Trading Notes for Today, January 16th

Apple sparks rally in NASDAQ on news of expanded China Mobile deal. The DJ Telecom Index gained 1.4% on the day with the news helping lead the broad markets higher. The rest of the data came from the Fed’s Beige Book report that shows the economy continuing to grow at a modest pace. That should lead to the continuation of stimulus cuts looking forward and as long as the economic data remains positive should not disrupt the upside. PPI was up 0.4% overall with the core rate up 0.3% (0.1% expected). No impact from the data despite the higher than expected core inflation at the producer level. The Empire Index offset the disappointment with a reading of 12.5 and well ahead of the 4.0 expected. This week continues to produce data that is just right for the markets to keep the uptrend in play. We will continue to take this one day at a time.

Watch for test of the move higher. The futures are flat at the time of posting, but some short term profit taking would be expected. Know your time horizon and manage your risk accordingly.

Sectors to Watch:

  1. Can Apple make it through the $560 resistance level following the China Mobile announcement on Wednesday? Monday the stock tested support at the $530 level and has gained better than 3% the last two days to close at $557. Earnings are next week and the expectations are positive. Worth watching for a trade opportunity.
  2. Trade Consideration for the EGG setup today is:
  3. URE – Real Estate breaking from a cup pattern at $71.50 entry.
  4. GDX – Gold Miners breaking from cup pattern at $22.50 entry.
  5. PALL – Palladium breaking from downtrend trading range at $72.50 entry.
  6. FDN – Internet breaking out to new high at $60.75 entry. (Sector Rotation Model)
  7. S&P 500 index posted an intraday new high and close at 1848. Is there enough belief left in the buyers to push the index through the consolidation near this high? The sideways action continues, but the last two days of trading is showing positive momentum on the upside. Can we buy into a break higher? That is what we will be watching today as the market opens.
  8. NASDAQ leads the way again and gaps higher at the open making the entry on QQQ tough. We will see how it plays today as we passed up the entry point on Wednesday. Cleared 4180 and hit new 52 week high at 4213. Apple has played a key role in the move higher for the index the last two days.
  9. Small Caps (IWM) the Russell 2000 index moved to a new high as well closing at 1170. Does the break higher negate the downside risk in the sector? For now I would have to say yes. IWM cleared the $115.50 entry point on the move higher.
  10. Financials (XLF) tested back to $21.60 and bounced to a new high on Wednesday following positive earnings from Bank of America. Earning report from BAC set the tone on the upside. The bank had the best upside opportunity fundamentally and it follow through with positive earnings. Watch for the regional banks (KRE, added to watch list for Sector Rotation Model) and the insurance companies (KIE) to join the upside run if this is to continue higher.
  11. Healthcare (XLV) set the pace on the upside again this week, despite the rest on Wednesday. IHI, XPH and IHF are all adding to the upside as well. Analyst warnings about the benefits of the AHA being priced in already and the downside risk rising. Watch and monitor your stops as this unfolds.
  12. Telecom (XTL) made a solid move higher gaining 1.6% on Wednesday. The hope is this will follow through on the upside. I still like the individual plays better than the overall sector. The Apple deal with China Mobile helped the sector regain some upside momentum, but the individual stocks are still the clearest winners/leaders.
  13. Technology (XLK) moved back into a leadership role on Tuesday with the upgrade to the semiconductor stocks. XLK gained 1.3% again on Wednesday with the Networking (IGN) up 1.6%, Software (IGV) gaining 1.7%, Internet (FDN) up 0.8% and Semiconductors (SOXX) up 1%. I like the follow through and leadership short term. That is a good boost for the sector as the leadership is needed.
  14. China (FXI) Entry $36.55 if it can clear the 200 DMA and bounce off the recent support for a micro trend reversal trade. (Sector Rotation Model).
  15. Amazon (AMZN) is the clear winner in the retail sales report released on Tuesday. The online retailers are impacting the brick-and-mortar business. Looking for a break from the trading and continuation on the upside. Be patient with the entry point. (Sector Rotation Model).

The models are updated and our short term view continues to dominate the process currently. The economic data on Wednesday remained positive enough to keep the buyers engaged. There is plenty to watch, like, worry over and contemplate as we move forward. Earnings showed some positives with Bank of America beating expectations. 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 one day, but the buyers are back for now. 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. PALL – Entry $72.55. Bottom reversal at resistance. intermediate term downtrend line. Metals are gaining momentum short term.
  2. GDX – Entry $22.50. Break from bottom consolidation. Gold is attempting to bounce as well.
  3. GILD – Entry $75.50. Break through resistance, triangle. Biotech is still leading sector.
  4. Follow up on previous trades or posts:
  5. V –  Entry $223. Consolidation top. Financials working higher as sector. Stop $218.
  6. PIN – Entry $17.60. Ascending triangle. Country ETF wants to break higher short term. Stop $17.40
  7. NVDA – Entry $15.90. Trading range breakout. Semiconductors upgraded and moving higher. Stop $15.70.
  8. CBB – Entry $3.65. Trading range breakout. Telecom sector is stock picking sector for now. Stop $3.58.
  9. HPQ – Entry $28.85. Ascending triangle. Upgrade to PCs with stock in position to break higher. Stop $$27.95.
  10. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher Stop $119. OR (GDX – $22.25 – Stop$22)
  11. 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.
  12. QCOM – Entry $74. Trading range breakout. Telecom pulled back looking for a continuation of the upside move. Stop $72.50 (1/14 – took off stop at open on gap lower? no reason for the move).
  13. ATNI – Entry $57.50. trading range breakout. Telecom sector remains a leaders. Stop $56.50
  14. FHN – rounded bottom breakout. Entry $11.85. Nice upside breakout. Stop $11.85
  15. PJC – trading range breakout. Entry $39.90. Stop $38.95.
  16. SKUL – Reversal follow through resistance. Entry $6.09. Sector bouncing back. Gapped open with Entry at $6.30 and stop $7.40.
  17. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $24.
  18. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Stop $34.75.
  19. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $17.80.
  20. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $92.
  21. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $57.10.
  22. 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.

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. Short live as it bounced with stocks on the day.