Trading Notes for Today, February 21st

Market Outlook:
Markets react to the positive Flash PMI data being better than expected and giving hope to the hopeless optimism from traders. The worry over the Fed Minutes has been replaced with the hope of improvement to offset the Fed foolishness. As I stated in the notes last night the optimism remains high and the data weaker, but the optimism is winning on the hopes the economy will improve as the Fed speculates. For now we continue to take this one day at a time looking for longer term confirmation that the economy is improving and earnings opportunities with it for stocks.

Wednesday turned out to not be a key reversal day with the intraday action. The reaction to data on Thursday showed investor remain willing to buy on the dip if the news shows a reason. This is a market that is technically driven and emotion driven by investor perception that all is well.

Thursday we were looking for three events to take place and… First, VIX index did not move to 17, but fell to 14.8 and still worth watching to see how it unfolds. Second, Financials to break lower and create a short opportunity. That failed as well with XLF holding $21.30 support. Still watching the downside and a play in SKF if the support gives way near term. Third, Transportation to give some clarity on direction. A move above $131.40 is what we watch today with the bounce on Thursday. No continuation of the downside, but we watch to see if support gives way near $126.

The upside remains in play and the buyers are back, at least for now. Today the futures are pointing higher at the start, but that may be a negative since we have been working higher off lower opens this week. Watch and see how the day unfolds. It’s Friday and not big on taking new positions into the weekend, but it will be the markets call on direction and opportunities.

Sectors to Watch:
  1. VIX index moved up Wednesday on worries and down on Thursday on optimism. This doesn’t leave much room for trading as the emotions jockey for control of the trend. As we stated over the weekend the worst is over for now, but I would not rule out any major shifts either. Watching to see if there is any direction today relative to the volatility and markets. SVXY at $65 is of interest on the upside.
  2. S&P 500 index reversed on the economic data and closed at 1839 up 11 points. Still looking to clear the January highs 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). 1810 is the level to watch short term for support and 1850 for resistance.
  3. The NASDAQ gains 29 points and hovers near highs after one day of selling. It is the clear leader for the major indexes and the leadership from semiconductors, networking, internet 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. 4180 is the level of interest for support short term.
  4. Dow can’t find its mojo and remains a laggard for the markets overall. The large cap stocks have been a challenge for the broad market overall. The test lower on Wednesday got my attention on the downside, but it didn’t last.  Watching to see how this unfolds short term. (one move of note in the index on Thursday was Verizon (VZ). watching the downtrend off the October high for upside trade with dividend.)
  5. Russell 2000 Small Cap index tested back to the 1150 level and bounced again to the upside gaining 1.1% on Thursday. Content to hold our position and see how this plays out looking forward. IWM needs to clear $115.50 resistance.
  6. Europe (IEV) The index is trading in unison with the US markets and the rally has been in line as well. We got the follow through and on the break above the 52 week high, but that is currently being tested. Need to hold $47.70 currently. Watch the downside risk if the US markets test the recent move higher.
  7. Other sectors to watch — Oil cleared the $102 mark, momentum is on the upside and worth watching and managing the risk of the trade. Gold broke above resistance at $1290… is it now testing the $1325 level of resistance. Treasury bond yields attempting to move higher? FOMC minutes pushed the yield on the 30 year bond back to 3.7% and holding. Watch how bonds react going forward.
  8. Review the Weekend Update.

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

Sector Rotation Model (updated – 2/20/14)

ONLY ETF Model (updated – 2/20/14)

S&P 500 Index Model (Updated – 2/20/14)

ONE EGG Model (updated – 2/20/14)

Pattern Trading Setup:

Today’s opportunities:

  1. PXLW entry $5.25. Reversal top and test of support. Held the support at $4.80 and now positioned to reverse direction back toward upside. Software sector.
  2. GILD entry $82.85. Consolidation breakout and continuation of uptrend. Look for test or $84 max entry for the trade. Got early test and watch for the day. Still looking for entry on positive day. (2/18 post)

Pattern Trade Tracking & Follow Up:

  1. YY entry $68. double bottom reversal. Entry at $68 on test early today. Waited on the gap higher? Tested back to $68, but late in the day. Watch for entry point if positive day. (2/14 post) Based most of the day then moved through entry and added the position. Using tighter stop on this activity. Stop $66.90.
  2. AEIS entry $27.85. Triangle consolidation breakout. Energy sector. Passed on entry with volatile open. Watching today for the trade with positive day. (2/18 post) Stop $27.50.
  3. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Erratic open and trade not taken Wednesday. Watching today for positive move. (2/18 post) Stop $9.02.
  4. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $23.80
  5. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $109.80.
  6. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.25
  7. EFA entry $65.25. Bottom reversal and continuation higher. Stop $65
  8. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $182.
  9. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $60.10.
  10. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $87.90.
  11. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $60.20. Nice break higher and expect a test of the move as follow through.
  12. 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. HIT STOP
  13. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $126. 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)

  • 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.
  • 2/19 – $16-19 billion acquisition of WhatApp pushed the stock down 2.5% after the announcement in after-hours trading. Watching to see how investors react in trading today.
  • 2/20 – Nice bounce back from the after-hours reaction to the acquisition. Watch and keep your stops in place.