Trading Notes for Today, January 3rd

Not so happy of a start to the new year of trading as stocks decline nearly 1% to start. We closed 2013 at new highs and the economic data we discussed set the tone for the first day of trading. The ISM Manufacturing data was better than expected, but lower than November. China equally disappointed on the day and that sent the markets lower on the day. Plenty of downgrades by analyst as well to start the new year didn’t help either. Thus, we will remain focused on the data an how it impacts stocks short term. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. S&P 500 index closed at 1832 and shedding 16 points on the day. The optimism faded some on Thursday and we will have to see how it play out today. A test of 1810 is not out of the question for the broad index. Watch and manage your risk on trades going forward.
  2. NASDAQ closed at 4142 down 33 points as Apple and other large cap stocks were downgraded by analyst. The semiconductors have been the leader on the upside, but the SOX index lost 1.4% on Thursday. Watch to see how the sector fares today.
  3. Small Caps (IWM) the Russell 2000 index lost 12.8 points to close down 1.1% at 1150. The upside for the index remains in play, but raises some questions relative to the small cap effect.
  4. Financials (XLF) – The sector held up thanks to the upgrade to BAC on Thursday. The decline of 0.5% was better than the overall index, but the sector overall is still questioned by investors. Why are we still interested? Fundamentally the sector offers a value opportunity, and some patience with the sector going forward could pay off versus chasing overvalued stocks at this level. I would like to see some conviction with any move higher.
  5. Energy (XLE) dropped along with the price of crude on Thursday losing 1.5%. The stronger dollar got the credit for the shift in momentum. The upside is still the favored direction of choice currently. Watch to see if we remain in the current trading range.
  6. Technology (XLK) tested the 10 DMA and held Thursday at the $35.39 mark.  The semiconductor sector (SOXX) are leading the upside, but the abbreviated test is in play and we will see how it plays out today. Networking (IGN) and software (IGV) both pushing higher as well of late, but are testing with the broader sector.
  7. Europe has been following the US markets again on the upside with a break above the previous highs. However, the slowing economic data from China on Thursday took its toll pushing the country index down 2.2% and back below the previous resistance point at $46.50. So much for the renewed leadership and watch how the downside plays out short term.
  8. Crude oil fell another 3% on Thursday to follow through on the selling from Tuesday. $95.50 is the next level of support, which is where we closed. Watch to see how this plays out today.
  9. Gold (GLD) held support at $114 and has bounced back only to test the same level again on Tuesday, but closed at $116.15. We discussed the potential move or follow through above $117.50 that would be of interest for a upside trade if it unfolds. And that is exactly what happened today closing at $118 on GLD. Watch to see how this plays today.
  10. The dollar, as we discussed, has been struggling versus a currency that should benefit from a stronger economic forecast by the Federal Reserve, not to mention the cuts in stimulus. The nice bounce on Thursday is more of what we have been expecting from the buck and something to watch moving forward. I would be happy to settle for a sideways movement as a worst case scenario.
  11. Bonds have worked lower as rates climbed above the 3% on the ten year bond on Tuesday. Thursday the reversed again back to 2.98% down four basis points. The move higher in rates has been taking a toll on the the bond sector and puts the short play against (TBT or PST) the bond as the play of choice with rates on the climb. Watch rates as they push through resistance levels.
  12. Thursday started the economic reports for December and they were watched closely in light of the comments following the FOMC meeting. The manufacturing data disappointed and retail sales reports are likely to do the same as the preliminary data has shown weakness.

The models are updated and our short term view continues to dominate the process currently. The news from the Fed took some of the fear out and restored some confidence in the uptrend, but now it data time and there will be plenty on the way along with fourth quarter earnings. Watching to see if buyers are willing to wade into an overbought market technically following the selling on Thursday. I am not changing my focus from the current events as they unfold and the opportunities they give as a result. The pattern list 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.

  1. VXX – Entry $43.95. Bottom reversal. Volatility picking up again short term.
  2. VVUS – Entry $9.50. Micro trend reversal and move back to $10.15. Biotech sector.
  3. GILD – $75.50 Entry. Breakout ascending triangle. Biotech still on upside trend.
  4. TBT – break from consolidation. Entry $79.50. Interest rate continue to rise on bonds.
  5. NVDA – break from consolidation. Entry $16.05. Semi’s one of the leading sectors.
  6. Follow up on previous trades or posts:
  7. IEV – $46.60 Entry. The break above resistance and follow through. Stop $46.90. HIT STOP
  8. T – Entry $34.80. bottom reversal. Telecom gaining momentum on wireless mergers. Stop $34.45.
  9. INFN – Entry $9.50. Consolidation breakout. Sector is breaking higher. Stop $9.28.
  10. SKUL – Reversal follow through resistance. Entry $6.12. Sector bouncing back. Gapped open with Entry at $6.30 and stop now at the same level with a no risk trade.
  11. KEG – support reversal. Entry $7.68. Energy stocks bounced, based still building? Watch and let this develop. Stop $7.50.
  12. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $24.
  13. FFIV – Trading Range. Entry $85.50. Looking for momentum to pick up in technology sector. Stop $89.
  14. XLE – Trading Range bounce. Entry $86.15. Watch for test and then entry. Early test and entry at $86.30. Stop $86.30.
  15. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Small early test for the market. Stop $34.75.
  16. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $17.25.
  17. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $87.
  18. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $54.
  19. BRCM – Breakout from Trading Range. Entry$28.20 on test of the move. Watch for the test and follow through. Be patient. Got the entry on the breakout test Thursday. Stop $29. HIT STOP
  20. FB – Trend reversal test. Entry $48.70. Follow through on the reversal and move above $47.40. Stop $54.70. Nice move higher on trade of being added to the S&P 500 index. HIT STOP
  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 $9.20.
  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 $75. Nice break higher as gasoline prices start to rise. 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:

  • 11/25 – Still sitting on support and we remain in the same strategy as above. We will decide in the next two weeks how to treat our options based on the movement. Patience for now.
  • 11/27 – With the break of support on Monday we will look to exercise our options on the stock we currently hold in December and that will give us zero shares and a nice profit in the position. The initial break lower on Tuesday was interesting, but some buying followed to push back above the support at$45.50. Micro downtrend still in play without some buying to reverse.
  • 12/2 – Got a reversal and looking to exit the put contracts and hold the stock. Sold @ $6 on stop.
  • 12/5 – Watching to see how the stock follows through on the rumor mill of being added to the S&P 500 index. Expect a test or pullback after the news settles. I am looking at the put contracts out to the March/April timeline  again if we don’t hold support.
  • 12/9 – Mixed trading day on Friday that ended lower. The reversal is being driven by the sector and the S&P 500 addition. Looking for a potential move back to the previous high.  Added position (See Above Pattern Trades) $48.70 and we will manage it accordingly. This is a trade position only.
  • 12/13 – nice follow through on upside… watch as this is news drive move. Raise your stops accordingly. See Above in the pattern trades for details. STOP @ $52.13.
  • 12/18 – Raise stop %53.70 on trade taken off the low.
  • 12/24 – Nice gain again and raising stop on trade to $54.70.
  • 12/30 – Hit stop on position added and managing our positions.
  • 1/2 – Watch the test of support at $53.40. could offer another trading opportunity.