Trading Notes for Today, January 8th

The catalyst on Tuesday came from the trade deficit report favoring a 3% GDP growth for fourth quarter. That would be well above the 2.5% expected and that put buyers in a good mood again following three days of modest selling. Will the good news stick? Will this be a good enough sign to push the broad markets further in the uptrend? That will depend on the jobs report data due out later this week. For now it allowed most sectors and indexes to bounce off the first levels of support and back towards the previous highs. Thus, Tuesday has the privilege of being the first positive day of the year. Today we are watching the first part of the employment data with the ADP report due this morning. If jobs improved it will act as a catalyst for the broad indexes into the beginning of earnings season which starts next week. We will continue to take this one day at a time. 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 higher by 11 points to close back at 1837 on Tuesday. 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. Raised our stops on positions in the index and watching 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, but closed lower at 4113 on the Monday. Tuesday it reversed on the buying and closed back at 4153 and the 10 DMA. The move erased the selling on Monday and puts the index in a consolidation pattern or mode for now. 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 held the 1145 support on Tuesday, but still is trading sideways for now. The downside risk of the sector is still in play and we will watch to see how it unfolds going forward. 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 has held so far this week. Lawsuit settlement by JP Morgan on Tuesday hurt the stock and sector as well. This is worth breaking down into the banks (KBE), regional banks (KRE) and the brokers (IAI) currently. Digging into each ETF will provide the leaders and candidates for trading. Patience is the key with the sector going forward and we will look for the opportunity in any downside move. See below for some scan opportunities on the pattern list. S&P 500 model watch for entry.
  5. Healthcare (XLV) moved up 1% on Tuesday and is back at the previous high and a move above $55.65 would continue the uptrend. A break above this level would hit the entry on the S&P 500 model.  The consolidation in the sector goes back to the November high. Watch look for the sector to continue the trend.  Medical devices (IHI), healthcare providers (IHF) and biotech (IBB) are leading the sector higher with pharma stocks acting as a drag short term.
  6. Telecom (IYZ) made move higher after testing support short term. Watching for a break higher and continuation of the upside with a move above the $29.75 level. This is a sector that comes with volatility, but also offers some individual opportunities worth scanning the sector looking forward. EGHT is is position to break above $10.50 and complete a break to the upside from the trading range. TDS is completing a trend reversal and establishing a new uptrend. USM and TWTC have both bounced off the support lows as well. CBB, TMUS, LVLT and CNSL are in steady uptrends.
  7. Energy (XLE) bounced off support of $84.80 and moved to the previous hight at $88.20 only to test again as oil tests the $93 support level short term. 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. OIH is testing support at $46.75, IEO is trading sideways and attempting to find buyers, and the refiners (VLO, TSO, and PSX) are still providing the upside leadership in the sector near term.
  8. Technology (XLK) is moving lower and in position to test the break above the resistance at $34.95. The sector has experienced selling and testing back near the breakout point. The semiconductors were providing the upside, but stalled and resumed the upside off support on Tuesday. Watch and see how this plays out and look for the opportunities in the uptrend. SOXX bounced on Tuesday. IGN broke to new high, IGV broke to a new high as well, and FDN is testing the previous highs. If the upside continues we will add to positions.
  9. Crude oil fell to the $93 support level and held the last tow days. 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? OIL needs to hold $21.95 and then we will look for an upside trade.
  10. Bonds are in rally mode this week with the move lower in interest rates. The comments from Bernanke caused concerns about the stimulus cuts taking place and thus the yields are declining and bonds moving higher. Looking for any opportunities in the sector worth the risk of the trade.

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. The buyers were willing to put money to work despite the worries relative to an overbought market technically. The minor selling the last three trading days was sufficient for some versus the data and outlook. 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. PJC – trading range breakout. Entry $39.90. IAI ETF leader.
  2. KCC – trading range breakout at $12.20. Look for test of the move higher. IAI ETF leader.
  3. MS – ascending triangle. Entry $31.80. IAI ETF leader.
  4. FHN – rounded bottom breakout. Entry $11.80. KRE ETF leader.
  5. QID – bottom reversal for trade on the noise in the broad markets. Entry $15.65.
  6. EEV – break from trading range. EEM broke support and short side is in play. Entry $22.25.
  7. AAPL – Entry $551. Reversal on test of support.
  8. Follow up on previous trades or posts:
  9. T – Entry $34.80. bottom reversal. Telecom gaining momentum on wireless mergers. Stop $34.45.
  10. INFN – Entry $9.50. Consolidation breakout. Sector is breaking higher. Stop $9.28.
  11. 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.
  12. KEG – support reversal. Entry $7.68. Energy stocks bounced, based still building? Watch and let this develop. Stop $7.50.
  13. ITB – Ascending Triangle breakout. Entry 23.60. Trade on the break higher. Patience with entry. Stop $24.
  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. 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.
  20. 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.