Trading Notes for Today, March 18th

Monday started higher and held the move as investors were happy over no violence in Russia/Ukraine vote. Not everyone is happy, nor is this issue complete. The economic sanctions being threatened by the international community will be the next piece to deal to watch going forward. If Monday was any indication of what the sentiment will be for the markets look for buying to resume. The key is to let it unfold without assumptions. Remember this is news driving prices short term.

What are we looking for Today?

Upside follow through would be the first thing to see if the buyers are serious about a reversal in the micro-trend. News is the catalyst for the reversal and it makes buying into the move higher a challenge. Watching to see if volume picks up today.

Commodities are increasing in volatility again as crude moved lower Monday and worth watching at support (97.50). Break lower is a short opportunity (DTO). Gold trading lower in pre-market and agriculture (DBA) looking toppy short term.

Fed wants lower rates and the Yellen era of keeping them low starts today with the FOMC meeting. Yields were higher on Monday, but well within the range the Fed would like to maintain going forward. The stimulus cuts will be the other issue on the agenda over the next two days.

Watching the defensive stocks versus the growth stocks. XLP and XLU holding up well in this environment. Small cap (IWM) and NASDAQ showing some volatility. Money had been rotating to safety with anxiety levels rising, watch to see if that reverses and the confidence returns to the growth side.

Alternative energy stocks continue to show promise. Solar (TAN) has been one key leader with nice bounce on Monday. Digging in finds FSLR up 4.6%, JKS up 2.9% and AEIS up 2.7% to start the week. FSLR holds the mos interest as it has been a laggard starting to reverse. Natural gas (UNG) has been running higher as well and is consolidating currently and FCG remains on a watch list.

Advance with caution and look for the leadership to return along with some volume if the upside is going to pan out to more than a bounce near term.

Outlook for the Week of March 17th

Sectors to Watch:

  1. S&P 500 index moved back above the 1850 support/resistance and closed at 1860 on the day. The lack of a decision on direction is beginning to weigh on the markets as well as investors.  Watch how the index responds today in relationship to sentiment. Support remains 1810 and we hit our stops on our short position in SDS.
  2. Watch EFA to find some support ($64.50 ). Managed to hold the upside on the bounce as the buyers stepped on peach in Ukraine. Still watching the downside should the bounce fail near term. A move above $66 may bring upside interest back into view. A short trade in EFU would be the opportunity should the downside prevail. Low volume ETFs use limit orders only. You can buy the June 66 put (EFA) @ $2.25 or better. Uncertainty remain a challenge for investors.
  3. If the EAFE fails to hold support, Europe (IEV) will likely break support as well. We would add a position in EPV on a break above $60.60. Monday, 1.3% bounce off the lows and we wait to see how this unfolds the balance of the week.
  4. Emerging markets are next on the list to hold support at $38.07. Failure to do so opens the downside trade. EEV already has a position in the ONLY ETF Model and we would look to add to the position if support fails to hold. $23.25 EEV entry. Monday: 1.3% bounce off the recent lows and we wait to see how this unfolds the balance of the week.
  5. 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. Moved to the entry point into the close on Friday and waited for today. If we hold this level at the open enter the trade. Monday: The index bounced 1% and willing to wait to see how it plays out.
  6. Bond yields have tested 3.55% on Friday. Watch to see if we break below this level. If so, negative for stocks and positive for bonds short term. Flight to quality on fear will drive prices up and yields lower. If things calm down we will adjust our outlook accordingly. MONDAY: yields move back to 3.61%, but still wait and see.
  7. Technology (XLK) closed below $35.80 support and set up short opportunity. (REW, low volume) easier to short the ETF or buy $36 June puts for $1.45 or better. MONDAY: gained with the broad markets off the low. Look for follow through today on the advance and we will shift our outlook as well for the sector.
  8. Energy (XLE) is near support at $85.80 and if we break a short in the sector would be warranted. ERY is 3x leveraged short ETF at $$20.90. ONLY ETF Model. MONDAY: modest bounce in the sector, but oil moved lower on the day? Watching to see how this follows through.
  9. Healthcare (XLV) failed to hold support at $58.65. Setting up short trade on the break. Short XLV or June 58 puts @ $1.85 or better. RXD is short ETF. MONDAY: modest bounce off the low of 1% and watching to see the outcome.
  10. Financials (XLF) has support at the $21.65 mark. A break opens the downside trade. SKF at $17.20 on sector breaking lower. Watching how this unfolds as the sector has not been much of a leader on the upside. Thus, downside may be limited. MONDAY: was one of the leaders and looking for some upside follow through.
  11. Crude oil (OIL) held support at $97.50 on crude and looking for an upside trade on a reversal. Entry near the $23.50 level. This would be a trade only on a bottom reversal. MONDAY: dropped nearly 1% on the day and now looks prepared to move lower?
  12. Copper (JJC) dumped lower on China fears. Could offer an upside trade on oversold conditions when the anxiety wears off. Watch and will post entry as this unfolds. JJC is the ETF for the metal or FCX is the stock to trade relative to the price of the metal. MONDAY: No clear decision on direction, but the metal is holding near the low. Bounce? Watch and let it unfold.

NOTE: There are other trade opportunities posted in the Weekly Outlook for March 17th if you want to review them. We will continue to monitor the list throughout the week and add to this list what meets our risk/reward strategy for each model or pattern list.

Models:

Sector Rotation Model (updated Р3/15/14) Updated for the weekly outlook.

ONLY ETF Model (updated Р3/15/14) Short Trade Opportunities for Volatility Posted

S&P 500 Index Model (Updated Р3/15/14)

ONE EGG Model (updated Р3/15/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Still cautious and suspect heading into the trading day. Be patient and have a willingness to let the trend define itself.
  2. JPM – entry $57.60. higher low, with 200 DMA as trendline. Follow through add position.
  3. XLK – entry $36.20. Reversal from selling. Watch for follow through move.
  4. NLY – entry $$11.40. Continuation breakout. Move above the 200 DMA a plus. Mortgages on the rise in demand and will benefit Annaly.

Pattern Trade Tracking & Follow Up:

  1. SMH –¬†entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop
  2. AMZN Рentry $375. Breakout follow through back to $400. Gap open sold lower. Stop $360
  3. GMCR Рentry $109. Test of vertical  move higher. Stop $109. Nice follow through on Friday, raised stop to even. let it run if the move continues.
  4. SDS –¬†entry $28.85. Topping on the S&P 5o0 index equals bottom reversal for the short ETF. Stop $28.85. Watch how today plays out. HIT STOP
  5. FIO – entry $11.50. Breakout trading range. technology. Stop $11.50. Nice break higher, but raised stop on current environment. HIT STOP
  6. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $3.85.
  7. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  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 $12.50. 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. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $131.30. 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.
  • 3/15 – Watch the put option trade as the stock approaches support at $67.20. We have a $1 gain on the contract and want to manage it as well as the stock position.