Trading Notes for Today, June 7th

The broad indexes pushed lower with the dollar dumping and then found support as stated in our notes yesterday and bounced. The move was enough to keep the charts looking positive overall, but leaves us with too many question. Was this short covering into the job report this morning? Were the buy on the dip investors ready to add the next leg higher? What will be a good numbers for jobs? Low so the Fed will stay engaged? Thus, the challenge for you and I today heading into trading.

Jobs Report at 8:30 am and the we get to see how things shape up into the trading day. If the future tick higher we will have to adjust our short positions. If the news empowers the downside we will look to add to our short positions. If nothing takes place we will head out to get 18 holes of golf now that the storm has passed. Be patient and let this play out today and into next week.

S&P 500 support remain the 1597 mark which it bounced off of on Thursday. The futures are down slightly currently, but it will move around as we get closer to jobs report this morning. It promises to be a fun filled day of trading for all. Unfortunately the early attention will be on the jobs report and from there it is a matter of sentiment and that took a swing to the upside on Thursday afternoon.

Sectors to Watch:

  1. Small Caps (IWM) moved below the $96.50 support, but bounced back above that level as index shows buyers still willing to step into the growth side of the market.
  2. NASDAQ 100 index broke lower as well with QQQ testing $71.50 on the downside. Came close to filling the gap left in early May on the start of the last leg higher. Still needs to move back above $72.75 level to regain the upside near term.
  3. Japan (EWJ) continues to struggle, but may have posted a key reversal on Thursday. The chart shows a test of the $10.36 support and a bounce back near the Wednesday close at $10.59. A move back above $10.65 gets interesting for a upside trade. 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) bounced big against the dollar and cleared the $99.21 resistance we posted yesterday. Entry trade was at $99.30 with stop now at $100.
  4. Gold is stuck in the current trading range with $137 resistance in play on GLD. The entry of $137 was hit intraday on Thursday to add a position in the metal. The futures are off this morning, but looking to add the position in GDX today if we get a follow through on gold. Sector Rotation Model.
  5. Oil bounced off the $91.50 support and hit resistance at $95 on Thursday. If we clear $95 on the upside we may get another run at the $97.50 level again, but that would depend on some positive news from jobs. Watching for a trade on the move higher is it takes place. ONLY ETF Model.
  6. Dollar is weak and broke support on Thursday. The trade on UDN (Two EGG Model) has played out nicely as well as the euro trade (FXE, Sector Rotation Model). Adjust your stops accordingly.
  7.  Bond yields were all over the board on Thursday and it is getting very interesting for the broad market implications. The short plays were stopped out, but they may be worth revisiting. My notes this morning are about the bond market and the current volatility and impact looking forward.
  8. 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.
  9. Short Natural Gas (KOLD) gapped above the entry and then ran higher. Follow the trade if you got into on the open and protect the gains on the move (see notes on watch list table). Gold (GLD) hit the entry price and now we have to manage the volatility of the trade short term. Set this up as a short term trade to allow for the short term volatility.
  10. S&P 500 Model is seeing some rotation in the index. Watch the short play SH as the downside builds some sentiment.
  11. Facebook – No positions currently. The sentiment towards the stock remains negative, the bounce off the low at $23.36 last Friday has disappeared with the market sentiment. Looking for a base or range to be established short term before any upside trades. There is a potential reversal trade setting up, but we will be patient here short term. The current play (I suggested) if you can stand the risk is the 23 September puts. The cost is $2 per option contract on the close Wednesday. Unchanged on Thursday. The target on the trade would be the next key level of support which is $18.80.

Pattern Setups For Today:

  1. QLD – A,B,C,D pattern. $67.40 entry on the follow through from Thursday. SSO is set up on the same trade pattern with entry $78.55.
  2. BRCM – Test of support at the $32.25 level and the 50 DMA. $35.65 entry on the bounce. (Watch today if the bounce continues off the low on Thursday)
  3. Follow up on previous posts:
  4. PCLN – Pennant upside break at $810. Nice bounce on Thursday.
  5. LEDS – triangle/wedge breakout to the upside at $1.70.
  6. LULU – Flag consolidation with a break above $80 a positive on the upside. Testing the move.
  7. 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. Hit stop on the reversal on Thursday.
  8. PALL – Still in play on break above $73.85 resistance. $76.50 target.
  9. PACB – Break above the top the trading range. $2.65
  10. CRAY – Cup breakout at $18.05, initial target $18.85 and then 20.20.
  • NOTE: The pattern trades above are setups that I see for a potential swing trade or trade. 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.