Trading Notes for Today, January 7th

Running a little behind as it was a late night watching FSU win a dramatic National Championship game 34-31 over Auburn. Awesome!

Traders and Investors continue to show concerns about stocks as the economic data and earnings warnings weigh on the outlook. The economic data showed more weakness than expected in the ISM Services data hitting 53% versus the 55% expected and down from 53.9% in November. This shows more concerns in term of the consumers spending that has been bubbling to the surface. Factory orders were up by 1.8% and better than expected. Inventory data at the end of the week will confirm how the sales were during the holidays relative to the orders. Overall the consumer continues to raise concerns for the broad markets and investors. The balance of the week the focus will return to the jobs data and then to earnings.. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. S&P 500 index moved lower for the third consecutive day, however it was no a dramatic as it sounds. The uptrend remains in play with the 50 DMA the level to hold moving forward. Worries about earnings are rising in the headlines and that could upset the apple cart short term. Raising our stops on positions in the index and we will see how it progresses. Upside remains in play and we will be patient to see how it plays this week.
  2. NASDAQ remains in the uptrend as a well closing at 4113 on the Monday. Large caps continue to challenge the index and I am looking to add QID as the EGG trade this week on the level attained on the close Monday. We will watch how it opens today for clues on the trade. 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 lower again on Monday to test the move above 1145, the November high. The test lower could move back towards the 1123 breakout level as the test. Watch and take what the market gives, but don’t assume anything at this point. TZA is the leverage short trade if the selling accelerates.
  4. Financials (XLF) moved above the top of the trading range and resistance last week and held on Monday. 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 and we will look for the opportunity in any downside move.
  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) is moving lower and in position to test the break above the resistance at $34.95. The sector has experienced selling in advance of the others short term. Watch and see how this plays out and look for the opportunities if the selling test the uptrend.
  7. Crude oil fell to the $93.60 level on Monday. This test lower is worth watching for the bounce. The decline continues as the worries relative to the economy impacting demand (my view). The dollar has not been strong enough on the recent bounce to impact oil prices to the degree we have experienced. 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 to see it the test of $93 level on crude holds, if so, may be a trade on the bounce?
  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. The last few days of trading yields are falling again on economic worries. That may produce an opportunity in the bond sector short term. Watch and be patient as this unfolds.

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 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 the last three trading days. 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. Short trades are getting some attention from traders. Selling into any early momentum shows money on the move. Bonds gaining some momentum as well the last few days. Watch, listen and respond accordingly. Don’t take unnecessary risk with money at this point.
  2. QID – bottom reversal for trade on the noise in the broad markets. Entry $15.65.
  3. EEV – break from trading range. EEM broke support and short side is in play. Entry $22.25.
  4. AAPL – Entry $551. Reversal on test of support.
  5. Follow up on previous trades or posts:
  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.
  • 1/6 – big reversal on Monday to close up 4.8%. Watching to see how that holds near term.