Trading Notes for Today, February 12th

Investors liked what they heard from Fed Chair Yellen and put money to work in stocks again as the broad indexes gained better than 1% again. If this is a fragile bounce as some have suggested it looks pretty on the chart. If volume was a little stronger it would be great. The move through some key resistance points did materialize on Tuesday the solid move higher from Utilities, REITs and Healthcare continued with financials joining in the mix. The NASDAQ 100 index gained 1.1% on the day and continue to lead the major indexes on the move higher. Now comes the challenge of the previous highs from January and the NASDAQ is first up to make a move higher and back into positive territory for the year. Take it one day at a time and manage your emotions.
Tuesday the point of interest to watch was Ms. Yellen giving testimony about the economy and jobs to Congress. Today she get’s to play an encore performance for the Senate. She did provide the next catalyst to the broad market indexes on the upside and now we see if she can keep it going today with the comments in the Senate. So far she is on task to keep the Fed in the spotlight relative to stimulus and interest rates.
Internet problems this morning — couldn’t get the post up until now.
Sectors to Watch:
  1. VIX index dropped to 14.5 on Tuesday and at support. A move lower would put the index back in the lower end trading range. We established a short term trade entry on SVXY at $54 and sold half of the position on Friday at $60.20. The stop now goes to $57.35 going forward. The target remains near $62. With the trend continuing to move lower on the VIX we add to the position as stated in the S&P 500 Model which we are tracking separately for the model.
  2. S&P 500 index bounced off the low and moved through resistance at the 1810 level. We added SPY (entry $178) position posted on Friday (S&P 500 Model).  You could have added to the position on the move through the 1800 level of resistance and now the index makes a move back toward the previous high.
  3. The NASDAQ rallied 60 points on Friday and added another 22 points Monday and 42 point Tuesday. 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 $74 mark. We added the QQQ position at $85 and added to the move above the 20 DMA.
  4. Dow tried to make up for the lack of participation by gaining 192 points today. 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 today moved above the 15,930 resistance. The large cap stocks making a move 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 had not been as impressive and today it took on more of a leadership role. Watch for further follow through on the upside short term. Entry for IWM hit on Tuesday.
  6. Europe (IEV) moved back above the $45 level with a nice follow through in an attempt to fill the gap left on the downside move. The index is trading in unison with the US markets and the rally has been in line with the US as it continues to move higher. Emerging markets are still weak, but managed a bounce as well.

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

Sector Rotation Model (updated – 2/11/14)

ONLY ETF Model (updated – 2/11/14)

S&P 500 Index Model (Updated – 2/11/14)

ONE EGG Model (updated – 2/11/14)

Pattern Trading Setup:

Markets continue to find the upside opportunity in news. The Fed talk to Congress gave the next catalyst and now we watch to see how long that plays out. Manage the risk and take what the market gives.

  1. XLE entry $85. complete bottom reversal through resistance.
  2. TBT entry $71.80. Complete bottom reversal.

Pattern Trade Tracking & Follow Up:

  1. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.25
  2. EFA entry $65.25. Bottom reversal and continuation higher. Stop $65
  3. SVXY entry $60.10. Bottom reversal and continuation higher. Stop $60.
  4. CORN entry $31.60. consolidation/bottom breakout. Agriculture. Stop $31.25. HIT STOP
  5. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $177.
  6. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $53.75
  7. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $84.
  8. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $57. Nice break higher and expect a test of the move as follow through.
  9. 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 $525.
  10. 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.