Trading Notes for Today, January 13th

The markets spent last week trading sideways and attempting to understand investor sentiment relative to market data. The economic data didn’t provide the catalyst many were hoping for and in many ways were disappointing. The jobs report was a dud, ISM data disappointed, retail sales were lower than expected, and the list goes on. The bottom line is we are not seeing the growth the Fed sees, but the hope is still in play. Looking forward, investors are still optimistic and if you listened to any of the financial networks last week you would believe we are in one of the strongest growth periods for the US. Regardless of what anyone thinks the trend is our friend and for now the trend remains on the upside and we will respect that until it changes. Plenty of issues to address this week in the economy, but we also start earnings in earnest this week. The start has not been great (Alcoa), but we will see how the banks fare and they will set the tone for trading for the week. The key currently is to not assume anything, manage your risk and take what the market gives each day. Don’t get stops so tight you lose good positions. Take some profit and give stops room on the remaining position. We will continue to take this one day at a time. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. S&P 500 index was up slightly closing at 1842 Friday. The uptrend remains in play with the 50 DMA the level to hold moving forward. Worries about earnings are rising in the headlines heading into next weeks trading. Raised our stops on positions and looking to take some profit out of positions (lessening size) in the index and watching how it progresses. Upside remains in play and we will be patient to see how it plays from here.
  2. NASDAQ was up 1% for the week despite what seemed to be a negative week of trading. Worries and data points are keeping the broad market in check currently. The index is back near the high closing at 4176. Respect the trend and let this play out going forward. A break to new high would offer a opportunity to add to our position in QQQ.
  3. Small Caps (IWM) the Russell 2000 index closed up 0.7% on the week and more positive thanks in part to the biotech stocks. 1164 is a new closing high for the index and worth watching to break higher this week on earnings data. The downside risk of the sector is still a possibility and we will watch to see how it unfolds going forward. Watch and take what the sector gives, but don’t assume anything at this point.
  4. Financials (XLF) will be the sector to watch with earnings in the banks starting this week. They will set the tone for the sector and market overall. A gain of 0.6% for the week was not bad as it is in position to move to another new high. The banks (KBE) broke to a new high on Thursday and remains positive short term. The regional banks (KRE) are consolidating near the previous high and content to hold for now. The brokers (IAI) remain in a steady uptrend helping the broader index maintain the upside. Watch the earnings reports.
  5. Healthcare (XLV) continued to move higher gaining 2.7% for the week. A break above the $55.65 level hit the entry to add to the position in XLV.  The consolidation in the sector goes back to the November high. Watch look for the sector to continue the trend.  Medical devices (IHI), healthcare providers (IHF), pharma (XPH) and biotech (IBB & XBI) are all helping lead the sector higher.
  6. Telecom (IYZ) was looking for a break higher and continuation of the upside with a move above the $29.75 level. This is a sector that comes with volatility and Thursday it was in action with the selling of stocks erasing 1.6% of the gains. Friday is held support, but still looks tenuous at best. Watch the news in the sector as the subscriber wars high high gear with T-Mobile challenging for market share and willing to spend the money to take. That is not good for the bottom line of the sectors. However, the chips and component makers still look attractive. Now we have to break it down and find the parts that are moving.
  7. Technology (XLK) is testing lower and in position to test the last entry point at $34.95. The semiconductors were providing the upside, but have met with a bout of volatility this week. Watch and see how this plays out and look for the opportunities in the uptrend. IGN broke to new high, IGV broke to a new high as well, and FDN is testing the previous highs. If the upside resumes we will add to positions.

The models are updated and our short term view continues to dominate the process currently. The minutes from the Fed FOMC meeting created some clarity on Wednesday, but upon further review anxiety on Thursday relative to the pace of the stimulus cuts. Earnings start with dud in Alcoa’s miss. The fear factor is still looming in reference to earnings and we will have to be patient as it all plays out. The buyers seem willing to put money to work despite the worries relative to an overbought market technically. Looking to take some profit if earnings continue to disrupt the short term outlook. The pattern list (below) is where we are posting most trades short term as a result of the current market environment. Manage the risk on trades more aggressively and monitor your longer term holdings with trailing stops to account for any rise in volatility.

Pattern Trading Setup and Tracking:

  1. GILD – Entry $75.50. Break through resistance, triangle. Biotech is still leading sector.
  2. PIN – Entry $17.60. Ascending triangle. Country ETF wants to break higher short term.
  3. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. OR GDX – Entry $22.25.
  4. V –  Entry $223. Consolidation top. Financials working higher as sector.
  5. Follow up on previous trades or posts:
  6. RSOL – Entry $4.15. Break to new high, double bottom weekly chart. Solar still moving higher and merger pushed the stock higher on Thursday. Stop $3.85.
  7. QCOM – Entry $74. Trading range breakout. Telecom pulled back looking for a continuation of the upside move. Stop $72.50
  8. EEV – break from trading range. EEM broke support and short side is in play. Entry $22.25. Stop $21.50 HIT STOP
  9. ATNI – Entry $57.50. trading range breakout. Telecom sector remains a leaders. Stop $56.50
  10. FHN – rounded bottom breakout. Entry $11.85. KRE ETF leader. Nice upside breakout. Stop $11.60
  11. PJC – trading range breakout. Entry $39.90. IAI ETF leader. Stop $38.95. Watch the reversal on Wednesday.
  12. SKUL – Reversal follow through resistance. Entry $6.09. Sector bouncing back. Gapped open with Entry at $6.30 and stop $7.40.
  13. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $24.
  14. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Small early test for the market. Stop $34.75.
  15. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $17.68.
  16. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $90.90
  17. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $57.10.
  18. HBAN – Breakout from trading range. Entry $9.13. Not much test, but steady trading. If no test, max entry is 9.20. Be patient with the upside as this the stock has a pattern of breaking higher, run and then consolidate. Stop $9.50.
  19. PSX – 65.70 entry. Flag breakout. Consolidation after break higher. Refiners are leading in energy sector. Lower oil prices help margins, etc. Patience and expect volatility. Stop $76. Allow for some volatility with price moving.

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:

  • 12/30 – Hit stop on position added and managing our positions of 2000 shares long term.
  • 1/2 – Watch the test of support at $53.40. could offer another trading opportunity.
  • 1/5 – Short setup on the current activity could be the trade. Need to be patient to see how this will unfold.
  • 1/6 – big reversal on Monday to close up 4.8%. Watching to see how that holds near term.
  • 1/8 – Testing the previous high after test lower. Break and we will add a position on the move higher. Retest lower and we look at the downside in relationship to the broad markets. Entry $58.50 add 500 shares.