Trading Notes for Today, February 11th

The markets made a modest move higher after a negative open on Monday. The bounce is being phrased as fragile by analyst and they continue to warn about the downside risk in the markets looking forward. The move through some key resistance point didn’t materialize today, but we did see a solid move higher from Utilities, REITs and Healthcare. The NASDAQ 100 index gained 0.5% on the day to lead the major indexes. No real changes from our weekend update, but plenty to continue to watch as we move forward. Take it one day at a time and manage your emotions.
There are some items of interest to watch today… Ms. Yellen is tops on the list as she will give testimony about the economy and jobs to Congress. There is plenty of speculation about what she will say, but for me, will she provide the next catalyst to the broad market indexes up or down? What to see how the market responds to her comments going forward.
Commodities are another point of interest as crude oil is in a position to break higher and potentially make a run at the $110 mark. If OIL clears the $23.50 level I would look to add to the position in oil. Gold made a move above $1270 and looks to make a run higher as well with a target of $1320 short term. I am looking to add to that position as well on a follow through on the upside. Added both to the Sector Rotation Watch list.
Technology (XLK) regaining some leadership for the broad indexes is a positive sign for now. SOXX made a move back above all the moving averages. IGN, networking stocks are almost back to the January high. FDN, internet is back at the January high with the large caps gaining momentum off the recent lows. This is a sector to watch.
Healthcare (XLV), Utlities (XLU) and REITs (IYR) continued to add to the upside. We own each and have interested in adding to the positions on a confirmation on the upside for the broad market indexes.
Promises to be a day on interesting events opportunities. Manage your risk and take what the market gives.
Sectors to Watch:
  1. VIX index dropped to 15.1 on Friday and remained at that level after some early morning selling pushed the index higher a the open. We established a short term trade entry on SVXY at $54 and selling half of the position on Friday at $60.20. The stop now goes to $57.35 going forward. The target remains near $62. If the trend remains lower on the VIX we would look to add to the position as stated in the S&P 500 Model.
  2. S&P 500 index bounced off the low and is now hitting resistance at the 1800 level. We added 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 the 1800 level of resistance and the index makes a move back toward the previous high.
  3. The NASDAQ rallied 60 points on Friday and added another 22 points Monday. The move through 4130 was an opportunity to add to the position in Monday’s trading. Technology moved above resistance at the $35 mark. An entry point for technology. Semiconductors (SOXX) were up another 0.5% to lead the index and the ETF made the 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 and is attempting to regain some upside momentum. The move Friday pushed back above 15,700 previous support and it is now in position to move higher, 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 and back at the 1120 level to deal with as resistance. 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 with a nice follow through and $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 – 2/10/14)

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 it did provide volume finally. The move Monday was a big snooze, but necessary to give a breather to the buyers. The upside trades and patterns show a reversal and opportunities at resistance if we break through. Analyst are still putting their twist on the jobs report and the upside momentum. Manage your risk with stops and make no assumptions on direction.

  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. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $120.75. Was Monday the momentum we have been waiting for short term? Watch how it responds to the move now. 

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.