Trading Notes for Today, February 19th

Market Outlook:
Another day of the buyers believing in the upside as money continues to flow towards the NASDAQ index. Technology and Healthcare are the leaders on the upside leading the index higher. The number of analyst scratching their heads are only equaled by the number of upside believers. Until there is a catalyst to say different, the micro trend is on the upside and short term trend is recovering it’s momentum. As we have said for the last year plus, take what the market offers one day at a time.
Transports (IYT) turned down 1.4% on Tuesday and that is worth our attention today. The sector has not participated in the bounce off the February 3rd reversal. Looking for a move above the $131.40 as break from the current consolidation.
Sectors to Watch:
  1. VIX index remains below 14 despite a push higher early on some selling the S&P 500 index. As we stated over the weekend the worst is over for now, but I would not rule out any major shifts either. After hitting 21.5 on February 3rd the reversal made a quick move lower as buyers stepped in to buy stocks. We discussed increase volatility pointing to a potential trend change… that fizzled as quick as it began. We established a short term trade entry on SVXY at $54 and sold half of the position at $60.20. The stop now goes to $62 on the balance. The target was hit at $64 and we closed at $64.40 on Friday. The move towards support early resulted in a bounce and we closed at $65.40. Watching and looking at the stop moving up to $64.20.
  2. Sector Rotation is underway again in the broad index. Healthcare (biotech and medical devices), Technology (semiconductors and internet), both continue to set up solid patterns and break to the upside. Materials (metals, precious metals, building supplies and energy), Utilities and REITs are adding to the upside with new leadership. The good news is money is moving within the market versus leaving the market as it was two weeks ago.
  3. S&P 500 index held on to close at 1841 on the day and maintain the uptrend. Still looking to clear the January highs as going forward. Manage the risk of your positions and don’t assume anything… up or down. We added SPY (entry $178) and we have adjusted the stop to manage the risk (S&P 500 Model).
  4. The NASDAQ added 27 points today continuing the upside. It is the clear leader for the major indexes and the leadership from semiconductors, technology and biotech has kept the upside push in play since hitting the low on February 3rd. Manage your risk relative to the short term gains on positions in each of these sectors.
  5. Dow is in the same boat as the S&P 500 index. Attempting to regain the upside and push beyond the previous high has not played out. A test and then push higher may be the move short term. The large cap (blue-chip) stocks are lagging currently. Thus, watch to see if these indexes catch up or remain a drag going forward.
  6. Russell 2000 Small Cap index like the Dow and the S&P have been lagging as well. The 1150 level was broken on Tuesday and next stop is the January high. Watch for the index to play catch up or continue to lag as an indicator for the markets overall.
  7. Europe (IEV) The index is trading in unison with the US markets and the rally has been in line with the US as it closes at the previous high. We got the follow through and on the break above the 52 week high. Emerging markets are still weak, but managed a bounce as well with $40.25 the level to watch on EEM.
  8. Other sectors to watch — Oil cleared the $100 mark, momentum is on the upside and worth watching. Gold broke above resistance at $1290… is it ready to make an upside run as it closes above the 200 DMA. Treasury bond yields attempting to move higher? Watch how bonds react going forward.
  9. Review the Weekend Update.

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

Sector Rotation Model (updated – 2/18/14)

ONLY ETF Model (updated – 2/18/14)

S&P 500 Index Model (Updated – 2/18/14)

ONE EGG Model (updated – 2/18/14)

Pattern Trading Setup:

Today’s opportunities:

  1. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor.
  2. AEIS entry $27.85. Triangle consolidation breakout. Energy sector.
  3. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher.
  4. GILD entry $82.85. Consolidation breakout and continuation of uptrend. Look for test or $84 max entry for the trade.
  5. YY entry $68. double bottom reversal. Entry at $68 on test early today. Waited on the gap higher? Watch today for opportunity.

Pattern Trade Tracking & Follow Up:/10

  1. SCTY entry $76. Consolidation triangle. Need follow through to positive day on Thursday. Got it Tuesday and took the position. Stop $76.
  2. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $108 on move higher.
  3. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.25
  4. EFA entry $65.25. Bottom reversal and continuation higher. Stop $65
  5. SVXY entry $60.10. Bottom reversal and continuation higher. Stop $63.
  6. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $182.
  7. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $56.
  8. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $87.90.
  9. 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.
  10. 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 $538.
  11. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $125.50. 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.
  • 2/18 – Raise stop to $58.95 currently and manage the move to the new high according to your risk. With the price moving through the top of the Bollinger bands some downside activity may be on the horizon or a continuation of the top consolidation.