Trading Notes for Today, February 6th

Market trades lower at the open spends balance of the day working back close to even. Nothing decided in either turn as the buyers nor the sellers are exerting control at this point. Not expecting much to change until the jobs report is out on Friday. Then we will get fireworks up or down. We will remain focused, disciplined and patient as we take it one day at a time.
Twitter (TWTR) fell after-hours on weak user growth and timeline views. That news trumped the solid earnings and revenue data for the quarter. The drop of 17% on the news will impact the open today for the NASDAQ and the sector.  SOCL is the ETF that is focused on this asset class.
Green Mountain (GMCR) jumps higher on ten year deal with Coke. The stocks jumped 40%+ after-hours. Speaking of coffee (JO) has been running on crop news. Gained another 4.8% on Wednesday. Sugar (SGG) equally has made a bottom and trend reversal the last week up nearly 10% off the low. Corn (CORN) is ready to break from a based at $31.70 entry point. Agriculture (DBA) is benefiting from the move up 4% the last five days. Still room to move in the sector.
Disney (DIS) up 3% after-hours on earnings beat with the company show improvement across the entire line of business. Solid earnings for the entertainment company and could give the sector ETF – PEJ a boost.
Sectors to Watch:
  1. VIX index continues to hold near the highs as investors remain uncertain of what is on the horizon. If the rally is going to return, a drop back to the 15-16 range would be the target to look for short term. If that does develop short term SVXY would be the ETF to play the reversal in volatility.
  2. S&P 500 index broke the support at 1775 on Monday. It has held the 1745ish level with some selling early Wednesday below that level. Still failed to find any upside conviction as a follow through and I am still willing to be patient here and see how it plays out.
  3. The NASDAQ gave back 19 points on Wednesday after testing the 3970 mark. Technology close flat, semiconductors were up slightly and biotech dropped 1.6%. Still flirting with downside break of the trendline and no positive from the buyers at this point. The bias still goes to the sellers for now.
  4. Dow remains in the worst shape of the major indexes technically. The index bounced back to the 200 DMA and hit resistance. The trendline was broken and it is the first of the major indexes to cross below the 200 DMA. There is some support at this level, but the downside target could be the next level of support at 14,750.
  5. Russell 2000 Small Cap index broke 1120 support and tested 1090 support. Broke the trendline off the November 2012 low. Trend shift is in process short term as the 10 DMA crosses below the 50 DMA. Watching for bounce with the broad markets, but the negative sentiment is in play short term.
  6. Europe (IEV) moved back to $44.93 on the day as it continues to trade in unison with the US markets. We would need to move back above $45 to stop the bleeding on the downside and we are close. EPV is the 2x short ETF for Europe and hit the entry on the break lower Monday. Protect against the reversal and manage your stops.
  7. Natural Gas (UNG) welcome to the land of volatility and speculation. Gave back 3.2% of the 8% gain from Tuesday. Day traders dream position currently. The natural gas stocks (FCG) gave up half of the gain from Tuesday and is still not aligned with the commodity. Watching for the opportunity if it develops.
  8. China (FXI) worries sent the country ETF to support at the $34 level and it has been showing some consolidation at this level. That gave way on Wednesday to close at $33.71. Watch for the follow through lower and a opportunity to add to FXP. The emerging markets remain a challenge for investors as money flows away from the sector risk.
  9. Gold miners (GDX) are struggling to mak any progress and hit the stop assigned at $33.20. Take a small gain and watch for now. Don’t like the activity.
  10. The short bond trade (TBT) has bounced nicely the last two days. A potential move back to $75 is in the making if the fear comes out of equities short term. Patience as we define a reasonable entry point.

The models have raised cash as a result of hitting stops. With confirmation of the downside today we will add to short positions with caution as we are sitting on an near support. There are short term trading opportunities and setups as well in place. We are still willing to hold cash and let this unfold for now as some clarity is gained in reference to outlook short term. The outlook has turned negative and downside confirmation is in play. Technical damage has been done and potentially more on the way as the intermediate trendline broke opening the downside move from a longer term perspective. No reason to panic and no reason not to add positions if the opportunity arises. The key is to manage the risk of your emotions in relationship to the reality or results of the market short term.

Pattern Trading Setup:

Got the bounce on Tuesday that left you more questions than excitement. I want to see a follow through on the upside with some conviction from the broad indexes. The posts on the entry points below are examples of no enthusiasm at the entry points. Be patient and let this all take its course.

  1. S entry $8.72. Trend reversal. Telecom sector.
  2. SGG entry $54.65. Trend reversal. Agriculture.
  3. CORN entry $31.60. consolidation/bottom breakout. Agriculture.
  4. BHI entry $57.15. consolidation breakout. Oil Equipment sector.
  5. AMLP entry $17.85. Reverse H&S breakout. MLPs starting to gain interest.
  6. QQQ entry $85.10. Move through resistance and follow through on bounce off support.

Pattern Trade Tracking & Follow Up:

  1. 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 $507.
  2. TZA entry $18.70. Break of key support. Waiting for the conviction and support break. Stop $19.20. expect volatility with the leverage.
  3. SDS entry $32.05. Break of key support. Waiting for the conviction to show on the downside. Stop $32.50. expect volatility with the leverage.
  4. GILD entry $81. Upside still in play. In consolidation pattern again. Stop 77.40.
  5. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher Stop $119. No momentum in the trade and looking to get out at break-even or better.

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.
  • 2/3 held the gains and still in position to move higher.