Trading Notes for Today, June 21st

What I am watching today and some pattern ideas are below. The Watch List and Play List have been updated for today. Review and execute according to your risk and investment objectives. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. The markets continued to sell following Wednesday’s FOMC meeting. The headlines are full of reasons and rationales for the move lower. Mr. Bernanke’s inability to explain the Fed’s intentions relative to stimulus and rising interest rate concerns. This move started May 21st with similar comments relative to cutting stimulus. It was followed by plenty of back peddling to help investors understand the coming actions. All said, it has not been explained well enough for investors to feel comfortable about the potential outcome of the cuts and the economy. The downside is now in play and we have to take what comes going forward. This is going to remain a volatile market short term.
  2. As we stated yesterday the biggest negative is coming from the interest sensitive assets. Bonds and dividend stocks are selling the hardest in response to both the Fed comments and rising interest rates. Treasury yields continued higher with the 30 year bond hitting 3.51% and the ten year bond at 2.41%. The move pushed prices on the bonds down 1.6%. Not pretty for interest sensitive assets.
  3. The S&P 500 index has moved lower after clearing the 1648 level on Tuesday. Our focus has been on, “How it follows through this week in reaction to the FOMC meeting will be key to the future direction of the market overall.”  My comments from Monday. A close below 1597, break of the November uptrend line and a move below the 50 day moving average all added up to selling on Thursday. If we bounce today, I still believe the market moves lower moving forward, until the Fed gives clarity of direction. If we fail to bounce today the selling will accelerate even faster than Thursday’s move lower. The downside now in play and something has to happen to shift that trend change.
  4. Gold fell again on the day, but it is a continuation of the downtrend in the metal starting last year. $1281 per ounce and down 6.7% on the day. The metal is down 28.7% since November 4th high. The downside is firmly in control. It looks more like gold in pricing in deflation going forward.
  5. Crude oil closed at $95.01 on Thursday and the head fake in response the Fed on Wednesday showed weakness on Thursday losing 3.2%. We hit the stop on UCO as a result giving up some of the gains. The commodity is wants to move higher on hopes of better economic picture, but global weakness is keeping it in check. Thus, the roughly defined trading range of  $92-97.50.
  6. Japan (EWJ) joined the downside as the selling began with EWJ closing lower by 4.2%. The stocks fell on the Fed comments, and we raised the stop to protect against further downside risk of which we hit at the open. The yen has fallen sharply again against the dollar. The short relative to the yen was added on Wednesday (YCS). Manage your stops should the direction reverse.
  7. We continue to manage our short plays in FXP and EEV with the big move on Thursday in both funds. Negative news from China continues and the ripple effect of Japan, China and the US selling has pushed the emerging markets lower as well.
  8. If you have not exited the interest sensitive assets, the downside has been brutal, dropping more than 10%. The outlook for bonds or dividend stocks is not positive. The selling has accelerated and the buy will eventually evolve in the sector, but that will take some time. Trade opportunities will come on the lows, but let them develop first.
  9. Futures are showing a nice bounce in place for the broad indexes this morning. Japan bounced 1.7% overnight on a weaker yen. I noted there are plenty of analyst overnight stating the market is now oversold. Yes, technically that is true, but there are too many question marks to get excited about a move today off the low. However, the bounce is a positive to stop the bleeding and allow investors to regroup and define the opportunities going forward. Depending on how the move pans out on the day it will offer opportunities in either direction. Be patient, let the emotions subside. This is more about the trend than catching the absolute bottom. Thursday redefined the trend to the downside short term with the breaks of support. If that reverses today it is something to watch as we develop or plan for next week.
  10. Facebook – No positions currently. The sentiment towards the stock has been negative, but an attitude adjustment from the upgrade to a ‘buy’ last week is in play. Found some support at the $22.80 level and bounced.  Pushed against the resistance at $24.60 on Tuesday. Was heading higher until the Fed stalled the move. I still am looking for this to create a potential upside play following all the negative sentiment. Patience for now will be rewarded later. Update Facebook Page for news and information today.

Pattern Setups For Today:

  1. Shorts worked well on Thursday! All else failed. The result is plenty of support line breaks, but the gap lower leaves the trades with too much risk. Looking for a modest bounce from the current conditions and better setups as the result. Be patient.
  2. SKK – breaking higher from trading range. $17 entry and stop at$16.75 (short small cap trade setup)
  3. SSG – Breaking higher from a trading range. $28.50 and stop at $27.90 (short semiconductors)
  4. Follow up on previous posts:
  5. Emptied on the downside move Wednesday and Thursday.
  • NOTE: The pattern trades above are setups that I see for a potential swing trade or 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.

All investing comes with risk. Our job as investors is to manage the risk. Markets remain choppy and directionally challenged for now. Keep your focus and discipline in place.