Trading Notes for Today, February 27th

Market Outlook:
Another mixed day with the same leadership as Tuesday from retail (XRT) up 1.8%. New home sales were better than expected giving the markets a temporary boost on Wednesday. Looking at XHB, homebuilders ETF, the sector broke to a new high and posted a solid gain of 2.6%. Can the momentum sustain going forward or was this a reaction from traders? This may benefit the materials sector as well if the trend remains on the upside.

Taking into account what is happening in and around the market I have a few questions that keep rolling around in my head… Why the firming in the VIX index versus shrinking if markets are poised to move higher? Why the continued weakness in the emerging market indicators? Why a weak dollar if emerging markets are weak? Why a weak dollar if the US economy is expanding? Why are interest rates dropping… flight to quality? Why ask why? The market will answer all of these questions and more going forward the challenge will come in the willingness to accept the answers. We will have plenty of more to say about this as we move towards the answers.

Watch to see if Fed Chair Yellen makes market moving comments before the Senate Banking Committee. She could give more insight now than two weeks ago as we close out February and take the temperature for the economy overall.

Promises to be an interesting day… stay sharp.

Sectors to Watch:
  1. S&P 500 index made another run at breaking above 1850 short term, but close below that level again. Thus we continue to watch and see. Support is 1810 and for now the index looks content to remain in this range.
  2. The NASDAQ gained 5 points and continues to hold the trend of moving modestly higher. 4225 is the level of interest for support short term to hold the move above the January high.
  3. Dow held above the 16,100 level and gained 18 points on Wednesday. The index is still in need of a catalyst to return to keep the uptrend going short term. For now patience as this plays out.
  4. Russell 2000 Small Cap index hit and closed on the 1181 high for January. For now we will hold our positions and adjust our stops on the move higher.
  5. Europe (IEV) is trading in unison with the US markets and held above the $47.70 mark. Adjust your stops according to risk currently.
  6. Transports (IYT) made the move above $131.20 Monday, but failed to hold the move. Still in the trading range and holding the 50 DMA. Patience is key.
  7. Consumer Services (XLY) pushing through resistance with entry at $65.50. Held the move on Wednesday as the retail sector leads the way. Watch to see how the upside follows through.
  8. EAFE index (EFA) held the upside break to new high and opportunity to add to existing positions at $67.30, but has retraced the gains and holding near the $67.15 breakout level. Watch and manage your stops.
  9. Financials (XLF) need some upside leadership from the sector short term. Made move above the entry at $21.65 level, but failed to follow through again on Wednesday. Manage your risk short term.
  10. Real Estate (IYR) has continued to add to the upside and we are at the next entry level if the upside continues. Made the move above $68 again only to give it up again? Watching.
  11. Review the Weekend Update.

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

Sector Rotation Model (updated – 2/26/14)

ONLY ETF Model (updated – 2/26/14)

S&P 500 Index Model (Updated – 2/26/14)

ONE EGG Model (updated – 2/26/14) NEW EGG POSTED

Pattern Trading Setup:

Today’s opportunities:

  1. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late.
  2. RVBD entry $21.15. Trading range. Technology.
  3. FXP entry $72.50. Bottom reversal breakout. China. Short trade back in vogue. patience.
  4. SDS entry $29.80. Bottom reversal. Sellers put the buyers on notice again Monday. Still watching.

Pattern Trade Tracking & Follow Up:

  1. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.20.
  2. FCG entry $20. Test of breakout. natural gas ETF broke above resistance and is testing the move higher. Tested lower at the entry and took a position on bounce off test. Stop $19.80. HIT STOP
  3. JBL entry $18.80. Trading range consolidation. Technology sector. Stop $18.40
  4. LINE entry $33.50. Consolidation breakout. Energy sector.  Stop $32.50
  5. LEN entry $42. Consolidation breakout. Homebuilders. Stop $42.50.
  6. 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.
  7. 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.
  8. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $11.15. Gap higher and still moving higher, adjust your stop.
  9. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $23.80. Nice move higher on Monday to break to new high.
  10. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $109.80.
  11. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.50
  12. EFA entry $65.25. Bottom reversal and continuation higher. Stop $66
  13. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $183.
  14. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $62.10.
  15. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $88.80.
  16. 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.
  17. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $127. Momentum remains positive short term and watching to see how it responds to the move.

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.
  • 2/24 – Continuation of the upside momentum. Plenty of news and comments on the stock, but the buyers remain confident short term. Looking at adding a trade on the stock with options. Watch to see how it trades today.