Trading Notes for Today, June 6th

ADP jobs report for the private sector was positive, but didn’t meet expectations and thus offered no offset to the worries over the Fed stimulus cuts. The sellers grew bolder on Wednesday pushing the broad indexes below support.

Fed tries to remain optimistic with the beige book report, but they aren’t fooling anyone for now. ISM Services data was much better than the manufacturing data, but the employment portion of the report was weak. The blame is going to the impact of implementing Obamacare. Thus, all the warnings about this cost to companies is coming true and the reality is setting in.

Market broke near term support and eyes the next levels. If the buyers want to buy the dip… they need to stand up and be counted now or we are heading to the next levels, 1597 on the S&P 500 index. Volume has been above average on the selling, but not overwhelming. The buyers are still in play and we cannot assume they have thrown in the towel by any means. Manage the short term positions/trades as we move forward.

The futures are up this morning as I post this update and the yo-yo effect is in play. Is the buy the dip crowd ready to jump in? Will the data matter today? Too many questions and not enough answers for the sellers to dominate the market currently. We have not had two consecutive  up days since May 14th on the S&P 500 index. Proceed with caution, take what the market gives and don’t assume the downside based on Wednesday’s activity.

Sectors to Watch:

  1. Small Caps head lower and break support at the 970 mark on the Russell 2000 index. 953 is the next level of support along with the 50 DMA. Watch to see it the index sets the pace on the downside. IWM is ETF for the index and $94.80 is support.
  2. NASDAQ broke 3420 support on Wednesday. 3345 ish is the next support level to watch. The NASDAQ 100 index has already made the move to next level of support at 2935. We added QID earlier in week and watching to see how it plays out at support on the index.
  3. Japan is struggling to regain its way dropping 3.8% on Wednesday. Support at the $10.56 level for EWJ has my attention, but the downside pressure in building short term. The long term outlook for Japan is positive, but it will come with plenty of volatility as the economic growth plans are implemented. The yen (FXY) is bouncing off the low and is interesting as a trade relative to the dollar short term. $99.21 is resistance on the upside.
  4. Gold is stuck in the current trading range with $137 resistance in play on GLD. Oil is holding the $93 level of support and looks content to hold here for now. Dollar is weak but steady at support ($22.35 for UUP) watch for short term bounce. Bond yields hitting resistance, but the upside still the play on yields or short bonds.
  5. Semiconductors (SOXX) and Banks (KBE) remain on the Watch List (Only ETFs Model) The selling has put them both in position for a bounce. I have adjusted the play to account for the current volatility. Manage the short plays in this model as well. Leaving to stops to allow for short term volatility.
  6. Short Natural Gas (KOLD) and long Gold (GLD) are updated on the Sector Rotation Model Watch List. Short plays have to be managed based on the volatility of the outlook. Hit stop on BAC barely on Wednesday. This is still a upside trade on the bounce.
  7. S&P 500 Model is seeing some rotation in the index. Watch the short play SH as the downside builds some sentiment. Watch VXX of it pulls back on Thursday’s positive open as opportunity.
  8. Facebook – No positions currently. The sentiment towards the stock remains negative, the bounce off the low at $23.36 Friday has disappeared with the market sentiment. A short trade on the bounce was the play. The setup was there, just enough trust or confidence in the downside at the time. The stock remains in need of a catalyst in either direction as support broke on Thursday. Looking for a base or range to be established short term before any upside trades. The current play is you can stand the risk is the 23 September puts. The cost is $2 per option contract on the close Wednesday. The target on the trade would be the next key level of support which is $18.80.

Pattern Setups For Today:

  1. BRCM – Test of support at the $32.25 level and the 50 DMA. $35.65 entry on the bounce.
  2. DDD – trading range top break at $43.75. Confirmation on the break lower is short setup
  3. LEDS – triangle/wedge breakout to the upside at $1.70.
  4. PCLN – Pennant upside break at $810.
  5. Follow up on previous posts:
  6. IYT – Head & Shoulder neckline break lower ($113 break and test)? This is a negative pattern on the downside, but it is also an indicator for the broad markets. Followed through on the downside with solid gain. breakeven stop on the $111.30 short entry.
  7. LULU – Flag consolidation with a break above $80 a positive on the upside. Testing the move.
  8. VMW – Break of consolidation pattern (trading range) lower. Short trade to $60. Broke lower in play on downside short term. Still heading towards the target.
  9. PALL – Still in play on break above $73.85 resistance. $76.50 target.
  10. PACB – Break above the top the trading range. $2.65
  11. CRAY – Cup breakout at $18.05, initial target $18.85 and then 20.20.

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.