Trading Notes for Today, March 12th

Jim’s Market Notes:

It was relatively quiet on Wednesday with investors and traders determining what course the market would take near term. In the end it gave little in terms of clues, but the buyers were happy to hold serve. Today is another day of watching to see which side exerts control. The sellers have the opportunity to take it the next key support level and the buyers can use the current support to create a bounce. Patience as it unfolds.

Small caps were the bright spot on Wednesday and may be at turning point as the stronger dollar favors this sector longer term. It is something to watch short term as it unfolds. Early futures are pointing to the upside and if it holds into the open the favor goes to the buyers to start the day. As seen yesterday it can be a long grinding day without direction. Focus and discipline as the market works through the choppy waters.

SECTOR NOTES OF INTEREST:

Wednesday was like watching a tennis match as each side attempted to hold serve. Small caps were the clear winner on the day, but the sector needed to move back above the trendline to even the score. Patiently admiring the beauty that is the market.

S&P 500 index (SPY) broke support at $206.15 level and still watching the¬†downside along with the short term trend line off the October low. $204.50 held Wednesday and we will see how it unfolds today. Added short trade the last couple of days, but still needs to accelerate it we are going to capture more downside short term. Buyers can’t be ruled out, but the test of the¬†short term trendline¬†is definitely in play.

NASDAQ (QQQ) broke the $106 level Wednesday to add to the downside move.$103.30 is the next support I am watching on this move lower. The 50 DMA is near the $104.50 mark and another level to pay attention to.

Russell 2000 (IWM) fell below support at $121.20 level on Tuesday. Tested lower near the 50 DMA early, but managed to bounce back and gain 0.6% on the day. That keeps the short term trendline in play on the upside.The $118.80 mark in the next potential support mark, but we may see some upside rotation to the small caps in light of the dollar longer term. Watch and let it unfold.

Financials (XLF) Broke support at $24.20 and the 50 DMA, but continued to hold the $23.75 mark of support. Banks struggled and found some positive footing on the day to help the broader index.

Banks (KBE & KRE) attempt to break higher on the jobs report Friday, but failed to hold the move, but buyers do show some interest. If the broader indexes find support and move higher this is likely to be one of the leaders.

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

Transportation (IYT) broke the 50 DMA to confirm micro trend shift lower. $158.30? Tested, but posted a 1.1% gain on the day to give some breathing room to the sector.

Utilities (XLU) break key support at the 200 DMA dropping further on Wednesday. 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. $42.66 next support level to watch.

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

Dollar (UUP) big move on upside and going verticle. 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. Believe it or not a strong dollar is good for the US… patience as the talking heads get wrong.

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.¬†TMF trade upside short term as fear creates short term opportunity.

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. Retest of the February lows?

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

China (FXI) weaker economic data is pulling the country lower. $40.25 support along with the 200 DMA. Breaks lower could open short opportunity going forward. (FXP)

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

Added SDS and VXX to the S&P 500 strategy.

Added TMF to the pattern trading strategy.

Added GDX to the sector rotation strategy.

Hit stop on on DUST, JD pattern trading strategy.

Money Management Strategies Links: ALL NOW POSTED ON ONE NEW Spreadsheet page. 

  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: (WE HAVE ADDED to the NEW Spreadsheet)

  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. M – entry $63.75. break downtrend line (micro). Retail has been leader looking for the bounce to resume in the sector. Stop $63.
  3. IWM – entry $121.25. Trendline test and reversal. Small caps led higher on Wednesday and looking for follow through in the leadership.
  4. IJH – entry $148.50. support test and bounce. Following the small caps again after test lower to support. looking for upside move on rotation of money.

Pattern Trade Tracking:

  1. TMF – entry $86.95. reversal. Chatter is pushing money to safety. Trade on the fear factor only. Stop $85.10.
  2. 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 $11.10. Target $12. HIT STOP
  3. 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.
  4. CY – entry $15.50. ascending triangle consolidation. Break above resistance offers nice upside move in leading sector. Stop $15. Target$17.20.
  5. 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 $21. 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. HIT STOP on reversal intraday.
  6. 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.
  7. FB – entry $80.25. pennant break upside. in mid consolidation phase. looking for upside trade on move. Stop $77.
  8. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $22. Target $25. ADDED to TRADE Below.
  9. 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).
  10. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $20.25
  11. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $15.15
  12. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $22
  13. 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.
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 trade Sold at $46.25 on 3/10/15. This is a long term holding, but we will trade on short term technical data if warranted. 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. Said that and we bounced on Wednesday to keep us in the game for now.
  • Whole Foods Market (WFM)¬†(1) Sold our first position for a $6.50 profit on 1000 Shares held from 11/20/14 – 3/11/15. 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. I still like the long term outlook for the company. TODAY:¬†Looking to test the 50 DMA and we watch to see how it unfolds near term.