Trading Notes for Today, January 14th

The markets close lower on worries as Fed talks cuts on stimulus. My opinion is the sellers were looking for a reason to jump and the comments were enough to push the nervous traders off the edge. Why? Jobs report on Friday and the belief the market won’t be able to sustain the economic upside without the liquidity. Whatever the belief, investors were willing to cash in their chips and move money to the sidelines or bonds. The worries we have discussed are now in play with the economic outlook, earnings and global growth in full bloom. 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 down 1.2% closing at 1819 on Monday. The close on the 20 DMA is worthy of note and the downside has become a bigger issue to start the week. This is what we discussed last week with the worries and talk about what is wrong hitting the headlines. The uptrend remains in play and we must be patient to see how it plays from here. 1810 is the level to hold and the 50 DMA is not near the 1800 level. Strong volume on the selling is another warning signal going forward. Stops in place and watch to see how this unfolds.
  2. NASDAQ gave back the gains from last week and then some on Monday. 4070 is the level to watch for support, and then the 50 DMA is 4036. The index has been more volatile and is now in position to provide leadership on the downside short term should the micro trend shift off the December high. Respect the trend and let this play out going forward. Added QID as the EGG Model trade on Monday.
  3. Small Caps (IWM) the Russell 2000 index closed down 1.4% on Monday to lead the indexes lower. The downside risk of the sector was discussed as a possibility and intraday pushed below the support at $113.70 on IWM. The uptrend remains in play, but technically the index is closer to breaking down than the others. Watch and set your stops accordingly, but don’t assume anything at this point.
  4. Financials (XLF) were down 1.5% Monday to lead the downside move for the broader index. With the sector on tap to report earnings this week it added to the pressure. Brokers (IAI) and insurance (KIE) were the weak links in the sector both down more than 1.6% on the day. Watch the earnings and look for the opportunity in the selling and $21.65 support to today.
  5. Healthcare (XLV) set the pace on the upside last week and held its own on Monday down 0.8% for the day. Support is the $55.65 level which was resistance on the break higher last week.  Biotech (IBB) has been the clear leadership for the sector and it was off 1.6% on the day. Watch, support is important short term, but this will likely create some short term opportunities.
  6. Telecom (IYZ) experienced selling last week and held up fairly well on Monday down 0.7%. The sector showed volatility last week with the stocks erasing 1.6% of the gains. Watching the news in the sector as the subscriber wars are now in high gear with T-Mobile challenging for market share and willing to spend the money. 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. Looking for the opportunities in the selling.
  7. Technology (XLK) gets the prize for the first to hit support. The sector started testing lower last week and closed right at the $34.95 support. This is one of the leaders and a downside break would be bad for the broader indexes. The NASDAQ reacted to the selling overall. Networking and Internet both dropped more than 1.5% to lead the downside move. Watch the downside move and if it accelerates we will look at a short trade with REW.

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 unsettled investors. That continued on Monday with the Fed getting the blame in the headlines for comments. 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 sellers took control for the day, but we will see how much conviction they have and if there is any downside follow through on the day. Looking to take some profit if earnings and worries 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. Adding a couple of short trades if we follow through on the downside. Futures are flat as a write this post.
  2. QID – Entry$15.70. NASDAQ leading the downside. Patience and this is leveraged ETF.
  3. XLK – Short – Entry $34.90. Risk of technology leading the downside move.
  4. Leaving the trades from Monday to see how it unfolds today.
  5. GILD – Entry $75.50. Break through resistance, triangle. Biotech is still leading sector.
  6. PIN – Entry $17.60. Ascending triangle. Country ETF wants to break higher short term.
  7. V –  Entry $223. Consolidation top. Financials working higher as sector.
  8. Follow up on previous trades or posts:
  9. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher Stop $119. OR (GDX – $22.25 – Stop$22)
  10. 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 $3.75 (adjusted lower late in the day).
  11. QCOM – Entry $74. Trading range breakout. Telecom pulled back looking for a continuation of the upside move. Stop $72.50
  12. ATNI – Entry $57.50. trading range breakout. Telecom sector remains a leaders. Stop $56.50
  13. FHN – rounded bottom breakout. Entry $11.85. Nice upside breakout. Stop $11.85
  14. PJC – trading range breakout. Entry $39.90. Stop $38.95.
  15. SKUL – Reversal follow through resistance. Entry $6.09. Sector bouncing back. Gapped open with Entry at $6.30 and stop $7.40.
  16. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $24.
  17. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Stop $34.75.
  18. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $17.80.
  19. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $92.
  20. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $57.10.
  21. 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 $9.60.
  22. 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. HIT STOP ON SELLING MONDAY.

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.
  • 1/14 – Testing the move lower again – double top? Watch the downside risk short term.