Trading Notes for Today, February 14th

Happy Valentines Day!
The market found more buyers to step in and continue the trend higher on Thursday. For the second day we opened lower, but watched the buyers come in and take stocks higher to end the day. Hands down this is a Fed led rally as Yellen makes the right comment to make Wall Street feel comfortable. If you take the economic data into account this week there was nothing to make you feel good about the current growth. In fact, the worries that were in place to start the year remain and may be getting worse. Retail sales fell 0.4% versus the 0.1% expected in January and the market rallied? Business inventories rose 0.5% and not response from stocks? Interesting times for stocks. But, out is not reason why, but to follow the trend and manage the risk of the trade.
Today the futures are starting out on the downside slightly, and we will see if buyers once again step in and add to the upside.
Sectors to Watch:
  1. VIX index dropped to 14.1 on Thursday and is nearing the lower trading range. 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 $61 on the balance. The target remains near $64 and we closed at $63.46 on Thursday. We may look at taking half of the remaining position off today if we hit the $64 mark. Watch today for VIX to hold below the 14.5. If anxiety picks up we may lock in our gains and exit the position.
  2. S&P 500 index bounced off the support of 1810 level on Thursday and closed at 1829. We added SPY (entry $178) position posted on Friday (S&P 500 Model).  The index is at a level of testing the move higher. Watch and manage the position relative to the volatility.
  3. The NASDAQ rallied 60 points on Friday, added another 22 points Monday, 42 points Tuesday, 10 points on Wednesday and 39 points on Thursday for a total of 173 point over the last week. There may be a test of the move near term as the index will not climb straight up. Decide how you want to address any such move prior to the event to keep your emotions in check. Technology (XLK) moved above resistance at the $35 mark and continues higher. Semiconductors (SOXX) were up another 1.1% to lead the index again and the ETF held the above the $74 mark. Manage your risk of relative to the short term gain.
  4. Dow tried to make up for the lack of participation Tuesday, but has been consolidating the last two days. The index moved back above the 200 DMA and is attempting to regain some upside momentum. The large cap stocks are making a move and helping the index. 16,093 target short term.
  5. Russell 2000 Small Cap index tested 1090 support and has now bounced back above the previous up trendline from November 2012. If the uptrend is back in play and I am looking for a follow through short term. I asked for more leadership from the sector and it provided it on Thursday with at gain of 1.3% and poised to push through this level.
  6. Europe (IEV) moved back above the $45 level with a nice follow through that has now filled 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 – 2/14/14)

ONLY ETF Model (updated – 2/14/14)

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

ONE EGG Model (updated – 2/14/14)

Pattern Trading Setup:

As we end the week our focus it to manage the risk and look for the opportunities. The weather is making a good excuse for the economic reports to no be good and that is keeping the buyers engaged. Set your stops and keeping going forward.

  1. YY entry $68. double bottom reversal. Entry at $68 on test early today.
  2. SCTY entry $76. Consolidation triangle. Need follow through to positive day on Thursday.

Pattern Trade Tracking & Follow Up:/10

  1. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $106 on move higher.
  2. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.25
  3. EFA entry $65.25. Bottom reversal and continuation higher. Stop $65
  4. SVXY entry $60.10. Bottom reversal and continuation higher. Stop $61.25.
  5. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $179.50.
  6. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $56.
  7. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $87.90.
  8. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $58.50. 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 $528.
  10. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $122.60. Is this the momentum we have been waiting for short term? Watch how it responds to the move on upside.

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.
  • 2/14 – Nice gain of 4.4% and now looking at raising the long term stop on the position.