Trading Notes for Today, June 20th

Notes for Friday: 

Some churning in place on Thursday, with a nice move back towards positive territory to end the trading day. Precious metals were the big winner on the day with both gold and silver jumping on inflation concerns, weaker dollar and geopolitical issues in Iraq. Today is options expiration and that could bring some volatility, but not expecting much fanfare as there is little premium on either the put or call side. As we end the trading month and wind down the second quarter, look for some testing of the moves and jockeying for the reports that will come at the end of the month with earnings and economic data.

The VIX index receded to 10.6 again as no need to worry… The Fed is still in play. The short lived anxiety has disappeared yet again and the upside remains in play with some minor testing as we go. This was one of the options we discussed coming into this week of trading and here we are hitting new highs on the S&P 500 index and the NASDAQ posting a solid up day as well and looking at making a move above 4370 the March highs.

One day at a time and stay focused on what is working versus all the noise in the media.

Market Story & Outlook:

Current Story of the market still involves uncertainty looking forward (albeit the Fed sees things as completely rosy). Despite the renewed rally off the recent lows, and the move to new highs on the major indexes, there are still those unresolved issues economically and fundamentally with 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 according to Yellen) 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 (from the Fed again) 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 of selling, but not enough to change the views of the buyers.

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 3.41%. 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 relative to the data and the belief. 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 soon. 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. S&P 500 index hits new highs again following a choppy day of trading. We added to the S&P 500 Model on Tuesday and nice follow through move. The upside remains in play and we go with it for now with our stops in place.
  2. NASDAQ Index moved back near the March high and has stalled the last two weeks. A move to the 4359 leaves us just a few points from the high. Watch for a continuation and break through this level. The NASDAQ 100 index is already above those highs and dealing with the consolidation near the current highs. QQQ is worth watching as the large cap stocks bounce on Wednesday. Worth watching… GOOG – consolation reversal and a move above the $565 level. AMZN – bounced on the phone announcement and moved higher, but gave u that move on Thursday.
  3. Small Caps (IWM) – Small caps have tested and held the $115 level and move through $117 on Wednesday. Next stop the March highs similar to the NASDAQ. Watching to see how it plays out and holding positions for now. Stop at $114.80 currently.
  4. Emerging Markets (EEM) produced solid bounce and keeping the uptrend in play. Add to positions on move above the $44 mark. Watch China, Russia, and Peru on upside.
  5. EAFE (EFA) heading higher again and trading in tandem with the US markets. Made the move above $70.30 and added to positions. Europe (IEV) in similar situation with move above the $50.50 level. Break Europe down into countries EWP, EWI, EWG and EWQ are worth watching as well.
  6. Energy (XLE) remains a leader as the sector moved to a new high again on Thursday. Be cautious and adjust your stops according to your time horizon. The sub-sectors are picking up momentum as well on the current move with Oil Services, Exploration, Production and MLPs gaining on upside.
  7. Alternative Energy is moving higher as a sector with TAN, FAN and PBW all making solid moves to the upside. The EGG is in TAN and watching the others for equal opportunities on the move higher.
  8. Semiconductors remain the primary leader for the technology sector as the uptrend line remain in play. The stall near the current highs the last couple of days is worth note and wathing. Stops in place and let it run.
  9. Internet (FDN) broke from bottom reversal with entry at $58.20 to add to existing positions. Cloud Computing (SKYY) equally moved through the same consolidation with break above $26.85. Software (IGV) broke above $83.25. All are adding to the upside for technology sector.
  10. Natural Gas – UNG has stalled on the move higher, set stop and let it go for now as it is testing back to support at the $25 level. FCG is moving higher also on the break above 23.75. Hold and adjust your stops accordingly. Another addition from the energy sector.
  11. Utilities (XLU) tested lower last week and then bounced a break through resistance. Nice follow through on Thursday at the $43.25 mark and entry at the $43.50 level. Interest sensitive stocks getting a boost from the Fed. Set your stops and see how this plays out.


Sector Rotation Model (updated – 6/19/14)

ONLY ETF Model (updated – 6/19/14)

S&P 500 Index Model (Updated – 6/19/14)

ONE EGG Model (New Scan Results Posted – 6/19/14)

Pattern Trading Setup:

Today’s opportunities:

  1. GLW – Entry $21.75. Channel or trading range breakout. Watch and let volume drive entry.
  2. PBR – Entry $16. Break from V bottom reversal. Energy is moving higher. Brazil is moving again.
  3. WNR – Entry $41.60. Break from trading range. Refining is moving due to Iraq issues. Trade only to the May high of $45 as target. VLO is in same position with break above $57.10.

Pattern Trade Tracking & Follow Up:

  1. IGT – Entry $16. Pennant again set up to break higher. Stop $15.70
  2. GOOG – Entry $21.80 or better $560 Sept Calls. If drops below $550 on price no entry. Watch and manage your entry point. Tested the $550 mark and bounced to take the entry. Stop $540.
  3. GS – Entry $167.30. Flag breakout. look for test of the move on Tuesday. Don’t chase it. Stop $164.75.
  4. TWTR – entry $38.15. bottom reversal and follow through. Bottom in? watching as trade for now, but could develop into more. Stop $37.
  5. SCTY – entry $55.31. bottom trading range. Break higher from the range as sector moves higher. TAN broke higher on Monday. Stop $61.50.
  6. QQQ – entry $92.63. test reversal. Tested the trend line and looking for bounce back to upside as trade opportunity. Stop 91.30.
  7. DDD – entry $51.70. bottom trading range. Break from the range with upside return. Stop $51.15.
  8. STX – entry $55. bottom reversal test. Tech remains strong currently. Stop $55.50
  9. DANG – entry $11.42. bottom reversal breakout. testing move above the 200 DMA. Stop $12. HIT STOP
  10. 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.
  11. XOP – entry $78.40. reverse head and shoulder. part of the energy sector attempting to break to new high. Stop $80.75.
  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 $62.30.
  13. PFG – entry $48. trading range. Insurance joining upside move with breakout. Stop $47.70
  14. AKAM – entry $55. trading range breakout. Stop $57.37.
  15. STI – entry $38.95. trading range. Banks attempting to break higher. stop $$39.50.
  16. WAG – cup and handle. test the breakout and take the entry price or follow through entry at $71.45. Stop $74.40.
  17. SMH – entry $45.65. Triangle breakout. the consolidation pattern is breaking to the upside. technology leadership. Stop $48.15.
  18. 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
  19. RVBD – entry $19.90. trading range. technology moving higher short term. Stop $20.
  20. IBB – entry $236.70. Ascending triangle. looking for upside follow through on breakout. Stop $242.25.
  21. CURE – entry $81.42. Ascending triangle. looking for upside follow through on breakout. Stop $83.
  22. 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
  23. 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 $100.50.
  24. 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.
  • 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.