Trading Notes for Today, January 29th

All of the major indexes bounced off their respective lows Tuesday and found some buyers. While the move lacked any conviction it did stop the selling at least for the day. There was no real positive stimulus for traders or investors to hang their hats on as the Durable Goods orders were down 4.3% versus up 1.6% as expected. Auto, defense and aircraft all were lower than expected. The futures reacted prior to the open, but managed to move past the disappointing news. Consumer confidence was higher at 80.7 versus 77.1 expected. That helped keep the positive open moving higher and the Case-Shiller home price showed growth of 13.7% for the year as expected. Apple was a drag on the NASDAQ, but even that index managed to fight into positive territory. We will take what the market gives and look for today to add further clarity on the direction near term.
Sectors to Watch:
  1. S&P 500 index held the 1775 support level on Monday and managed to bounce back to 1792 on the day. Lower volume than the selling and an inside trading day. The outlook for today is a decision short term on direction. As I stated yesterday a break of support on SPY at $177.60 and the short side becomes of interest as a trade. SDS entry $32. If the bounce holds in trading today, SPY would need to clear $179.25 to be of interest along with an upside catalyst. Traded higher after hours last night, but still need the catalyst.
  2. NASDAQ added 14 points on the upside to close at 4097 and back above the 50 DMA. A break of this level opens the downside trade opportunity with QID. The large cap stocks have been the challenge of late leading the index on the downside. Watch how we open and if the upside can find buyers to continue the bounce.
  3. Dow is in the worst shape of the major indexes technically. 15,710 is the next level of support. The modest move on Tuesday gives some breathing room and we will see how it trades today.  If the upside continues we are looking for a meaningful catalyst on the upside.
  4. Russell 2000 Small Cap index tested 1120 support and continued to move higher on Tuesday to 1137. The index could be the leader on the downside if both technology and biotech continue sell near term. Upside reversal off support? Need to be accompanied by a catalyst to trade.
  5. Natural Gas (UNG) regained the losses from Monday and again begs the question about the upside. The natural gas stocks (FCG) have not responded to the commodity and are still on the watch list to buy. Gained 1.7% on the day, but still need to confirm a move higher. A test to $22.50 on the commodity (UNG) would be of interest for an upside trade. No test, but a bounce was in order.
  6. China (FXI) bounced off the test of the low at $34. The worries remain, but looks like it wants to hold this support level near term. Watch your stops and protect against the bounce, but the downside pressure isn’t going away anytime soon.
  7. Gold miners (GDX) testing the move with $22.50 support in play.  Gold prices moved above the $1255 level, but have struggled since to add to the upside gains. No inflation worries for one, but the FOMC meeting concludes today maybe they can stir up some interest.
  8. Leaders bounce back and hold the key on the upside. The challenge remains the large cap stocks which continue to drag. Energy (XLE), Financials (XLF), Healthcare (XLV) and Technology (XLK) need to find some momentum on the upside if this bounce is going to add any upside currently.
  9. FOMC meeting results this afternoon and not likely to change much. That could disappoint the masses as the economic data has given some hope the Fed will defer any further stimulus cuts. Not likely, but could get some knee jerk reactions following the announcement.

The models are updated and stops have emptied the portfolio. Friday was a mess and the continuation on Monday didn’t help. Tuesday’s bounce was modest, but needed nonetheless. We will set back… regroup and determine the best course of action as we progress through the week. We are watching the support levels as defined above and we will act accordingly. Technical damage has been done and potentially more on the way as the trend is challenged. No reason to panic and no reason not to add to positions if the opportunity arises. The key is to manage the risk on trades more aggressively as volatility is on the rise.

Pattern Trading Setup and Tracking:

  1. Inside trading day which leaves today to determine direction short term. This is a day to exercise patience and see how it plays out short term.
  2. EGN entry $71.20. Break from trading range again.
  3. YRCW entry $20. Cup & handle breakout. Transports were leading see if they recover.
  4. GILD entry $81. Test hit stop. upside still in play.
  5. F entry$15.80. Test of support and upgrade.
  6. SDS entry $32.05. Break of key support.
  7. TZA entry $18.70. Break of key support.
  8. Follow up on previous trades or posts:
  9. SVXY entry $62.25. Play on decline in volatility as fear subsides. If works may exit before the close today with target of $65. Held overnight and Stop $64.
  10. QID entry $62.75. Use patience on the entry today. Stop $62.10. Watch any rally short term.
  11. FIO – Entry 9.85. Double bottom. technology sector still leading. Stop $9.85.
  12. JBL – Entry 17.60 test. Broke above resistance $17.48 and testing. Stop $17.60.
  13. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher Stop $119.

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.