Trading Notes for Today, February 10th

We published the weekend update on Sunday and it covers what we are looking for in this week of trading. The highlights are below and you can follow this link to read the complete weekend update for more details. I have also provided the links to the Models below as well. 
This promises to be an interesting week of trading and one we will have to manage our risk and add trades as the opportunities are presented. The market is the ultimate decision maker regardless of what we think or feel is the right direction. Take it one day at a time and manage your emotions.
Sectors to Watch:
  1. VIX index dropped to 15.1 on Friday and that is the level we were looking for to prompt a rally or at least reverse the selling.As stated on Wednesday it offered a short term trade entry on SVXY. entry $54 and selling half of the position on Friday into the close was prudent at $60.20. The stop now goes to $57.35 for next weeks trading. The target remains near $62.
  2. S&P 500 index bounced off the low and is now hitting resistance at the 1800 level. The move above this level was point to add to the SPY (entry $178) position posted on Friday (S&P 500 Model). We get an opportunity to add to the position if we can move through this level of resistance and the index makes a move back toward the previous high.
  3. The NASDAQ rallied 60 points on Friday as a nice follow through to the gains on Thursday. Technology followed suit gaining 1.2% and hitting resistance at the $35 mark. A move above this level would offer an entry point for technology. Semiconductors (SOXX) were up 1.3% to lead the index and the ETF needs to rise above the $72.50 mark. We added the QQQ position at $85 and now we will look to add to the holding if we clear the 20 DMA.
  4. Dow remains in the worst shape of the major indexes technically. The index bounced back above the 200 DMA on Thursday to close at 15,628. The follow through on Friday pushed back above 15,700 previous support. In position to move higher now, but the large cap stocks would have to regain their upside momentum. 16,093 target short term.
  5. Russell 2000 Small Cap index broke 1120 support and tested 1090 support. Broke the trendline off the November 2012 low. The bounce off support has not been as impressive as the other indexes and leaves the index in the micro downtrend. We need to watch and see how this plays out next week with interest. If they fail to accelerate on the upside could be an indicator for the broad markets as well. Entry for IWM would be $111.40 if upside continues.
  6. Europe (IEV) moved back above the $45 level on Thursday with a nice follow through on Friday. $46.50 is the next level to move through and then potentially back towards the previous high. The index is trading in unison with the US markets and a rally would be in line if the US continues to move higher. Emerging markets are still weak, but managed a bounce as well. Entry for IEV is $46.50 if we follow through on upside.

The models can be linked to below and each has been updated for the current outlook:

Sector Rotation Model (updated – 2/8/14)

ONLY ETF Model (updated – 2/8/14)

S&P 500 Index Model (Updated – 2/8/14)

ONE EGG Model (updated – 2/8/14)

Pattern Trading Setup:

The follow through day on Friday was positive and had some volume finally. The move opened the upside trades as patterns show a reversal and opportunities at resistance if we break through. Different twist to the jobs report on Friday added upside momentum and we will trade with it for now. Manage your risk with stops.

  1. SVXY entry $60.10. Bottom reversal and continuation higher.
  2. EFA entry $65.25. Bottom reversal and continuation higher.
  3. EEM entry $38.75. Bottom reversal and continuation higher.
  4. TBT entry $71.80. Complete bottom reversal.

Pattern Trade Tracking & Follow Up:

  1. CORN entry $31.60. consolidation/bottom breakout. Agriculture. Stop $31.25.
  2. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $177.
  3. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $53.75
  4. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $84.
  5. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $57. Nice break higher and expect a test of the move as follow through.
  6. AAPL entry $510. Bottom reversal. Sold on earnings disappointment, but still looks attractive looking forward. We will manage the risk of the trade, but upside should return. Stop $507.
  7. TZA entry $18.70. Break of key support. Waiting for the conviction and support break. Stop $19.20. expect volatility with the leverage. HIT STOP
  8. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher Stop $120.75. No momentum in the trade and looking to get out at break-even or better. Watch how it responds to the jobs report and move stop up.

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: (see Facebook research page for archive of posts)

  • 1/27 – Tested lower on Monday, but managed to hold support at $53.45. Watching how it trades today relative to the broad market and support. Stop on the remaining shares is now at $50, but may raise that further if negative market sentiment picks up.
  • 1/29 – Beat earnings with upbeat data and outlook. The stock runs after-hours near the $60 level. Watch to see how it trades today. Need to hold above the $58.50 level and then look for entry to add to our position. Patience is key with the broad markets struggling.
  • 1/30 – Big pop for the stock gaining 14.1% and most of that happened pre-market on the earnings release Wednesday night. Good for our existing position and now we look at how to manage the stock going forward. Today will be important relative to follow through on the move. We added $15k of value on the move!
  • 2/2 – Stock held the upside move and now we see how the negative analyst treat the stock? We will make decisions on stop adjustments and profit this week depending on how this gap higher trades.
  • 2/9 Held the gap higher in the face of selling. Friday moved higher adding 3.4% to the upside. Social stocks are getting hurt by earnings and forward guidance, keeps me on guard here relative to our position. Raise stops to $54 for now and let it run.