Trading Notes for Today, March 14th

Thursday the market opened higher, but reversed to sell lower on the day. This was the exact opposite of Wednesday. Volume was the opposite also with the number of shares trading Thursday during the selling well outpacing the buying on Wednesday. I would give the edge to the sellers for now and watch to see how it plays out going forward.

Positive sales report for February, but Q1 still in danger of being lower than Q4. First time jobless claims fell to 315k and the trend resumes the lower trek. Thus, the economic data continues to be mixed which in turn is reflected in the market activity currently. Russia tell G7 bring on the sanctions we are going to do what we want. From my view the market/investors are looking for rationale reason to sell and these are becoming the excuse, not the cause. Much like the Polar Vortex (i.e. winter) is the excuse for slower economic data not the cause.

Last nights Notes/post we addressed some of the opportunities looking forward to watch. If you have not reviewed them click on the link.

Europe dropped 2.1% after falling 1% on Wednesday pushing IEV below the $47.70 support mark hitting the stop on the trade. This is not good news for the EAFE index (EFA) or the emerging markets (EEM). Unless the US market finds it’s footing the short trade has set up. (ONLY ETFS Model)

Crude oil moved lower on Wednesday and tested $97.50 support, and we held on Thursday closing at $98.20. A move below this support level opens the way to the next support at  $95.10. Energy struggled again today as XLE, SPDR Energy ETF tested $86 support and the 50 DMA watching to see how that plays out short term. Short energy trade set up (ONLY ETFS Model). Oil services (OIH) fell 1.5% and Exploration and Production (XOP) lost 1% after testing support at the 50 DMA. Need some clarity from crude and investors on direction.

Metals remain a mixed picture. Precious metals (DBC), Gold is heading higher and the positive trend of late still offers some opportunities. Base metals (DBB), is moving lower as Copper broke another level of support and is down more than 13% in five days as the news from China has weighed on the outlook. Silver not responding to the upside in gold and remains in a downtrend off the February highs. Watch as the commodities get weaker in some areas and stronger in others.

The VIX index jumped to 16.2 and is moving above the trading range after a early morning move higher. The VXX trade was back with a vengeance today. We posted to sell the position early if the open was positive. It was positive, but it didn’t last five minutes for the VIX to rise and VXX along with it. We move our stop to the opening price on Thursday as that is where I was will to sell if the index move lower. Thus, let it run and we ¬†will see how it plays out.

Dollar (UUP) tumbles below support at the open, but then mounts a rally back to support into the close. This brings the notes relative to owning FXE short term as worthy of our attention moving forward.

NOTE: There is room for a downside move and keep the trendlines in play on the upside. Example the trendline is near the 1810 mark currently and we could give up another 2-3% and keep the uptrend intact. Thus, don’t get too bearish mentally on one day of selling.

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 moved below the 1850 support mark and closed at 1846. Now the decision has to be made relative to direction. Watch how the index responds today to the downside pressure from analyst and other. Support remains 1810 and for now. Took the short trade (SDS) on the index today and now monitoring the risk going forward. Hit exits on long SPY positions and added short positions with SDS.
  2. The NASDAQ tested 4249 support on Thursday and held, but a move below this level invites the short term for the index as well. QID at $57.62 is of interest for a trade. Watch how this plays out today for some clarity down or up.
  3. Dow moved back to support at the 16,100 mark and just below the 50 DMA. A break lower opens the downside trade in the index with DOG at $26.65 entry.  Be patient as this unfolds on the day Friday.
  4. Russell 2000 Small Cap index fell to 1170 support. The push lower is a negative and we will watch to see how it unfolds from here.  We added the short Small Cap ETF today on the selling. ONLY ETFS Model
  5. Europe (IEV) is trading in unison with the US markets and broke below the $47.70 support and hit the stop on the trade. We did add a short trade in the ONLY ETFs Model on Thursday. The uncertainty in the US is hitting the global sector as well the uncertainty in China and Ukraine.
  6. Transports (IYT) made the move above $135.50 last week, and back below it on Thursday. Look for transports to be an indicator the broader market near term if the break lower along with the major indexes going forward.
  7. Bond yields have bounced off the low again and put bonds in position to pullback again from the move higher. That changed dramatically on Thursday with the yields dropping to 3.6% on the thirty year bond and TLT jumped back above $108 and in position to test the previous highs. The negative news is pushing money towards bonds. 
  8. Yen (FXY) and euro (FXE) setting up against the dollar (UUP) as reasonable trade. The dollar broke support intraday and the yen spiked higher. Watch for being long the euro/yen against being short the dollar.
  9. OIL found support at $23 and the 5o DMA, or Crude held $97.50 a barrel. Watching for reversal or upside move.

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

Sector Rotation Model (updated Р3/12/14)

ONLY ETF Model (updated Р3/11/14) Short Trades for Volatility Posted

S&P 500 Index Model (Updated Р3/11/14)

ONE EGG Model (updated Р3/11/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Short trades got their chance and the sellers did take a bold step on the downside move. Watching how the open unfolds today and if the downside continues or we bounce back. Watch your stops and manage the risk.
  2. SSG – Weakness in semiconductors showing up as tops. entry $18.60. Limit orders on low volume.
  3. GMCR Рentry $109. Test of vertical  move higher.
  4. AMZN Рentry $375. Breakout follow through back to $400. Gap open sold lower. Up after hours and watching for entry today. 

Pattern Trade Tracking & Follow Up:

  1. SBUX –¬†entry $75.20. double bottom. Consumer sector. Stop $74. HIT STOP
  2. SDS –¬†entry $28.85. Topping on the S&P 5o0 index equals bottom reversal for the short ETF. Stop $28.55. Nice bounce after open Thursday.
  3. FIO – entry $11.50. Breakout trading range. technology. Stop $11.50. Nice break higher, but raised stop on current environment.
  4. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $3.85.
  5. 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 $91.18 mark.
  6. AAPL – entry $532. Downtrend break. Held support and potential move on new product introduction. Stop $528.
  7. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late. Stop $31.40. Nice upside follow through on Tuesday. HIT STOP
  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. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $186. HIT STOP.
  12. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $89.40. HIT STOP
  13. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $129.75. 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. Looking at how we trade the balance of the week and if any weakness develops in the stock.
  • 3/13 – Added 20 puts @ $70 for June at $7.05 today. This will act as a hedge against the position and add some profit if the shares break support.