Trading Notes for Today, December 6th

The major indexes complete fifth day on the downside! That headline is what the media produced at the close on Thursday. Typical drama as they failed to write the S&P 500 index was down just 1.2% over that period. The downside has been a slow leak as investors determine how to deal with the positive economic data that could lead to the Fed cutting stimulus. We anticipated the economic data this week would determine direction, the good news is bad news theory has taken root and stalled the upside. The indexes remain in position to continue the uptrend despite all the noise in place and we are looking for the follow through on the upside. 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. The jobs report will be released prior to the market opening and it will set the tone for the trading day. With all the talk and rhetoric about what is expected versus what the data will show, etc. this will be a tough number for investor to determine good or bad, unless it is extreme on the positive. Expectation is 180,000 new jobs in November. 230,000 plus would be decisive. Watch the futures reaction to the report.
  2. NASDAQ remains in the best shape of the major indexes. It remains in a set up to continue the uptrend. 10 DMA is holding and the Semiconductors still in position to lead the index to the upside. Biotech is testing support near the highs and remains a key sector in the index as well. Move above $86 for QQQ would be a positive short term.
  3. Small Caps (IWM) tested back to the 30 DMA and reversed Wednesday.  Holding the $111.30 support and in position to continue the uptrend. Still looking for the upside to continue off the test lower. $112.25 level point to add to position.
  4. 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 as this plays out.
  5. Semiconductors (SOXX) remains in the pattern with not clear break higher. Patience is a virtue.
  6. Financials (XLF) the give back of the break higher has come on worry. Imagine with government wanting to fix the problem that investors would be worried about the outcome to earnings. The pinata of the financial crisis that continues five year later. The renewed talk about increasing the demands of too big to fail is spooking the sector again. What was looking positive wilting in the hot air of government regulations.
  7. 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. Still no clarity relative to a bonce from the current drift lower. Uptrend still intact and looking for some clarity near term. XLV holding near the 20 DMA.
  8. Real Estate REITs (IYR) remain on the downside and broke support at the $63, tested to $62, held and now watching to see if an upside bounce can materialize. If it fails, the downside is likely to continue as interest rates tick higher. Still watching the downside with SRS as the short trade ETF.
  9. 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.
  10. Retail (XRT) took a hit on the black Friday sales data. Tested back to the first level of support near $86.50 and holding. 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.
  11. Crude oil (OIL) – 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.
  12. 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). The metal as been volatile this week, but failed to break below the $1215 mark. The speculation on moves from the central bank in the US and Europe has been moving the metal. Downside is still the direction of choice from my view.
  13. Bonds continue to be at risk of interest rate creeping higher as the Fed moves towards cuts in stimulus, at least that is the analyst opinion in play. 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 back near the previous highs. 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 any actions to be taken by the Fed in light of the data. Throw in the holiday trend play and we have seen four days ups and downs. My focus 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 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. FDN – Consolidation at high. Entry $56.55. Taking on leadership role again.
  2. 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.
  3. 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.
  4. Follow up on previous trades or posts:
  5. SOXX – Ascending Triangle. Entry $69.25. Follow through on higher move would be a plus on the upside. Stop $68.60.
  6. 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.
  7. 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.
  8. 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.
  9. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $39.
  10. 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. HIT STOP
  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. I would look to add to this position if the test moves higher.
  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. 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. HIT STOP
  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:

  • 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.