Trading Notes for Today, June 25th

Notes for Wednesday: 

What started out as positive news from the housing and consumer sentiment data, ended with worries over Iraq and the markets heading lower overall. The NASDAQ 100 erased a 1% gain to close flat, the S&P 500 index lost 1% form the high on the day to close down 0.6%, and the Dow moved down 1% off the highs to close down 0.7% on the day. Intraday reversals on speculation and worries are never good… especially if they close on or near the low of the day. This puts today in a position of decision time? We will see how it all plays out.

Banks were taking on a leadership role again and then along comes the Syria news and that reversed to close lower overall. We had added KBE on the move higher only to see it hit the stop prior to the close on the day.  Sometimes you get blindsided by stupid events and you have to roll with the punches. We will see if anything materializes today to change our mind on the buy side.

That would go for the overall market following the intraday reversal on Tuesday. If we are in a transition phase with the sellers willing to step in an take the markets lower near term, we need to be prepared and not blindsided by the move. Only time will tell, but we will adjust our stops and manage the risk should it rise.

Practice patience and trade with discipline.

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 by the Fed 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 May to June confirm a slowing consumer. The buyers view the FOMC meeting as furhter 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 showed a lack of reality from the Fed, but that’s what makes them the Fed. I would watch for rates to start creeping higher if we end the second quarter on a positive note… economic data improves.

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 one week 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 ending 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 drops to the 10 day moving average following a tough Tuesday of trading. Energy is the key leader along with technology with both giving up some ground on the day. The tech sector is struggling to keep the push alive. The consumers (XLY & XLP) are struggling near term to hold the upside move. Trend is still on the upside and we adjusted stops in the S&P 500 model to account for the shift on Tuesday in sentiment.
  2. NASDAQ Index moved back near the March high and has stalled the last two weeks. A move to the 4360ish level and some selling after a positive open on Tuesday. Watch for a continuation and break through this level if the buyers are willing. The NASDAQ 100 index is already above those March highs and dealing with the consolidation near the current highs. This is another leading index that is struggling of late. It did break higher on Tuesday early, but faded to close in the mid range of the consolidation. Watch to see how it unfolds moving forward.
  3. Small Caps (IWM) – Small caps tested and held the $115 level and moved through $117 last week, but the selling on Tuesday puts us back below that mark. 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.
  4. Emerging Markets (EEM) are consolidating again near the $44 level and looking for continuation on the upside short term. Commodities have helped in this sector and we continue to watch China, Russia, and Peru for help on the upside.
  5. EAFE (EFA) The index hit new highs last week and testing the move again. I like the outlook short term for the global 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 primary leader as the sector moved to a new high again last week. However, Tuesday was the first big distribution day since the May 15th low. We continue to trail our stops based on the time frame we are tracking and let the profits run. The sub-sectors fell with the index Tuesday as Exploration (XOP) fell 3.8% and erased the last week of gains. Oil Services (IEZ) dropped 2.4% adding some frustration to the trend. Refiners have moved on the news from Iraq and that isn’t going away anytime soon. Watching VLO and WNR.  Natural Gas (FCG) has been leading higher as well with the break above $22.73. Last, but not least crude oil (USO) remains near the highs ($106 crude) and unless it breaks down we hold and go with the trend.
  7. Alternative Energy is benefiting from the move higher in crude prices. Solar (TAN) jumped higher the last two week, but stalled and tested support on Tuesday. Wind (FAN) is consolidating near the highs as well and PBW is hitting against some resistance at the $7 mark. PHO is also hitting resistance at the $27.10 level. Overall I like the sector and the outlook. We will continue to scan and look for opportunities.
  8. Technology (XLK) continues in the consolidation range near the highs. Are we a the end of the run higher for the market leading sector? First you need to break it down and look at the SOX/Semiconductor index which has been the leading component of the move and it has stalled at the high. It would be negative is the sector breaks down. Software (IGV) has been tripped up of late with ORCL missing earnings. But, still overall software is okay. Internet (FDN) also testing the last two day and would like to see it hold above $58. Thus, worth watching as well. Not ready to throw in the towel on technology, but definitely need to watch how this unfolds as it has been a key leader for the broad markets.  
  9. Commodities (DBC) have been the story of late with renewed interest on the upside. The sector broke above the $26.75 resistance as gold broke from the trading range. GLD  is starring at $127 resistance on the move higher and I would expect some consolidation before any continuation on the upside. The move in the metal has been on speculation and nothing more. Silver (SLV) is in the same boat, but we will take the move we continue to the upside. Gold Miners (GDX), Silver Miners (SIL) and Miners (XME) in general all broke higher on the moves in the metals. Some testing on Tuesday and watching to see how it all unfolds. Base Metals (DBB) is moving off the lows as well cleared $16.60 resistance on Friday. Agriculture (DBA) is attempting to move off the lows and regain some of the upside momentum. All are worth our attention going into the new trading week.


Sector Rotation Model (updated – 6/24/14)

ONLY ETF Model (updated – 6/24/14)

S&P 500 Index Model (Updated – 6/24/14)

ONE EGG Model (New Scan Results Posted – 6/24/14)

Pattern Trading Setup:

Today’s opportunities:

  1. KOLD – Entry $40.25. bottom reversal. Natural gas prices are again under pressure with supply and demand at an imbalance again.
  2. ACHC – Entry $47.95. cup and handle. Pharma sector is one of leading sectors. patience with the entry process.
  3. CRM – Entry $$58.25. bottom consolidation break higher. Consolidating on the break higher and looking for a follow through.
  4. DBB – Entry $16.60. Break resistance and continuation of reversal. Cooper reversing along with steel. Watching for continuation of reversal. Gap open – watching.

Pattern Trade Tracking & Follow Up:

  1. IAI – Entry $38. Uptrend continuation and resistance breakout. Stop $37.70 HIT STOP
  2. 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. Stop $40.30.
  3. GLW – Entry $21.75. Channel or trading range breakout. Watch and let volume drive entry. Stop $21.50. SOLD at $31.10, booked gain.
  4. IGT – Entry $16. Pennant again set up to break higher. Stop $15.70
  5. 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 $557.
  6. GS – Entry $167.30. Flag breakout. look for test of the move on Tuesday. Don’t chase it. Stop $167.30.
  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. XOP – entry $78.40. reverse head and shoulder. part of the energy sector attempting to break to new high. Stop $81.10. Stop Hit
  13. 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.
  14. PFG – entry $48. trading range. Insurance joining upside move with breakout. Stop $49
  15. AKAM – entry $55. trading range breakout. Stop $60.50.
  16. STI – entry $38.95. trading range. Banks attempting to break higher. stop $$39.50.
  17. SMH – entry $45.65. Triangle breakout. the consolidation pattern is breaking to the upside. technology leadership. Stop $48.50.
  18. 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
  19. IBB – entry $236.70. Ascending triangle. looking for upside follow through on breakout. Stop $252.
  20. CURE – entry $81.42. Ascending triangle. looking for upside follow through on breakout. Stop $87.
  21. 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 $129.80 STOP HIT
  22. 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 $102.
  23. 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)

  • 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.