Trading Notes for Today, March 10th

Market Outlook:

New week, new opportunities? Scanning and researching this weekend left me with new questions. The key one is the when the sellers will take control of the market trends again. The number of negative headlines are growing and that generally is a self-fulfilling prophecy. We have to proceed with caution this week and see how it unfolds.

Yields on Treasury bonds rose 15 basis points last week and a double bottom pattern is setting up. TLT move below $106 support barely. This is something to watch along with other rotation this week. TBT is set up to run, but watch for a test first and then a follow through on the move higher.

Emerging markets attempted to move above resistance last week, but pulled back again on Friday. Still watching to see how this reacts. If there is selling in the US markets, this will be a short opportunity. Otherwise be patient and let this unfold on any upside trade opportunities.

Financials led last week and they may well set the tone again this week. There is some rotation in the sector as we discussed in the weekend update. XLF cleared resistance at $22.15, look for it to hold and the upside to play out.

Basic materials has been a leading sector with commodities on the move higher. The metals are showing some signs of topping along with crude oil. Watch the sector and adjust your stops according to your time horizon with the sector.

Manage your risk today as we start a new week of trading and attempt to set the tone for the trading week. Plenty of issues on the table and anyone could be a catalyst as we remain in a news driven market currently.

Sectors to Watch:

  1. S&P 500 index closed at a new high of 1878 and held the move above the 1850 mark. The challenge remains consistent with the economic/fundamental picture versus the technical trends. Watch how the index responds this week as investors deal with their emotions relative to the outlook. Support remains 1810 and for now.
  2. The NASDAQ struggled to maintain the trek higher with some modest selling on Thursday and Friday. How we progress this week will give a better indication of the near term direction. 4225 is the level for support short term. Watch for technology to regain the leadership role this week or the index may struggle.
  3. Dow made nice gains on the week as it cleared the 16,300 level. It is still lagging the other indexes, but it is beginning to play catch up. Financials are helping the index make a move as Goldman Sachs and JP Morgan both have a bottom reversal. For now patience as this plays out.
  4. Russell 2000 Small Cap index jumped to a new high on Tuesday and then traded sideways to end the week. Held the move above the 1181 mark and looking for leadership this week to continue. For now we will hold our positions and adjust our stops on the move higher.
  5. Europe (IEV) is trading in unison with the US markets and held above the $47.70 mark as support for n now. Sold on Friday, watch for the index to hold above support. The key will be how the US markets advance next week. Adjust your stops according to risk currently.
  6. Transports (IYT) made the move above $135.50 to end the week, and closed at a  new high. The big lift of 4% last week is worth watching for a test of the move, but the key is to know that Transports are working north.
  7. Consumer Services (XLY) pushing through resistance with entry at $65.50. Great leadership this week for the sector and watching to see if it continues. We do have retail sales data out for February and it could stall the move if it is disappointing. Stop now is the entry point on the trade to manage the risk.
  8. Financials (XLF) the follow through on the move above the entry at $21.65 level. The climb to $22.37 on the close Friday puts the leadership from the sector back in to play. Need to hold above the $22.12 level this week.
  9. Real Estate (IYR) has now become a worry with a new high established, but then selling on interest rates working higher. Barely held above the $68 level on the close and we will watch how to manage the risk of this position moving forward.
  10. Bond yields have bounced off the low again and put bonds in position to pullback again from the move higher. TLT is showing double top and a move back near $106 is not out of the question. Thus,  TBT shows a double bottom pattern worth watching. ONLY ETF Model.

The models can be linked to below and each has been updated for the current outlook:

Sector Rotation Model (updated – 3/8/14)

ONLY ETF Model (updated – 3/8/14)

S&P 500 Index Model (Updated – 3/8/14)

ONE EGG Model (updated – 3/8/14)

Pattern Trading Setup:

Today’s opportunities:

  1. VTSS – entry $3.82. Consolidating after move higher. Semiconductor.
  2. AMZN – entry $375. Breakout follow through back to $400.
  3. FIO – entry $11.50. Breakout trading range. technology.
  4. JPM entry $59.55. Breakout follow through, double bottom. financials. If tests back to $58.44 and holds take lower entry.

Pattern Trade Tracking & Follow Up:

  1. NEE – Entry $91 on the test of the breakout at $90. Held took the entry Friday. Utilities are struggling, watch the downside risk and push stop to the $90 mark.
  2. HPQ – entry $30.25. (post 3/5) Trading range breakout. Looking for upside move with tech sector. Stop $29.70.
  3. AAPL – entry $532. Downtrend break. Held support and potential move on new product introduction. Stop $523.
  4. KOG – entry $12.15. Trading range. Small move higher and then consolidation. Looking for breakout in the energy sector. Stop $11.65
  5. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late. Stop $31.40. Nice upside follow through on Tuesday.
  6. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.20. Nice upside move from the bank finally.
  7. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $11.50. Gap higher and still moving higher, adjust your stop.
  8. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $24.25. Nice move higher on Monday and follow through on Tuesday to break to new high.
  9. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $155. Gap up of 32% on Tuesday! Earnings and target upgrade on stock.
  10. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $183.90.
  11. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $62.10.
  12. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $88.80.
  13. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $60.30. Nice break higher and expect a test of the move as follow through.
  14. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $128. Watching the reversal on Russia. Raised stop.

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)

  • 2/18 – Raise stop to $58.95 currently and manage the move to the new high according to your risk. With the price moving through the top of the Bollinger bands some downside activity may be on the horizon or a continuation of the top consolidation.
  • 2/19 – $16-19 billion acquisition of WhatApp pushed the stock down 2.5% after the announcement in after-hours trading. Watching to see how investors react in trading today.
  • 2/24 – Continuation of the upside momentum. Plenty of news and comments on the stock, but the buyers remain confident short term. Looking at adding a trade on the stock with options. Watch to see how it trades today.
  • 3/1 – rolling top? Watching to see how this plays out short term and will look for a hedge on the remaining position this week. Raise stop to $63.75.
  • 3/5 – Target upgrade and stock runs higher on the move. Move stop to $65 and what how this plays out from this point patiently.