Trading Notes for Today, December 9th

The major indexes ended the week even after four down days to start and a rally on Friday.  Is the test over and more upside on the way to end the year? The downside has been a result of how to deal with the positive economic data that may lead to the Fed cutting stimulus. As we start a new week of trading watch to see if there is any follow through to Friday or the downside pressure resumes. The indexes remain in position to continue the uptrend despite all the worries 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. One question left in Friday’s move, is there a change in leadership starting? Looking at the sectors consumer durable and pharmaceutical were the leaders. They tend to be more defensive sectors and show some movement from the growthsectors? This is something to watch as we move forward.
  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 broke to new high and in position to lead the index to the upside. Biotech bounced following a testing of support 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 with a solid bounce.  Held 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 was point to add to position.
  4. Mid Cap (IJH) never made the break higher and tested the $128.50 support. The move on Friday did put the index back at the high of the current range and in position to break higher short term. Still like the upside trade and will adjust our entry as this plays out.
  5. Semiconductors (SOXX) gapped higher at the open Friday and hit the entry point on the upside. Look for a test or confirmation move on Monday. 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. Nice bounce on Friday and still watching for a follow through on the upside.
  7. Healthcare (XLV) is still in strong uptrend, but the move lower was of interest. $54.80 was the level that I wanted to hold and add to the position. The test was closed to $54.20, but it did bounce back above the 10 DMA. Uptrend still intact and looking for some clarity near term.
  8. Real Estate REITs (IYR) broke support at the $63, tested to $62, held and bounced back above $63 to close the week. This is a sector for the patient investor with a longer term outlook. The dividend of 4% plus the potential upside longer term is worth watching. SRS is a way to hedge the position or trade the downside as this plays out.
  9. Retail (XRT) didn’t bounce on Friday as the retail remains under pressure from the sales results for the start of the holiday season. Speculation is again in the headlines. Tested back to the first level of support near $86.25 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.
  10. Crude oil (OIL) – Another sector where speculation is driving price. The outlook for increased demand 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 $22.90ish resistance and in position to test or continue higher. As long as the speculation story has legs the upside is in play.
  11. 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 higher and the resistance at 3.93% is in play. If the 30 year yield gets through this level our target of 4% by year end is clearly in view. We have a position in TBT in response to this move and if you own bonds you can hedge your position with this ETF. Of note: BND had a head-and-shoulder pattern forming and a below below $80.40 and this offers more evidence on the downside going forward. .

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. ACAD – Trading Range Breakout. Entry $24.55. Leading sector bouncing back on Friday.
  2. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40.
  3. GMCR – Trend reversal test and follow through. Entry $71.50. Move to $77 as follow through. Defensive sector.
  4. Follow up on previous trades or posts:
  5. 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. Stop $158.
  6. 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.
  7. FDN – Consolidation at high. Entry $56.55. Taking on leadership role again. Stop $56.
  8. SOXX – Ascending Triangle. Entry $69.25. Follow through on higher move would be a plus on the upside. Stop $68.60. Nice breakout finally on Friday.
  9. 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.
  10. 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.
  11. 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.
  12. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $39.
  13. 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.
  14. 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.
  15. 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.
  16. 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.
  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:

  • 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. This remains a sideways trading stock for now which requires patience as this plays out.