Trading Notes for Today, March 20th

Wednesday was all about the FOMC meeting and how the Fed viewed the progress of the economy. The revisions lower along with the rumored hike in rates sooner than later sent investors into a worry state. Some selling got the attention of the markets overall as the dump lower on comments from the Fed Chair. Today is of interest in response to the late selling unfolds into today’s trading. Plenty to deal with and plenty to contemplate… is it enough worry to tip the scales towards sell.

What are we looking for Today?

The first thing I am looking for today is the real response to the Fed comments from Wednesday’s FOMC meeting. The reaction was immediately some selling. Then in the interview the time line of around six months for Fed funds rates to rise sent stocks lower as a second reaction to the meeting. Having slept on the comments investors will decide what they really think about the implication going forward. The downside was the start how does it finish? Equally important, how long does the reaction impact the markets? Is this a news event or the catalyst for a new trend? Patience and time will answer the questions.

Europe is lower in early trading overseas. The EAFE index closed down 1.2% on Wednesday and is currently down about 0.5% as the European markets start trading. The global reaction to the Fed comments were more negative than the US markets and that is a concern moving into today’s trading.

Putting the Yellen comment in perspective is important today from my view. Putting the time line into perspective, six months from the end of the current stimulus still puts us in the March-April 2015 time line and that is close to the original projections by the Fed. Thus, how it was said is more the issue than what was said. Don’t rush to the exit on comments. Let it all unfold.

The dollar/euro reversal? Again, a reaction to the comment and looking to see how it unfold today. As the reaction subsides could be opportunity to buy the euro on the drop.

Bonds sold int response as well with TLT down 0.8%. Found some support near $107 and $105.50 is the bottom of the current range. Watching to see if the selling subsides today as the bond was overbought technically to start the week.

Gold (GLD) fell again and is now at a decision point of selling and breaking the new uptrend or finding support to bounce and hold the trend. That is worth our attention for the resulting opportunity. The prevailing trend is higher?

Some breakouts worthy of Note:

INO – broke from flag pattern to previous high, nice move. FSLR – gained 20% on earnings nice move higher. Z – continued the move higher. Plenty of good news in the bad reaction… watching to see how it plays out.

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 held above the 1850 support/resistance on Wednesday as the selling was introduced again on the Fed response. Watch how the index responds today in relationship to this new found sentiment. Support remains 1810. Watch your stops on position added Tuesday’s upside move and follow through as the index lost some momentum on Wednesday.
  2. Watch EFA to hold support ($64.50 ). We were looking for the downside to resume this week, but based on the Ukraine resolution the buyers came back to work. Of course the move lower Wednesday was in response to the FOMC meeting and now we look for the best opportunity as it sets up near term. Europe (IEV) was the other part of the downside move and it returned on Wednesday to it’s selling ways. Watch.
  3. Emerging markets (EEM) are next on the list to hold support at $38.07. They did on Monday and added 1.3% on the bounce to help the bounce off the low establish. Tuesday we followed through with another gain of 1.4%, but the $39.85 resistance just over head again. The Fed intercedes and the sector moves back towards the previous low and looking to hold support. Watch.
  4. The NASDAQ tested 4249 support last week and held. Two days of buying to start the week and push the index back towards the previous high of 4370 with a close on Tuesday at 4333. For now I am willing to watch and see how this unfolds… up or down.
  5. Bond yields tested 3.55% last week and then bounce to 3.67% on Wednesday. Watch to see if we bounce back near the 3.75% mark going forward. If so, watch for position in TBT to play the downside as a trade only short term.
  6. Technology (XLK) closed below $35.80 support and set up short opportunity last Friday, but that reversed back to the previous high the last two days. Talk about your sentiment shift! Add to that the selling in response to the Fed on Wednesday and you are dizzy. Watch for the upside to lead if the broader indexes are going higher. Keep your stops close by. SOX remains the key sector to the future of the broader index. Held up well on Wednesday.
  7. Energy (XLE) tested support at $85.80 and bounced back up the last few days on the broad market sentiment shift. We would be interested if the resistance break through the $88.50 level of resistance near term. A move below the 50 DMA give interest in the downside.
  8. Healthcare (XLV) was flat on the day in response to the FOMC meeting and we have to manage the position added to the S&P 500 Model. The providers (IHF) gained 1.4% and move to a new high. Pharma (IHE) and biotech were flat, but held there positive swing. This was one of the previous leaders and in position to reestablish that role again… or at least was.
  9. Financials (XLF) held support above the $21.65 mark. Bounced back to the $21.15 level of resistance and needs some momentum if the previous high is to be challenged short term. Some patience here as the sector looks to find some upside momentum.
  10. 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. Nice bounce to $99 crude and near the entry point for oil.
  11. Alternative energy continues to be a sector on the rise. Solar (TAN) has been a top performing sector the first quarter and has positive outlook going forward. SCTY announced earnings and moved lower on guidance. They beat expectations, but the conservative guidance cause investors to sell. This could be an opportunity going forward and one we will watch for a reversal. Wind erergy (FAN) has moved up as well and tested the 50 DMA support recently. Natural gas (FCG) tested support as well and still looking for break from the current trading range in the sector.

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 Р3/19/14) Updated for the weekly outlook.

ONLY ETF Model (updated Р3/19/14) Short Trade Opportunities for Volatility Posted

S&P 500 Index Model (Updated Р3/19/14)

ONE EGG Model (updated Р3/19/14)

Pattern Trading Setup:

Today’s opportunities:

  1. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector.
  2. SFUN -entry $85. Testing support. Looking for a bounce off the support and¬†resumption¬†of the uptrend.¬†Fails… pass.¬†
  3. NFLX – entry $425.60. doji reversal on selling. interesting technical setup.
  4. SDS – entry $29.11. If we get further downside action to the FOMC meeting. Looking for opportunity to trade the news reaction if it develops and hedge positions.

Pattern Trade Tracking & Follow Up:

  1. STX – entry $52.23. base, descending triangle. technology sector. Stop $51.
  2. OREX – entry $7.58. Trading range breakout. Continuation of the uptrend after the support test on the trendline. biotech sector. Stop $7.35.
  3. NLY – entry $$11.40. Continuation breakout. Move above the 200 DMA a plus. Mortgages on the rise in demand and will benefit Annaly. Stop $11. Reversal on interest rates moving higher.
  4. XLK – entry $36.20. Reversal from selling. Watch for follow through move. Stop $35.75
  5. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $57.33
  6. SMH –¬†entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop $43.70.
  7. AMZN Рentry $375. Breakout follow through back to $400. Gap open sold lower. Stop $360
  8. 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.
  9. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $3.85.
  10. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  11. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  12. 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.
  13. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $26.25.
  14. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $131.30. Raised stop. HIT 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.