Trading Notes for Today, March 12th

Market Outlook:

Choppy Tuesday for the markets overall as investors can’t decide on direction. The news continues to weigh on the markets as analyst want to talk about bubble stocks, overvaluations and a not so great economic picture. The S&P 500 index dropped 0.5% or 9 points to close at 1867  and 1850 remember is the resistance we struggled to move through just a week ago. If we fail to hold the break higher, I would take that as a negative sign for the broad markets.

The VIX index is coming back to life with a bounce to 14.8 and the top end of the range. If we get above this level and close it would confirm that the nerves are kicking in for investors and money is starting to rotate towards safety. VXX, iPath S&P 500 VIX Short-Term Future ETN is in position to break from the current trading range as well on the upside. Entry at $45.65.

Yields have moved back to the upside of late and BND, Vanguard Total Bond Market ETF is sitting on the 50 DMA as support short term. A break lower would be a indicator the current rally in bonds may be over. The Fed is continuing to cut stimulus and putting pressure on rates near term. The downside is setting up again for Treasury bonds as well. TLT and IEF both are at support of the 50 DMA as well. Watch and see how it plays out. The spoiler would be a correction or pullback in stocks as money would shift back to safety mindset. (See Below)

Energy struggled XLE, SPDR Energy ETF once again stalled at resistance near $88.50. The move lower of 1.1% was a negative for the sector as the price of crude retreats back below the $100 mark and now trades back near the 200 DMA. A break of support would be negative for the price of crude and could very well set up a short opportunity in the commodity. Oil services (OIH) fell 1.3% and Exploration and Production (XOP) fell 2.1% showing the negative impact on the sector as crude declined on the day. Watch for short trade opportunities if this continues to unfold on the downside.

Emerging markets continue to struggle on the news from China. EEM was in position to break higher last week and now it is in position to break lower. EDZ is the 3 times leverage short ETF for the emerging markets.

Manage your risk today as back and forth bantering remains direction in stocks. Plenty of issues on the table and any one could be a catalyst as we remain in a news driven market currently.

Sectors to Watch:

  1. S&P 500 index closed down 0.5% or 1867 and need to hold above the 1850 mark. The challenge remains consistent with the economic/fundamental picture versus the technical trends which are showing some topping. Watch how the index responds today in follow up to modest selling on Tuesday. Support remains 1810 and for now. The short side is getting interesting as SDS sets up to break above near term resistance at $28.75.
  2. The NASDAQ struggled on Tuesday and is showing the same topping pattern as the S&P 500 index currently. How we progress the balance of the week will give a better indication of the near term direction. 4225 is the level for support short term. QID trade if selling continues with entry at $56.75.
  3. Dow made a move lower on the day and below the 16,400 mark to the 10 DMA. The index is still lagging the other indexes, and selling will not help the cause. Financials moved lower today with the broad markets hurting the index on the day. Watch the downside risk.
  4. Russell 2000 Small Cap index jumped to a new high last week, and this week is giving it back. Nee to hold the the 1181 mark if the leadership and upside is 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 tested the $47.70 mark as support. The uncertainty in the US is hitting the global sector as well. The key will be how the US markets advance this week. Adjust your stops according to risk currently. Take exit if hit.
  6. Transports (IYT) made the move above $135.50 last week, and closed near the new high. Look for transports to be an indicator the broader market near term.
  7. Consumer Services (XLY) pushed through resistance with entry at $65.50. We have been getting some leadership from the sector, but struggling to keep it going. Watch as indication of direction short. 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. Selling on Tuesday joins the broad market indexes. Raise stop to $22.10 on the trade.
  9. Real Estate (IYR) rates could rise more if the fear factor causes rotation to safety. Barely held above the $68 level on the close Monday, but had a bounce back on Tuesday. Nothing is clear near term, watch your stop and manage the risk of this position moving forward. $67.50 exit point in play.
  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 – 3/11/14)

ONLY ETF Model (updated – 3/11/14) Short Trades for Volatility Posted

S&P 500 Index Model (Updated – 3/11/14)

ONE EGG Model (updated – 3/11/14)

Pattern Trading Setup:

Today’s opportunities:

  1. No entries on Tuesday as the negative day never got going. Today looking at the downside opportunities if the selling heats up. Be patient as the direction works out short term. Leverage short trades are posted to the ONLY ETF Model today.
  2. SDS – entry $22.85. Topping on the S&P 5o0 index equals bottom reversal for the short ETF.
  3. SBUX – entry $75.20. double bottom. Consumer sector.
  4. AMZN – entry $375. Breakout follow through back to $400.
  5. 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. FIO – entry $11.50. Breakout trading range. technology. Stop $11.50. Nice break higher, but raised stop on current environment.
  2. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $3.85.
  3. 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.
  4. HPQ – entry $30.25. Trading range breakout. Looking for upside move with tech sector. Stop $29.70.
  5. AAPL – entry $532. Downtrend break. Held support and potential move on new product introduction. Stop $528.
  6. KOG – entry $12.15. Trading range. Small move higher and then consolidation. Looking for breakout in the energy sector. Stop $11.45 HIT STOP
  7. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late. Stop $31.40. Nice upside follow through on Tuesday.
  8. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  9. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $12. Gap higher and still moving higher, adjust your stop.
  10. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $26.
  11. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $158. Gap up of 32% on Tuesday! Earnings and target upgrade on stock. STOP HIT
  12. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $186.
  13. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $62.10. HIT STOP
  14. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $889.40.
  15. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $61.60. Nice break higher and expect a test of the move as follow through.
  16. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $128. 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 $65.90 and what how this plays out from this point patiently.
  • 3/12 – Setting up to add a $70 put contract for June at $6.85. 20 contracts.