Trading Notes for Today, December 5th

The major indexes reversal sets up upside opportunity if the buyers are willing to step in and continue the upside trend. Positive economic data remains a challenge for traders relative to the Fed cutting stimulus. It will all play our near term, but today will be important technically. 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. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. NASDAQ made a move lower to support and then made a turn back to close positive on the day. This is now set up to continue the uptrend. This has been a leader in the recent move higher and the modest test may be all there short term. Too many influences on the upside to correct further? That is the analyst conclusions… Watch for the opportunity to add to position.
  2. Small Caps (IWM) tested back to the 30 DMA and reversed? Held the $110.50 support and in position to move higher. Still in an up trending channel and in a testing phase. Still looking for the upside to continue off the test lower. $112.25 level point to add to position.
  3. Mid Cap (IJH) never made the break higher and tested the $128.50 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.
  4. Semiconductors (SOXX) Attempting to break higher on Friday and looking for the follow through on the test. The sector is acting as if it wants to take on leadership. Watch for upside continuation.
  5. Financials (XLF) Slow and steady wins this race? Watching for a point to add to the current position in financials. Tested lower, bounced on Wednesday, looking for the follow through today. 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 is of interest. $54.80 was the level that I wanted to hold and add to the position. Tested lower and bounced back near that mark on Wednesday. Watching to see how it moves today. The leadership is coming from IHF, the healthcare providers and biotech currently. The additional talk around implementing the healthcare act is hampering the progress. Opportunity.
  7. Real Estate REITs (IYR) remain on the downside and broke support at the $63, tested to $62, held and now watching to see if the upside bounce can follow through. If it fails, the downside is likely to continue as interest rates tick higher. As stated in previous updates 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. Watching the test to $218 and bounce to continue the move higher. Getting the test currently and watching to see how it reacts today.
  9. Retail (XRT) took a hit on the black Friday sales data. Tested back to the first level of support near $86.50 and bounced. The big question, like the rest of the market, can it follow through on the upside? I am still of the belief 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. The deal with China Mobile overnight will impact the stock today.
  10. Crude oil broke support of $93 last week… speculation on demand this week pushes the price back towards $98 and resistance. 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 to $22.80 resistance and in position to test or continue higher. As long as the speculation story has legs the upside is in play.
  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? Bounced to $1242 on Wednesday. Again it is speculation around the jobs report on Friday with some short covering in play. Downside is still my direction of choice.
  12. Bonds continue to be at risk of interest rate creeping higher as the Fed moves towards cuts in stimulus. Yields made a move lower last week despite the outlook. That ended with the positive economic data this week 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 has been a week filled with news that has put stocks in a tug-o-war of the data versus the any actions to be taken by the Fed in light of the data. Throw in the holiday trend play and we have seen three days ups and downs. Plan is to watch the news/events as they unfold and the reaction from investors, then take what the market offers. 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. Too much intraday noise for my taste and willing to be patient as the setup plays out. The Jobs Report on Friday has the attention of traders in reference to Fed and stimulus cuts. We are in good positions and willing to take this slow for now.

  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. 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. 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.
  13. 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.
  14. 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.
  15. 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. 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.