Trading Notes for Today, January 6th

Not so happy of a start to the new year of trading as stocks decline, but hold their ground on Friday. We closed 2013 at new highs and the economic data we discussed set the tone for the first few days of trading. The ISM Manufacturing data was better than expected, but lower than November. China equally disappointed on economic data and that sent the global markets lower. 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 updated from the weekend update posted on Sunday.

Sectors to Watch:

  1. S&P 500 index held support at the 10 DMA to end the week. The uptrend remains in play with the 50 DMA the level to hold moving forward. The Fed couldn’t stand letting the markets trade on their own merit, they had to intervene again with comments relative to stimulus and the economy. Upside remains in play and we will be patient to see how it plays this week.
  2. NASDAQ remains in the uptrend, closed at 4131 and down for the week, but most of the action came from the large cap stocks such as Apple.  Respect the trend and let this play out going forward. IF we hold above 4080 on the week look for the opportunity to add to QQQ.
  3. Small Caps (IWM) the Russell 2000 index moved above 1133 level and tested on Thursday. Still in position to continue the move higher with the uptrend remaining in play. There may be an opportunity to add to the IWM position if support holds short term. A follow through of the test and confirmation of a move above the 1160 level is what we will watch.
  4. Financials (XLF) moved above the top of the trading range and resistance on Friday. An upgrade to Bank of America helped the move and we continue to look at this as a long term sector to own.  Patience is the key with the sector going forward.
  5. Energy (XLE) bounced off support of $84.80 and moved to the previous hight at $88.20 only to test again as oil fell to $94 last week. The sector has been mixed of late and the trading range remains in play. A move above the upper end of the range would give reason to add to the existing positions.  The refiners remain the strongest sub-sector currently.
  6. Technology (XLK) gapped higher on the move above the $34.95 level. On Thursday and Friday we tested the move higher as semiconductor sector (SOXX) tested lower. We may fill the gap left before resuming the upside and would use the test of support as an opportunity to add to the position.
  7. Crude oil fell to the $94 level on Friday. This test lower is worth watching for the bounce. The decline presumably came on a strong dollar to end the week? That may explain some, but the real issue from my perspective is demand. As much speculation as can be mustered is being put into the effort to talk oil higher. The weakness from China’s economic data was a bigger impact than the dollar. Watching for a bounce trade in oil.
  8. Bonds have worked lower as rates climbed above the 3% on the ten year bond, but closed at 2.99%. 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.

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 is data time and it has already added some more worries to the outlook for the fourth quarter earnings. Watching to see if buyers are willing to wade into an overbought market technically that got some minor selling to end the week. 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. AAPL – Entry $551. Reversal on test of support.
  2. TBT – Entry $79.50. Breakout from trading range.
  3. GILD – $75.50 Entry. Breakout ascending triangle. Biotech still on upside trend.
  4. Follow up on previous trades or posts:
  5. VVUS – Entry $9.50. Micro trend reversal and move back to $10.15. Biotech sector. Stop $9.30.
  6. T – Entry $34.80. bottom reversal. Telecom gaining momentum on wireless mergers. Stop $34.45.
  7. INFN – Entry $9.50. Consolidation breakout. Sector is breaking higher. Stop $9.28.
  8. 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.
  9. KEG – support reversal. Entry $7.68. Energy stocks bounced, based still building? Watch and let this develop. Stop $7.50.
  10. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $24.
  11. XLE – Trading Range bounce. Entry $86.15. Watch for test and then entry. Early test and entry at $86.30. Stop $86.30.
  12. XLK – Test of low and bounce. Entry $34.75. Watch for test and then entry. Small early test for the market. Stop $34.75.
  13. GLW – Trading range. Entry $17.28. Upside if momentum returns to technology. Stop $17.25.
  14. VMW – Flag. Entry $87.45. Looking for continuation of the upside. Stop $87.
  15. STX – Entry $50.25. Continuation within the range. Setting up to continue higher. Got the move. Stop $54.
  16. 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.
  17. 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:

  • 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.