Trading Notes for Today, March 13th

Special Note:

I posted last night the changes to consolidate all the strategies to one spreadsheet! The process will make it easier to track the watch list and the play list. The market and research notes below will take on more of what they were intended to be… developing the stories within the market and the resulting opportunities. The bottom half of this report will not reside on the spreadsheet. The Pattern Trading Strategy and Long Term section will both have sections on the spreadsheet making it easier to follow and track. So, starting Monday this report goes back to the research¬†and¬†developing stories in the sectors of the market. It promises to be fun.

Jim’s Market Notes:

The major indexes made impressive bounce backs on Thursday with the S&P 500 index and Dow large caps gaining back some of their respective losses. The bigger story remained in the Small caps leading and rotation showing up in the volume. All said, positive day for the broad markets with the NASDAQ limping along.

The dollar got the blame for stocks moving lower it would only be fair to give the buck the credit for the markets moving higher. The decline is the dollar was the reason! Is it true, ‘truth doesn’t matter to anyone anymore?’ That was a quote a read in an article recently and it struck a cord with me. The reality of the statement has more truth to it than I would like to admit, but when it comes to the markets, it rang very true and some clarity to me on how to explain the market movement the last few years. Thus, sure the dollar was the blame and the cause… make it simple to believe.

Dow heading higher? Big day on Thursday and solid reversal off support and back through the 50 DMA. The response here is more relative to Apple being added and AT&T removed from the index. Time will tell and too much is always made of these events when they take place than matters over the long term. Trading this type of news is not exactly a strategy, but if you are so inclined do so with some discipline.

Yes… it is Friday the 13th… hopefully Freddie Kruger is busy and the markets continue to find their way through the maze of news, events and reality.

SECTOR NOTES OF INTEREST:

Buyers return, but not in mass as volume was not impressive for a bounce back move. That has not mattered in the last few moves off lows and today will give more clarity to the move and the sustainability of the bounce back.

S&P 500 index (SPY) broke support at $206.15 level and recovered on Thursday to close at the $207.10 mark. 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. Short side trades are at risk today with a follow through above the $207.50 mark on the close.

NASDAQ (QQQ) broke the¬†$106 level Wednesday to add to the downside move.$103.30 was the next support, but watching the weak attempt at a bounce on Thursday.¬†If the index plays catch up to the other indexes today that will offer more confidence… watch and see how it unfolds.

Russell 2000 (IWM) fell below support at $121.20 level on Tuesday. Tested lower near the 50 DMA early, but managed to bounce back as money rotated towards the sector and away from the large caps. That keeps the short term trendline in play on the upside. Cleared $121.20 on the gap open and close back near the high at $123.05. Leader currently along with the mid caps (IJH).

Financials (XLF) Broke support at $24.20 and the 50 DMA, but continued to hold the $23.75 mark of support. Gained 2.1% on Thursday and back near the $24.60 break of resistance. Banks 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 are showing¬†some interest. I stated on Tuesday… “If the broader indexes find support and move higher this is likely to be one of the leaders.” That seems to be the case for now… look for the move higher in both the large banks and the regionals.

Semiconductors (SOXX) Broke¬†$96.60 support and $95.06 is support is next. Climax run has reversed and the intraday test was a break lower that did manage to close flat on Thursday.¬†This puts a big question mark on the sector and leadership… bottom in for now? Looking for move back above the $96 mark today…

Transportation (IYT) broke the 50 DMA to confirm micro trend shift lower. $158.30? Tested, but posted a 1.1% gain on Thursday to give some breathing room to the sector. That turned out to be a positive sign for the markets overall and the sector gained 1.1% in follow up on Thursday.

Utilities (XLU) broke key support at the 200 DMA and testing lower 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. Nice bounce on Thursday and a move back above the 200 DMA would be a positive.

REITs (IYR) Wow! interest sensitive assets are getting hit. 200 DMA is possible support. Nice revesal on Thursday with 1.6% gain. The weaker dollar was given credit (of course) and the bump in rates helped. Oversold? Maybe. Risk is too high for now relative to the reward.

Dollar (UUP) big move on upside and going vertical. 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 it wrong. Sticking with the story of good for the US! Small caps are showing the reality of a stronger dollar… US based companies benefit more than the multi-nationals and jobs will rise if it continues. Embrace the strong dollar it will be a good.

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. Stops to break even on any trades here… never know how this unfolds and protecting capital is key short term.

Crude oil (OIL) supply data was better cause again.¬†Blame the dollar, blame whatever you like… it comes down to supply and demand imbalance. Enough said. short trade is looking better after yesterday.

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 held for now. Watching how today unfolds.

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

Holding steady on the bounce on Thursday.

Money Management Strategies Links: ALL NOW POSTED ON ONE NEW Spreadsheet page. (this will not be posted here after today Рmoving to spreadsheet) The process will make it easier to follow and post. 

  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. Bounce? Reversal? Time will tell, but we will treat it as a bounce and look for the appropriate trade opportunities in the pattern setups.
  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. YINN – entry $35.10. Bounce off 200 DMA. Support reversal trade worth looking at if it follows through today.

Pattern Trade Tracking:

  1. TMF – entry $86.95. reversal. Chatter is pushing money to safety. Trade on the fear factor only. Stop $86.95
  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. 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.
  5. FB – entry $80.25. pennant break upside. in mid consolidation phase. looking for upside trade on move. Stop $77.
  6. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $22. Target $25. ADDED to TRADE Below.
  7. 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).
  8. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $20.25
  9. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $15.15
  10. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $22
  11. 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:¬† Use $45 at exit on shares added (#2 above) and we will hold the balance for now. Small bounce on the day and watching 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. Modest bounce off support.