Trading Notes for Today, February 24th

Market Outlook:
Markets ended the week essentially flat, but holding the move higher off the February low. Is the pause due to the lackluster economic data? Are we in a holing pattern to see how February fared in terms of economic growth. There are plenty of questions surrounding the market and what opportunities or pitfalls lie ahead. For now our outlook remains the same, take what the market gives and manage your risk accordingly.

As we start a new week of trading we look for what is leading and what is lagging. As we addressed in the weekend update the market needs to break through the current resistance point and continue the micro uptrend started off the February 3rd low.

Sectors to Watch:
  1. S&P 500 index needs to break above 1850 short term. Support is 1810 and for now the index looks content to remain in this range. Watch for a resolution this week in trading as we conclude the trading month of February.
  2. The NASDAQ is the leading index for the broad market. Technology, semiconductors, networking, software and internet continue to provide the leadership currently. 4225 is the level of interest for support short term to hold the move above the January high.
  3. Dow tried to break higher last week and closed at 16,103 and just above the resistance of the 50 DMA. The index needs some catalyst to return to the uptrend. For now patience as this plays out.
  4. Russell 2000 Small Cap index moved above the 1150 level and then tested the move last week. For now we will hold our positions and adjust our stops on the move higher.
  5. Europe (IEV) The index is trading in unison with the US markets and the rally has been in line as well. Made move to new high and closed the week testing the move higher. Need to hold $47.70 currently. Watch the downside risk if the US markets test the recent move higher.
  6. Other sectors to watch — 1)  Transports (IYT) a move above $131.20 entry opportunity. 2)  Consumer Services (XLY) pushing through resistance with entry at $65.50. 3)  EAFE index (EFA) offers a upside break to new high and opportunity to add to existing positions.  4)  Financials (XLF) need some upside leadership from the sector short term. Looking for entry at the $21.65 level going forward. 5)  Real Estate (IYR) has continued to add to the upside and we are at the next entry level if the upside continues. 6) Consumer Staples (XLP) sector has struggled to get much traction in terms of leadership. Watch to the break higher to materialize short term. 7)  Basic Materials (XLB) is moving back towards the previous high and with the momentum in the energy commodities looking for the sector to move through this level and beyond.
  7. Review the Weekend Update.

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

Sector Rotation Model (updated – 2/23/14)

ONLY ETF Model (updated – 2/23/14)

S&P 500 Index Model (Updated – 2/23/14)

ONE EGG Model (updated – 2/23/14)

Pattern Trading Setup:

Today’s opportunities:

  1. FCG entry $20. Test of breakout. natural gas ETF broke above resistance and is testing the move higher. Looking own as close to the entry as possible and avoid chasing.
  2. LEN entry $42. Consolidation breakout. Homebuilders. Patient with the entry and manage the volatility.
  3. LINE entry $33.50. Consolidation breakout. Energy sector. Patient with the entry.
  4. S entry $8.73. Wedge, consolidation. Telecom sector. Patience as retracted the jump higher on Friday.
  5. JBL entry $18.80. Trading range consolidation. Technology sector. patience on upside confirmation.

Pattern Trade Tracking & Follow Up:

  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. 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 $88.40.
  11. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $60.30. Nice break higher and expect a test of the move as follow through.
  12. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $126.25. 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.