Trading Notes for Today, March 11th

Jim’s Market Notes:

Hello to the sellers and welcome to the party. The reaction to what is now worries about the economic picture in light of the Fed hiking interest rates was in play on Tuesday. The rest of the story is still unfolding short term and there are enough nerves to go around. Broke second levels of support and another exit signal for trading positions. The short term trendline is now in play and we will watch to see how that unfolds today as well.

Nerves are in play on uncertainty relative to the Fed. This will have to play out and a catalyst put in place if the upside is to continue going forward. Throw in all of the Tuesday headlines about the strength of the dollar being a concern and it could only add to the frustration for investors. For today we manage our stops, watch how the markets react to Tuesday’s move and then we make the necessary adjustments to our positions and what opportunities present themselves. Don’t count the upside out relative to the current test lower.

NOTES OF INTEREST:

Tuesday answered the question of if they buyers were still in play. The break of the next support level was done without much resistance and now we watch to see how this unfolds. I addressed most of the issues in the Tuesday night video post to Jim’s Notes.

S&P 500 index (SPY) broke support at $206.15 level and now watching the¬†downside along with the short term trend line off the October low.¬†Buyers can’t be ruled out, but the test of the move higher is definitely in play.

NASDAQ (QQQ) broke the $107.20 support. $106 is the real key to hold going forward and closed just below it on Tuesday. Need to recapture the level if in play next is to watch for the 50 DMA or the $103.30 mark as support.

Russell 2000 (IWM) fell below support at $121.20. 50 DMA and the $118.80 mark are potential next support marks. Watch and let it unfold.

Financials (XLF) Broke support at $24.20 and the 50 DMA. Need to hold $23.75.

Banks (KBE & KRE) attempt to break higher on the jobs report Friday. Bother surrendered gains and then some.the downside is to be watched and support at the 50 and 200 DMA may be the key level near term.

Semiconductors (SOXX) Broke $96.60 support and $95.06 is next. Climax run has reversed to to give it all back. Holding support on Tuesday, but not looking overly optimistic for now.

Transportation (IYT) broke the 50 DMA to confirm micro trend shift lower. $158.30?

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.

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.

Bonds tried a new twist on Tuesday with yields falling and prices rising on the fear of the Fed action causing stocks to stumble. Simply put they don’t believe the economy is strong enough to support a rate hike. This creates confusion to some degree in the sector and we hit our stops Tuesday on TBT short trade. Watching to see how this unfolds today.

Crude oil (OIL) supply data was better than expected and jumped last week. Dollar strength is pushing the price lower currently. Data out today on supply and will watch reaction in reference to that and the dollar. Still too volatile to trade.

Gasoline (UGA) testing the micro trend on the reversal. $36.50 first support, then $34.50 next level to watch. Hit stop and watching.

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

Added SDS and TZA top the pattern trading strategy.

Hit stop on on PXLW, STMP, TSEM, C, AKAM, F, FSLR, WFM 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 on Monday. It broke the 2063 support level Tuesday from the previous trading range giving a second exit signal for trading positions (0-13 weeks). Support gives way at the next level as this gets worse than initially expected. Get defensive and watch how it unfolds relative to your time horizon.

Added SDS today as hedge to balance of holdings. The sector is moving lower and we have to let it unfold one day at a time and manage the stops.

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. All is well despite of the selling for now.

Treasury bonds rose on Tuesday as the concern and uncertainty shifts to stocks falling as a result of a weaker economic picture if the Fed hikes rates. New twist in the bonds as they rise and rates fall in response to the fears/uncertainty. The Fed continues to convince investors they are ready, willing, and able, but the FOMC meeting on tap next week spooks investors. Watch today how this unfolds?

Solar (TAN)¬†Hit the exit points on the trade that gave more than we thought. Thank you market… we now look to other opportunities.

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. When the chatter or blame spreads wider in the blame game, the selling tends to accelerate. The dollar is to blame on Tuesday and the Fed is to blame on Friday, etc. The more problems we create the more uncertainty rises and selling accelerates. Watch today the futures are pointing higher to start, but will it hold throughout the day is the bigger question.
  2. TMF – entry $86.95. reversal. Chatter is pushing money to safety. Trade on the fear factor only. Stop $85.10.
  3. M – entry $63.75. break downtrend line (micro). Retail has been leader looking for the bounce to resume in the sector. Stop $63.
  4. 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.
  5. 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.
  6. 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. 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.
  2. SDS Рentry $21.60. 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 $21.40.
  3. CY – entry $15.50. ascending triangle consolidation. Break above resistance offers nice upside move in leading sector. Stop $15. Target$17.20.
  4. 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 $20. 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.
  5. 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 $28. Target $33. Gapped at the open and sold… watching how this follows up today following a solid earning report.
  6. PXLW – entry $5.40. uptrend test consolidation. In position to continue the uptrend off the December lows. Stop $5.30 Target 6.50. HIT STOP
  7. STMP – entry $59. Flag pattern. Follow through on gap higher is the entry. Stop $55.70. Target $62.50. HIT STOP
  8. VMW – entry $86. reverse head and shoulder breakout. Stop $83.50. Target $92.50. HIT STOP
  9. 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 HIT STOP
  10. FB – entry $80.25. pennant break upside. in mid consolidation phase. looking for upside trade on move. Stop $77.
  11. NKE – entry $95.50. trendline break upside. Retail remains a leader and the resumption in momentum for Nike is a trade. Stop $96. Target 99.40. HIT STOP
  12. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $22. Target $25. ADDED to TRADE Below.
  13. 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).
  14. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $20.25
  15. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $15.15
  16. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $22
  17. 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. HIT STOP
  18. 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. HIT STOP
  19. 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.
  20. 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 HIT STOP
  21. 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. HIT STOP
  22. 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. HIT 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.
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 isn’t helping. 50 DMA back in play.
  • 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 (HIT 3/10/15). 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:¬† Hit¬†stop on the traded shares above (#3) and locked in nice gain on the trade.¬†Moved to support at the $42.80 level and watching. Use $45 at exit on shares added (#2 above) and we will hold the balance for now.¬†
  • 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:¬†¬†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. 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.¬†Tuesday hit the stop¬†we will watch to see how this unfolds near term.