Trading Notes for Today, July 1st

Notes for Tuesday: 

We have now officially completed half of the year. Can the second half of the year live up to expectations? That is my question as we look forward. The Fed and analyst alike have prognosticated 4% growth in GDP. I am not in that camp, but then I may not see the numbers they see from the research and reports the government receives and tracks. Today we start with the ISM manufacturing report, and if it has not improved over the number for May, it could derail the current move higher. At some point growth matters relative to how stocks are priced. For now we keep going forward and looking for the best opportunities that align with our belief and scans.

Notes to Track:

  • Pending home sales were up 6.1%… the highest in eight months. Low mortgage rates get the credit, along with my favorite comment, that jobs are being added. I will go with interest rates and watching for ITB to confirm on the upside the continued uptrend.
  • Semiconductors (SOXX) renew upside leadership with a solid gain of 1% on Monday.
  • Utilities (XLU) continue to lead the index with another solid gain above the $43.50 resistance level.
  • Telecom (IYZ) attempting to move to new highs again. Looking for some leadership, but each time we get to this level the sector stalls. There are stocks within the ETF making some bottom reversal pattern breaks that are worth tracking as well.
  • Retail (XRT) is still a mixed bag as chart sets up to break the volatile downtrend line off the November high. Scanning the stocks is where I would spend the time versus the sector as a whole. DKS, JCP, EXPR and others have nice reversals and set ups to break higher.
  • Side note on the TSA fees rising at an airport near you! These fee now average 5% of ticket prices. Is there any wonder that passengers are unhappy about prices? Throw in the rumblings in Congress to add a new 30 cent tax on gasoline. What a great system we have. We are being taxed to death as we continue to allow government to grow without check or balance.

Practice patience and trade with discipline.

Market Story & Outlook:

Current Story of the market still involves uncertainty looking forward as the second quarter officially comes to a close Monday. The broad indexes have made a statement that investors believe the Fed is correct in their assumptions relative to growth forecasts. The buyers believe growth is building in the US economy as the Fed stated in the last FOMC meeting. The sellers believe the market is stuck in a 1-2% growth cycle and not much is changing relative to that outlook. The Fed forecast for the second quarter (now second half of the year according to Yellen) of 4% isn’t looking to line up with the current data releases and starting today we will have a better view as we report the June data. The buyers remain in control as the uptrend resumed in the S&P 500 index hitting a new closing highs. As a side note, Goldman Sachs lower GDP estimates to 3.5% from 4% last week. Maybe a sign of forecasts to come?
Earnings are the next chapter in the story of the market and they start next week. I am not going to attempt to understand the rationale behind slower growth and higher prices. But, the stock buybacks have been the key ingredient to keep prices rising. Throw in some mergers and acquisition activity and you have plenty of ‘reasons’ for stocks to go higher. This earnings period is going to be interest relative to the reaction from investors as the data is released along with the economic data.

Sectors to Watch:

  1. S&P 500 index remains in a consolidation phase near term. Trend is still on the upside and we are managing our stops as some rotation begins in the index. Utilities are leading the last few days as XLU cleared resistance at $48.75. Telecom (IYZ) is back near the highs as is technology. Some defensive buyers and some buy on the dip participants in technology. Watching as this unfolds with a mixed picture heading into earnings and the second quarter economic update.
  2. NASDAQ Index moved back above the March high and looking for a key follow through (so far so good). A move through the 4400 level on Monday is helping. The NASDAQ 100 index is already above those March highs and continues to move to new highs. Large cap internet and software are moving the index high currently. Looking for more upside in the energy, financials and healthcare if we are going maintain the uptrend currently in play.
  3. Small Caps (IWM) – Small caps tested and held the $116 level and moved through $117 last week. We are still eyeing the March highs similar to the NASDAQ. Watching to see how it plays out and holding positions for now. Stop at $114.80 currently. Still in uptrend and we want to stick with the trade. Biotech adding momentum to the sector.
  4. Mid Caps (IJH) made nice move on the upside last week with a close at a new high Monday. Watch for some leadership from the sector as we move forward. 3D printing is helping the sector on the upside.
  5. Energy (XLE) was one of the primary leader, but following the tumble lower last week it has stalled. Crude is dropping and tested below $105 on Monday. This could impact the sector, but the services stocks (IEZ) are leading the upside. Alternative energy ETFs have stalled as well with TAN, FAN and PBW all holding steady. This is a sector that needs to maintain the upside going forward.
  6. Technology (XLK) continues in the consolidation range near the highs. The index made another run at hitting a new high again on Monday. The help came from the renewed interest in the semiconductors (SOXX) which bounced more than 1% on the day. After testing last week the sector was one of the leaders on the day. FDN has renewed the upside as well and adding strength to the sector. IGV testing the renewed upside run and I still like the outlook. Watch and be patient for now.
  7. Commodities are a mixed bag of movement, but GLD continued the move higher on Monday gaining more than 1%. The miners (GDX) were up 1.7% and the base metals (DBB) was up 1.1% to add to the overall move. Oil (USO) is struggling to hold the upside short term. Natural gas (UNG) bounced off the lows. Agriculture (DBA) failed to break above resistance, but remains in good shape to break higher.
  8. Transports (IYT) are in a consolidation wedge or triangle pattern with an upside bias in play. The one challenge that could develop in the sector is a slowing in the airline stocks. Break higher would be a positive all the way around.


Sector Rotation Model (updated – 6/30/14)

ONLY ETF Model (updated – 6/30/14)

S&P 500 Index Model (Updated – 6/30/14)

ONE EGG Model (New Scan Results Posted – 6/30/14)

Pattern Trading Setup:

Trade Opportunities:

  1. VMW – Entry $98.45. Trading range. Break through resistance and run. In software sector.
  2. T – entry $35.60. Reverse head and shoulders pattern. Telecom wants to break higher.
  3. GILD – entry $83. Cup and handle pattern. Biotech remains one of the leaders.
  4. NMBL – entry $30.75. Resistance and tight trading range. Technology sector moving higher.

Pattern Trade Tracking & Follow Up:

  1. SPWR – Entry $40.80. Flag pattern. Broke higher with move in the sector. Looking for continuation move from the pattern. Gap open. Stop $40
  2. CRM – Entry $$58.25. bottom consolidation break higher. Consolidating on the break higher and looking for a follow through. Stop $56.80.
  3. AAPL – Entry $91.10. Test of support is shallow ABC pattern. Run back to previous high and beyond if momentum picks up.
  4. DBB – Entry $16.75. Break resistance and continuation of reversal. Cooper reversing along with steel. Added position on test lower and continuation of upside.  Stop 16.62.
  5. GLW – Entry $21.75. Channel or trading range breakout. Watch and let volume drive entry. Stop $21.50.
  6. IGT – Entry $16. Pennant again set up to break higher. Stop $15.70
  7. TWTR – entry $38.15. bottom reversal and follow through. Bottom in? watching as trade for now, but could develop into more. Stop $37.50.
  8. SCTY – entry $55.31. bottom trading range. Break higher from the range as sector moves higher. TAN broke higher on Monday. Stop $67.45.
  9. QQQ – entry $92.63. test reversal. Tested the trend line and looking for bounce back to upside as trade opportunity. Stop 92.
  10. DDD – entry $51.70. bottom trading range. Break from the range with upside return. Stop $54.90.
  11. YELP – entry $66.80. cup and handle. Break higher from the bottom reversal in play. Stop 73.84. Jump on Open Table acquisition raise stop and say thank you.
  12. FB – entry $64.22. cup and handle. Break higher as continuation of the trading range breakout attempt. Holding the move for now and Stop $64. Methodical melt to the upside. Watching, managing stop, and letting it go for now. Allowing room for volatility.
  13. PFG – entry $48. trading range. Insurance joining upside move with breakout. Stop $49
  14. AKAM – entry $55. trading range breakout. Stop $60.50.
  15. STI – entry $38.95. trading range. Banks attempting to break higher. stop $$39.50.
  16. SMH – entry $45.65. Triangle breakout. the consolidation pattern is breaking to the upside. technology leadership. Stop $48.50.
  17. AMAT – entry $20.20. Flag following a trading range break on upside. Look for volume to pick up on the move higher. Stop $22.15
  18. IBB – entry $236.70. Ascending triangle. looking for upside follow through on breakout. Stop $252.
  19. CURE – entry $81.42. Ascending triangle. looking for upside follow through on breakout. Stop $87.
  20. TRIP – entry $86.95. Higher low, ascending triangle. Be patient with entry as it needs room to validate the move on the upside. Internet sector oversold. Stop $105.

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)

  • 5/27 – Moved above the $60 mark and held… looking for a trade opportunity on the upside. $63.50 next level of resistance for the stock.
  • 5/29 – Add 500 at $63.55 follow through today. Added the shares and set the stop at $61.30.
  • 6/6 – See above on pattern breakout to add to existing position. Add additional 500 shares.
  • 6/10 – Adding shares today on the move higher in pre-market. Added 500 @ $64.20 on Tuesday. News of Facebook adding the President of PayPal to staff prompted investors off the sideline on the idea. Watch and manage the risk after the euphoria evaporates.
  • 6/20 – We have updated above in the pattern trading notes, but the stall at support is like watching paint dry. Be patient and let this unfold as investors have been looking other places to put money to work.