Trading Notes for Today, March 10th

Jim’s Market Notes:

Modest gains on Monday to start the week, but there is still plenty of work to be done. Industrials were the leader on the day as the sector tested the 50 DMA. Healthcare bounced off the $71.26 support and held as well. A reprieve from the doom and gloom headlines on Friday. Essentially stocks did what they needed to do, but there wasn’t much to hang you hat on in the move. I am still very cautious about this choppy environment.

The goal is to let this all unfold one day at a time without any wild predictions about the markets heading one direction or another. The micor trend was broken on the move Friday, but still in position position to resume the upside should the buyers emerge. The trendline short term is at the 2040 mark and the 50 day moving average is 2062. Patience is the key to dealing with choppy markets and we will attempt to practice those for now.

NOTES OF INTEREST:

Monday produced some buyers, but there is work to be done as we move forward. We are back in the worry zone and unfortunately none of them are big enough to confirm the direction just yet. Uncertainty is back in play for now. Stay focused.

S&P 500 index (SPY) broke $209 support and $206.15 next level to watch on downside along with the 50 DMA. Move back above $209 would be helpful to the cause.

NASDAQ (QQQ) testing the $107.20 support? $106 is the real key to hold going forward. $108.30 is level on upside to clear currently.

Russell 2000 (IWM) fell to first support at $121.20. Held on Monday and keeps the small caps somewhat in play near term depending on the outcome moving forward.

Financials (XLF) back to support $24.20 with the 50 DMA and $24 levels to watch. Need to clear $24.60.

Banks (KBE & KRE) attempt to break higher on the jobs report Friday. Upside potential is present, but financials are still not healthy yet. KRE $41.06 level to clear on the top side. Nice move on Monday for the banks and cleared near term resistance wit the previous highs now in sight.

Semiconductors (SOXX) fell to $96.60 support and $95.06 is next. Climax run on Monday has reversed to give it all back. Holding support on Monday, but work to do to regain confidence.

Transportation (IYT) broke the 50 DMA to confirm micro trend shift lower.

Utilities (XLU) break key support at the 200 DMA dropping 3%. Interest sensitive asset and as one analyst stated, the sector is trading more like a growth sector. It has now erased 12.4% since the high on January 29th.

Transports (ITY) broke the 50 DMA and still not looking healthy. 50 DMA is first hurdle to jump.

REITs (IYR) Wow! interest sensitive assets are getting hit. 200 DMA is possible support.

Dollar (UUP) big move on upside. Strength getting bad reviews from the multi-national stocks. Didn’t hedge the swing higher correctly. Hurting oil and gold prices as well… as expected.

Euro (EUO) remains under pressure and the short trade resumes the uptrend after five weeks of consolidation. Hurting the IEV trade scenario. HEDJ winner with this combination of events.

Bonds fell as yields were rising this week and jumped 12 basis points on Friday alone. The Fed is gaining traction on belief they will hike rates this summer. The thirty-year bond is now at 2.83% and the ten-year is 2.24%. We continue watch with a focus on yields rising and bond prices declining. TBT added last week. Monday produced a fall in yields and rise in bonds. Still watching how this unfolds.

Crude oil (OIL) supply data was better than expected and jumped higher mid week. Data on Friday pushed it lower again as dollar is gaining strength again. I state again the volatility is news driven and makes for a trading environment only. Addding UCO to the ONLY ETF Watch List.

Gasoline (UGA) testing the micro trend on the reversal. $36.50 first support, then $34.50 next level to watch. Trendline is the key from my view.

Gold (GLD) attempted to push back through $116.50, but failed to hold the move. Now raises the question of base building or reversal? Watched for a trade on the upside, but also the downside break would set up a short trade if breaks back below the previous low ($115). Broke Friday offer a short trade on the move. Added DUST to the pattern trading strategy below.

Action Taken: “Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Hit stop on GMCR on pattern trading strategy.

Raised stop on DUST to pattern trading strategy with the continued upside move Monday.

Sectors-to-Watch:

We discussed the fact that all the major indexes are showing signs of topping short term. Friday took those same sectors below their respective 20 DMA. The test lower is now bringing into play the breakout levels from three weeks ago. The S&P 500 index closed below the 2090 mark and is testing the 2063 support level from the previous trading range. This is where my attention lies currently even with the close at 2079 on Monday. Support gives way at the second level this gets worse than initially expected on the test of the move above 2063.

Biotech (XBI) showed the large caps were alive hitting a new high clearing the $218 resistance from the last week and gapping higher. IBB posted a solid gain as well clearing¬†the $342 resistance mark. Some selling Friday with the broad markets… watch and mange the downside risk.

Treasury bonds fell again on the rise in interest rates. The Fed continues to convince investors they are ready, willing, and able. TMV or TBT the short trades relative to rates going higher short term. Big confirmation move on Friday relative to the jobs report. Yields bounced to show some life, but the Fed is in play unless something changes in the economic data short term.

Solar (TAN) continuing the upside move with a follow through above the 200 DMA. Big move higher¬†again on Thursday as the sector remains a reborn leader short term. The selling on Friday was part market part overbought. As stated lock in some profits and manage the risk going forward. More selling on Monday… Profits taken and watching how it plays out short term.

Money Management Strategies Links:

  1. S&P 500 Strategy
  2. Sector Rotation Strategy
  3. ONLY ETF Strategy
  4. ONE EGG Strategy
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. First move to support and some indexes broke to test second level of support. Not what you want to see in an extended uptrend.¬†Sentiment is still positive, but Friday did take a toll on investor psyche. Monday showed modest bounce to hold for now… plenty of work to do going forward.
  2. Financials did make a upside follow through after forfeiting it on Friday. Banks are leading on the interest rate hike theory helping bank profits.
  3. SDS – entry $21.50. bottom reversal. Index drop below $209 and could move lower. Start as hedge position and will add if it confirm with move above the $21.80 level. Stop $21.05. Target $23.50.
  4. TZA – entry $11.30. reversal low. Index fell to support and if breaks willing to add the downside trade. If confirms at $11.62 we will add to the position. Stop $11.05. Target $12.
  5. BLMN – entry $25.86. trading range. The 50 DMA is support and a break through resistance is the entry. Patience is the key short term on allowing these trades to develop and validate in a choppy market.
  6. BDSI – entry $15.33. cup breakout. micro trend is higher and looking for follow through higher as well as the sector continuing the upside. Patience.
  7. EZCH – entry $21.86. cup with handle. break above the key resistance offer upside in a leading sector short term.. expect some chop.

Pattern Trade Tracking:

  1. CY – entry $15.50. ascending triangle consolidation. Break above resistance offers nice upside move in leading sector. Stop $15. Target$17.20.
  2. DUST – entry $15.60 ($17 @ open). breakout bottom range. Metal is testing support and the miners are as well. The short trade is just that a trade on the next move lower in the metal. Stop $19. Target $25. Added based on the news driving the move… stronger dollar and Fed prepared to hike rates. Let it run and keep stop in place.
  3. JD – entry $28.25. Cup pattern. break higher for the sector and the stock has been one of the methodical leaders the last two months. Stop $27. Target $33. Gapped at the open and sold… watching how this follows up today following a solid earning report.
  4. PXLW – entry $5.40. uptrend test consolidation. In position to continue the uptrend off the December lows. Stop $5. Target 6.50.
  5. STMP – entry $59. Flag pattern. Follow through on gap higher is the entry. Stop $55.70. Target $62.50.
  6. VMW – entry $86. reverse head and shoulder breakout. Stop $83.50. Target $92.50.
  7. TSEM – entry $16.50. Weekly chart breakout of bowl pattern and 2012 high. Semi’s taking on leadership role in NASDAQ. Stop $16.75. Target $19.50
  8. FB – entry $80.25. pennant break upside. in mid consolidation phase. looking for upside trade on move. Stop $77.
  9. NKE – entry $95.50. trendline break upside. Retail remains a leader and the resumption in momentum for Nike is a trade. Stop $95.50. Target 99.40.
  10. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $21.40. Target $25. ADDED to TRADE Below.
  11. AMBA – entry $55.25. micro trend reversal. Tested support at $50 and looking for reversal and longer term uptrend to resume. Stop $63. Target $60.20 (HIT).
  12. GMCR – entry $122.80. bottom reversal. Move to the 200 DMA and then look for break of trendline higher. Stop $126. Target 139.60. HIT STOP
  13. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $20.25
  14. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $15.15
  15. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $21.20
  16. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move (HIT). Stop $52.50 target protected.
  17. AKAM – entry $64.50. double bottom breakout. Looking for move back to the previous high if technology resumes leadership role. Took position on opening strength today. Against my emotions, but I like the earnings. Stop $69. Manage the stop and let this unfold on direction.
  18. NXPI – entry $82.30. trading range breakout. The earnings report helped the upside and looking for the follow through short term. Semiconductor sector. Target $88 (HIT). Stop $96. Merger news sends stock flying. Stop up and protect the gains.
  19. F Рentry 16.12. trend reversal and break above 200 DMA. upside momentum from sales and target of $17.25 in play. Stop $15.80
  20. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $59.50. Gapped higher and adjusting the stops with the target hit.
  21. WFM – entry $48. Flag. Longer term outlook very positive off earnings. Look to hold this position going forward. May add to our long term strategy below. Stop $54.60.
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.
Long Term Opportunities: 
Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain¬†good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. >¬†Added to position: 500 @ $77.50 – 1/8< ¬†TODAY:¬† The volatility has picked up on the move higher and we will watch how it unfolds.¬†Uptrend has turned into a broad chop, and¬†broad markets selling won’t help.
  • Twitter (TWTR) – ¬†(1) Added 500 shares at $42.80 (10/28/14). (2)¬†Added 500 shares at $39.20¬†on¬†1/9/15. ¬†(3)¬†Added 500 shares at $40.25 for short term trade to $42.25. Stop for added shares raised to¬†$46.25. This is a long term holding, but we will trade on short term technical data if warranted. Gapped higher on earnings and so far holding the move.¬†TODAY:¬† Watching stop on the traded shares above (#3). Testing move on upside and watching how it unfolds short term.
  • Bank of America (BAC)¬†(1) Added Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. (2) Added 2500 shares at the $16.35 mark ¬†on 10/21/14. Banks are¬†gaining some ground on the proposed hike in interest rates and I still like our position going forward as we practice patience. TODAY:¬†¬†Banks get a bump higher on the jobs report which in turn would reinforce the Fed hiking rates and that is good for banks. BAC is not participating on worries from investors. Not shaping up looking forward and we will look at exiting the position to find a better long term opportunity.
  • Whole Foods Market (WFM)¬†(1) Added 1000 Shares @$48 11/20/14 starting position. The outlook has improved after making changes to the stores and adding new stores. The earning validated what I have been following for the last year and the company should be at the front side of a long term upside based on fundamental growth. So far so good on the sequential earnings period. TODAY:¬†Upside is rolling over. Nice bounce on Thursday to help the cause, but hit by Friday’s selling in the broad markets. This is where the challenge comes in owning a long term position, dealing with the downside risk.¬†The breakout on earnings was at $53.80 an we are going to use $54.50 as a stop for now. If we get stopped out we would look for the reentry point point and go from their. Patience as the selling is on lower volume.