.
  7. 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 that held with some modest selling on Friday. The semiconductor sector (SOXX) is leading the upside and methodically following through on the move above the top end of the trading range.
  8. 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 and Friday as a follow through to the move higher. Europe is tracking higher with the US markets and presents a trading opportunity.
  9. Crude oil broke higher on Friday clearing the $100 level again. The $101 target we set last week is well in reach as the dollar helps the move. Not looking for a runaway move. We added a position below on Friday’s move.
  10. Gold has been a benefactor of the dollar losing ground as well. GLD held support at $114 and has bounced back above the $117 on Friday. A follow through move above $117.50 would be of interest for a upside trade.
  11. The dollar looked like Mr. Toads wild ride more than a currency that should be benefiting from a stronger economic forecast by the Federal Reserve, not to mention the cuts in stimulus. The buck opened lower on Friday, but managed to work its way back towards even on the day. The challenge is the downtrend in play as we watch to see if the bounce higher ever materializes going forward. I would be happy to settle for a sideways movement as a worst case scenario. That said, the decline/volatility in the dollar is helping the upside in commodities short term, as seen above in oil.
  12. Bonds continue to erode as rates climbed above the 3% on the ten year bond. This has taken a toll on the the bond sector and puts the short play against (TBT or PST) the bond in a good position to climb higher. Watch this as if unfolds and the downside play in the bond remains the direction of choice.
  13. Thursday will start the economic reports for December and they will be watched closely in light of the comments following the FOMC meeting. The manufacturing data and retail sales reports will hold the most interest from my view.

The models are updated and our short term view continues to dominate the process currently. The news from the Fed took some of the fear out and restored some confidence in the uptrend, but now it is time to see if buyers are willing to wade into an overbought market technically. I am not changing my focus from the current 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. Manage the risk on trades more aggressively and monitor your longer term holdings with trailing stops to account for any rise in volatility.

  1. GLD – Entry $117.50. bottom reversal and clear resistance. Trade opportunity on weaker dollar.
  2. OIH – Entry $47.80. bottom reversal. closed above resistance and looking for confirmation on open today.
  3. IEO – Entry $82,10. bottom reversal. Near entry point on the move in the energy sector gaining momentum.
  4. Follow up on previous trades or posts:
  5. OIL – Entry $23.35. 3-5% move on the breakout from resistance and follow through on upside.
  6. 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.
  7. IEV – $46.60 Entry. The break above resistance and follow through. Stop $46.10.
  8. T – Entry $34.80. bottom reversal. Telecom gaining momentum on wireless mergers. Stop $34.45.
  9. INFN – Entry $9.50. Consolidation breakout. Sector is breaking higher. Stop $9.28.
  10. 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.
  11. KEG – support reversal. Entry $7.68. Energy stocks bounced, based still building? Watch and let this develop. Stop $7.50.
  12. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $23.60
  13. FFIV – Trading Range. Entry $85.50. Looking for momentum to pick up in technology sector. Stop $87.
  14. XLE – Trading Range bounce. Entry $86.15. Watch for test and then entry. Early test and entry at $86.30. Stop $86.
  15. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Small early test for the market. Stop $34.75.
  16. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $17.15.
  17. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $87.
  18. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $54.
  19. 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 $28.20.
  20. 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.
  21. 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 $9.20.
  22. 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 $73.30. 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.