Trading Notes for Today, December 4th

The major indexes started lower on Tuesday, but did find some buyers late in the day to close on the negative. Positive economic data put the Fed back in play to cut stimulus and investors reacted. Oil was higher and auto inventories caused worry in the sector as question arose towards the future growth. As we stated, this is a week of economic data and it is setting the tone and direction for the micro trend (0-13 weeks). The indexes remain in position to continue the uptrend despite all the noise in place. We will focus on the short term trend and take what the market gives and cautious about Tuesday’s downside movement. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. NASDAQ remained above 4000 and the large cap stocks tested the moves higher from last week. Watching QQQ as test of the move above $83.50 may be inline short term. This has been a leader in the recent move higher and could show weakness first in the form of a test or pullback. Tuesday showed some downside, but closed barely negative on the day…
  2. Small Caps (IWM) fell 1.7% last two days on reversal. Testing the 10 DMA and $111.50 is the level to watch currently. Still in an up trending channel and in a testing phase. Still looking for the upside to continue off the test lower. Opportunity? Add trade at $112.25?
  3. Mid Cap (IJH) never made the break higher and tested the $129.40 support. This is another interesting piece of data to add to all the discussion on short term test near the current highs. Still like the upside trade and will adjust our entry according.
  4. Semiconductors (SOXX) Attempting to break higher on Friday and looking for the follow through on the test. The upside is in play and manage to close positive on Tuesday. SMH is the ETF for the trade.
  5. Financials (XLF) struggled to break higher, made a solid move and testing again? Slow and steady wins this race. Watching for a point to add to the current position in financials. Yesterday we were watching the 21.25 as level of test and we closed on that number after working slightly below. Trends are all intact for now and worth digging some here to play the continuation of the upside if it evolves.
  6. Healthcare (XLV) is still in strong uptrend, but the move lower of 0.9% on Tuesday was of interest. $54.80 is a level that I would like to hold and add to the position. Watching to see how it moves today. The leadership is coming from IHF, the healthcare providers and biotech currently. I continue to like the sector looking forward.
  7. Real Estate REITs (IYR) remain on the downside and broke support at the $63 level on Monday. As stated in update a break lower and SRS, short trade becomes the trade, and worth adding to on the move. Watching to see how this unfolds today.
  8. Biotech (IBB) had 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. Getting the test currently and watching to see how it reacts today.
  9. Retail (XRT) took a hit on the weekend sales data. The decline of 2.9% sales over last year didn’t help. The real dud in the report was the average sales per customer falling nearly 3.9%. Sales for Black Friday alone were down 13.2%.  This is on my watch list for how investors respond. Fell to the 10 DMA on the close after testing lower. The Cyber Monday online sales data was better than last year, but this falls far short of the Mall sales. The individual stocks are where the winners will reside despite the overall data. You will have to do some work to dig and find the best opportunities. Apple could be a big winner in the electronic side with iPad sales and I am giving the stock a target of $595 short term. Nice move higher on Tuesday.
  10. Crude oil is on my watch list as it broke support $93 last week. Well that didn’t last long with the close at $96.91 on Tuesday gaining 3.1% for the day. Downtrend off the September high was broken, moved through the top of the trading range/base also… must be a trend reversal? Technically yes, but we have to watch how this bounce plays out going forward. Moved above the $22.40 on OIL we posted yesterday as short term upside move? Now comes the test or vertical jump to resistance at $98 per barrel, but $104 is not out of the question. This is all speculation… trade if you wish and manage your downside risk.
  11. 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). Monday the answer is downside still firmly in play with gold dropping 2.6%. GLD moved up slightly on Tuesday? Watch to see how this plays out and if the downside accelerates or the buyers still believe it is a opportunity.
  12. 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. That ended with the positive economic data on Monday stimulating the fear of cuts again. Yields rose on both the 10 and 30 year bond. This brings TBT back into play as a hedge if you own bonds and a trade if you don’t. Of note: BND has a head-and-shoulder pattern forming and a break below $80.40 could accelerate the downside for the sector.

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 an has rattled stocks initially, but the holiday trend is in play. Plan is to watch the news/events as they unfold and the reaction from investors, then take what the market offers. Today will be a key response day for traders as a response to the selling/bounce on Tuesday. We are looking for the upside to continue as we move 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 $130.20. Continuation of the uptrend and follow the small cap push to new highs following the current test. If falls to next level of support we will adjust the entry.
  2. DIA – Entry $159.50. Test of the uptrend. If bounce take the entry, but could test lower to the $158 support. If so, we will adjust the entry price.
  3. Follow up on previous trades or posts:
  4. SOXX – Ascending Triangle. Entry $69.25. Follow through on higher move would be a plus on the upside. Stop $68.60.
  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. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $39.
  9. VVUS – entry $9.30. bottom reversal. move through resistance and back towards the $11 level. Drug sector moving higher. microcap stock. Stop $9.70. Break above resistance at $10 positive looking forward.
  10. 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. I would look to add to this position if the test moves higher.
  11. 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.
  12. MON – $109 entry. Break from current consolidation. XLB is leader. Look for follow through and leadership. Stop $112.50. Solid follow through on trade. HIT STOP
  13. 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.
  14. 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.
  15. 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.
  16. 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.
  • 12/2 – Got a reversal and looking to exit the put contracts and hold the stock.