Trading Notes for Today, June 18th

Notes for Wednesday: 

Buyers were back at work with money rotating towards the alternative energy sector on Tuesday. That was good for us as we have the EGG positioned in TAN. The stocks within the ETF posted big gains on the day and so far look very solid. The clean energy ETFs were also on the upside today as money flow in that direction is being spurred on by the uncertainty of oil production in Iraq. Take what the market gives in this move, but keep your stops nearby.

The VIX index receded again Tuesday¬†back to 12.2. No volatility only good news… right? The FOMC meeting concludes today and while no changes are expected you have to pay attention when the Fed drools on about fixing the growth in the US economy. We are steamrolling along at a 1.5% growth clip best guess for the second quarter. Maybe it is peace and quite until the second quarter data is released for the economy and earnings. Patience as all this unfolds.

Below we discuss the sector rotation that is taking place and what opportunities we are watching.

Market Story & Outlook:

Current Story of the market still involves uncertainty looking forward. Despite the rally¬†off the recent lows and the move to new highs on the major indexes, there are still those¬†unresolved¬†issues economically, fundamentally and growth. With slow growth of the economy being the¬†underlying challenge. The tug-o-war is, ‘buyers’ believe the economic improvements currently being prognosticated at 4% growth for the second quarter (now second half of the year) are a given. That means we must ignore the first quarter contraction in GDP (minus one percent), the mixed data in the economic reports comparing¬†May to¬†April and a slowing consumer. The buyers are getting¬†some validation (not four percent worth) and they are putting money to work in stocks. The ‘sellers’, on the other hand, believe the economy is growing slower at a rate of maybe 1-1.5%, and can equally point to data points to support their argument. The buyers are winning currently as the uptrend resumed in the S&P 500 index hitting a new closing highs. The sellers took a small shot last¬†week, but not enough to change the technical views of the market.

The second phase of the story line is bond yields were believed to rise this year as the Fed tapered (cut stimulus) and the economic growth improved. The yields to start the year on the thirty-year bond were 3.94%, currently they are 3.39%. That is not what was prognosticated and the story line has not helped the current lack of direction in the markets. The bonds are telling us something different than the Fed and economist. FOMC meeting this week may shed some light on this topic.

The Third phase of the story line is earnings, or declining growth in them quarter over quarter. First quarter data was not good overall in real data. However, the spin by analyst kept investors looking forward not back. The rate of decline in earnings is the primary concern from my view. The focus from the media is the number of companies that beat expectations, but the rate of growth in earnings will determine the rate of growth in stocks looking forward. With two weeks left in the quarter the rhetoric on this issue will increase in volume. Earnings are and remain a concern for investors longer term.

This all adds up to uncertainty and a lack of clarity for stocks. The underlying concerns have not been removed or dealt with. We are now in the last month of the second quarter and the next phase of report will begin in three weeks. As we always say and attempt to do, take what the market gives and protect the downside risk of your portfolio. Patience and discipline are key to success long term.

Sectors to Watch:

  1. Small Caps (IWM) – Small caps have broken the downtrend line tested the move higher twice and now have held the $115 support on IWM. The upside break through $117 and towards $118.50 is the next trick for the sector. A push back to the previous high of $120 is not out of the question either. This we added as a trade on the move above $111.50 and has played out well along with some volatility. Stop at $114.80 currently and watching to see if the upside continues to provide the needed leadership.
  2. REITs –¬†The¬†sector remains in an uptrend, but it has tested support. Gave back the short term gains from last week¬†and attempting to hold support and the uptrend. I am¬†still interested in this position with a longer term time horizon, but we will have to watch for the opportunity as this plays out.¬†¬†S&P Model still owns with $70.60 stop in place. Consolidation or Correction?
  3. Emerging Markets РUptrend is in play, and the break to new high last week was a positive. Testing the first level of support at $43.30. Entry $43 on EEM. Stop $41.76. Emerging market bonds (EMB) moved lower and broke support at the $114.07 level. Could make move to the $112.25 mark. Hit our stops on positions in the bonds, but could be interest of downside short play? Watch today.
  4. Energy (XLE) remains a leader¬†as the sector moved to a new high. Be cautious and adjust your stops according to your time horizon. Crude is helping push the stocks higher, but the global ‘economic recovery’ has been a big factor in the move as well.¬†Watch the parts as well with OIH, IEO and XOP all breaking¬†higher. Alternative energy now in the picture as well on the upside. TAN and PBW are both breaking higher.
  5. Semiconductors remain the primary leader for the technology sector as the uptrend line remain in play. Another new high on Tuesday keeps the push on the upside going. Stops in place and let it run.
  6. S&P 500 index testing the 1925 level of support and holding for now. Watching the rolling top and looking to hold support and bounce higher or break support and trade to the 1900 level on short term test of the move higher. Watch as the bounce has been modest, need some conviction in volume and price.
  7. NASDAQ 100 (QQQ) is in the same position of testing with a rolling top short term. The $91.35 mark is the level to hold currently. bounce off this level offers opportunity to add to positions, break creates downside opportunity and top on positions. Large cap stocks not driving now, the small caps have taken the lead and the broad NASDAQ Composite index is benefiting from the move in the smaller stocks.
  8. Natural Gas РUNG has picked up some volatility of late and remains in the trading range created off the move higher in February. Holding positions with break even stops. FCG is moving higher also on the break above 23.75. Hold and adjust your stops accordingly.
  9. Healthcare РBiotech (XBI) moved higher on acquisition news Monday. IBB is moving higher as well and both offer upside opportunities still if the trend continues to climb. Hold and manage the risk.
  10. Global РEurope (IEV) moved to new highs last week, but is testing the move of late. Uptrend is still in play and the outlook remains positive.  The EAFE (EFA) hit new highs and the move higher continues as it trades in unison with the US equities.
  11. Utilities (XLU) tested lower again last week and then bounced to end the week off the lows. The follow through on Monday is of interest short term. Break above $43.50 would be a key move for the sector, but for now it is content hold steady. Watch for the upside move or trading range to develop short term. Sideways trading range developing.


Sector Rotation Model (updated Р6/17/14)

ONLY ETF Model (updated Р6/17/14)

S&P 500 Index Model (Updated Р6/17/14)

ONE EGG Model (New Scan Results Posted Р6/17/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Bounce off support is the decision for now. Look for the opportunities to rise on the move.
  2. GS – Entry $167.30. Flag breakout. look for test of the move on Tuesday. Don’t chase it.
  3. TBT – Entry $63.30. Bottom reversal. Rates bumped higher. Fed meeting today. Looking for rates to rise short term. Inflation heating up. And many more reasons.

Pattern Trade Tracking & Follow Up:

  1. TWTR – entry $38.15. bottom reversal and follow through. Bottom in? watching as trade for now, but could develop into more. Stop $37.
  2. SCTY – entry $55.31. bottom trading range. Break higher from the range as sector moves higher. TAN broke higher on Monday. Stop $61.05.
  3. QQQ – entry $92.63. test reversal. Tested the trend line and looking for bounce back to upside as trade opportunity. Stop 91.30.
  4. DDD – entry $51.70. bottom trading range. Break from the range with upside return. Stop $51.15.
  5. JO – entry $34. bottom reversal. bounce off support and volume? Watch. Stop $32.90 HIT STOP
  6. STX – entry $55. bottom reversal test. Tech remains strong currently. Stop $55.50
  7. DANG –¬†entry $11.42. bottom reversal breakout. testing move above the 200 DMA. Stop $12.
  8. YELP – entry $66.80. cup and handle. Break higher from the bottom reversal in play. Stop 71.80. Jump on Open Table acquisition raise stop and say thank you.
  9. XOP – entry $78.40. reverse head and shoulder. part of the energy sector attempting to break to new high. Stop $78.40. Hit new high as oil move above $107.
  10. FB – entry $64.22. cup and handle. Break higher as continuation of the trading range breakout attempt. Holding the move for now and Stop $62.30.
  11. PFG – entry $48. trading range. Insurance joining upside move with breakout. Stop $47.70
  12. AKAM – entry $55. trading range breakout. Stop $57.37.
  13. STI – entry $38.95. trading range. Banks attempting to break higher. stop $$39.50.
  14. WAG – cup and handle. test the breakout and take the entry price or follow through entry at $71.45. Stop $72..
  15. SMH – entry $45.65. Triangle breakout. the consolidation pattern is breaking to the upside. technology leadership. Stop $48.15.
  16. AMAT – entry $20.20. Flag following a trading range break on upside. Look for volume to pick up on the move higher. Stop $21.60
  17. RVBD – entry $19.90. trading range. technology moving higher short term. Stop $20.
  18. IBB – entry $236.70. Ascending triangle. looking for upside follow through on breakout. Stop $242.25.
  19. CURE – entry $81.42. Ascending triangle. looking for upside follow through on breakout. Stop $83.
  20. ERX –¬†entry $106.42. uptrend test of support in consolidation. Energy is one of the leaders and looking for upside continuation of the previous trend. Stop $114.75
  21. 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 $99.90.
  22. GE – entry $26.30. Trading range breakout. Value stock coming back into favor. Gapped on earnings above the entry… patience. Got the test early and added the position. Stop $26.30.

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)

  • 4/28 – Tested support at the $54.85 level. Watch to see if it breaks support. If it does the downside trade in order. (Trade result…¬†FB –¬†sold to support at the $54.80 level held and working higher. The bounce has worked its way to $59.78 and added some shares on a move to $60.05.¬†The target would be $63.50 or top end of the trading range currently trading in. Stop $58.30. HIT STOP)
  • 5/12 – solid bounce off the low, but remains within the trading range. could trade the move back to the upper end of the range at $63. Watch today to see how it moves. 5/15 – The move lower stays within the range, but pressure is being put on the growth stocks again. Watch for a short trade if we break from the current trading range.
  • 5/19 – Definitely has moved into a consolidation period and not much happening worthy of the risk at this point. The range has narrowed and the risk of trading has risen without some clarity in the stock as well as the sector. SOCL has dropped more than 20% the last two months, and in light of that move, FB is looking good short term. Be patient for now and let this all unfold.
  • 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.