Trading Notes for Today, June 25th

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 NASDAQ traded lower again on Monday and put the 2810 support level in play. Thus, is there an upside bounce play in QQQ? Maybe back to the first resistance level at $70.20 or $71.50. A move to could be worth trading if the downside invites some buyers to take on the new risk of owning the markets. QLD would allow you to leverage the trade,  however, the risk is obviously higher. Need some positive news and the pandering by the Fed Presidents and Bernanke may just cause a bounce along with some positive economic data. (See below for sample bounce trade setup in patterns)
  2. China is in trouble, at least that is the rumor. The economic situation continues to slow and the rumor/fact that the  PBOC needed to put money into the banks to keep them solvent has rattled investors. In Monday trading China was down 5.3% in Shanghai. FXI tested the support at $31.50 from last summer. The additional selling was good for the position in FXP, but the overbought data leans towards a bounce near term. The press conference today from the PBOC calmed some nerves and helped markets close flat on the day. Looking to take some money off the table and watch to see how the position plays out.
  3. The 30 year Treasury bond broke below the March 2012 low. TLT shows the drop very clearly and the break lower opens the way for a further drop to $106.50 level. We did see a move on Monday to $107.76 and then a reversal off the low to close at $108.85. If there is a bounce in TLT back towards the $113 level it would offer a opportunity to add to the short play and a possible trade on the upside. ONLY ETF Model upside trade added for bounce.
  4. Crude oil fell back to $93.20 support on Friday and bounced back to $95 on Monday. The downside came into play off the news in China more than the FOMC meeting. If China is having challenges with banks and the economy, they are not likely to continue buying up the excess surplus of crude. That theory didn’t work well on Monday as China moved lower and oil moved higher. Not according to plan, but the plan is longer term. The weaker demand and prices should decline further if the economic picture in China doesn’t improve. Speculation? Absolutely… watch the charts for confirmation and any short trade setup. $38.75 set up on SCO short oil ETF. So far the upside in oil is better looking than the downside, but it will also set up the downside with a better entry off the bounce.
  5. Gold gapped lower last week and now we are looking to see if support can hold?  A look at the weekly charts shows the test of the next level of support in play at the $123.60 mark. Watching GLL for a downside trade setup. Unless someone breathes life into the price of gold, not much upside to like. A bounce to fill the gap is not out of the question, but that would only be a trade. The downside play remains the opportunity.
  6. The S&P 500 index moved lower after a close below 1597, break of the November uptrend line and a move below the 50 day moving average.  The break of support intraday at 1570 and bounce may well be the bottom short term.  I still believe the market moves lower going forward, until the Fed gives clarity of direction. Can you trade the bounce? Absolutely, but you need to understand the risk of the trade near term.  I would look for the bounce to add to the short plays on the index if sufficient enough move.
  7. Japan (EWJ) joined the downside closing lower by 4.2% on Thursday, but then a bounce of 3.6% on Friday, and a 2.7% drop on Monday. Volatility is in play, but I still like the upside trade in EWJ if you are willing to hold through the volatility as it plays out. The downside in the yen will drive stock prices higher short term. YCS is the trade on the yen we took last week and looking to add to my EWJ position as well this week.
  8. Futures are showing a bounce after a recovery in China on news from the PBOC. The response is positive in the US currently and this could we start the bounce we discussed in the weekend update. As discussed above we will look to trade some upside positions, but the downside remains the theme until the Fed deals with the negative sentiment. They are out talking a good game as damage control, but the sentiment remains on the negative side. Adjust your stops to manage the risk and take the trades that fit your trading personality.

Pattern Setups For Today:

  1. KRE – Triangle pattern. 32.90 entry on the move higher.
  2. Bottom reversals are of the most interest today. Yesterday hit a new low on the selling, but reversed late in the trading day. A follow through on the upside today would give plenty of trades to oversold stocks, ETFs and bonds. Short covering will add to the velocity of the bounce as well. QQQ is a good example with the intrday low hitting the trendline as support and then a bounce back to $69.73 on the close. If it hits $70.20 today it would provide an upside trade on the bounce (1-5 days) the target is $71.80 on the bounce trade. Nothing big, it gives you the idea of how a bounce trade setup. QLD sets up the same way with the leveraged ETF. $63.15 entry and $66.55 target.
  3. Follow up on previous posts:
  4. AMZN – Breakout test. $270 was the break from the consolidation range. We are testing that level with the current negative sentiment in the broad markets. If it holds take the upside trade entry $272-274.
  5. KBE – Triangle pattern. Break to the upside trade at $28.50 entry.
  6. VRX – Flag. $86 entry point on the move higher.
  7. ASH – Head & Shoulder pattern. neckline break lower short at $84. Followed through on Monday. $83.50 stop

Facebook (FB) Update:

  • 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 is in the process of developing a trading range. Was heading higher until the Fed stalled the move. Let the trading range settle in and we will determine our entry point going forward. The broad market sentiment is weighing on the stock for now and the upside should resume. Patience for now. Sold and bounced off the low in Monday, remains in the current range. Watch to see how the security breach hits the stock sentiment.

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.