Trading Notes for Today, March 19th

Tuesday flirted with some early selling, but then reversed and move higher throughout the day. The major indexes made solid moves with the NASDAQ leading the way up 1.25%. Small caps were up 1.4% and the S&P 500 index gained 0.7%. We stated that Monday could be an indication of what the sentiment could be and buying would resume, thus far that has been the case. The key is to let it unfold without assumptions. Remember it is news driving prices short term.

What are we looking for Today?

More upside or follow through to the current bounce. After two days of rebounding from the negative sentiment last week analyst are not talking about the next bull run for the broad markets. I suggest we take it one day at a time and see how it unfolds.

NASDAQ and Russell 2000 indexes leadership. This is what pushed the current trend higher and it is back, at least the last two days. The upside in technology with semiconductors has set the tone for the NASDAQ and the biotech stocks have helped the small cap index. Looking for the leadership to broaden if this is to be any more than a bounce.

Commodities are increasing in volatility again as crude moved back towards the $100 level and we hit the entry on the trade in the ONLY ETF Model. Gold traded lower adding pressure on the downside and the trend. Could react further to the Fed today if tone is aggressive on lower rates. Agriculture (DBA) is topping and worth watching for a continuation of the previous trend.

Fed wants lower rates and the Yellen era of keeping them low starts today with the FOMC meeting conclusion and press conference. The only real drama is going to be any changes to the language used to announce the Fed intentions going forward. Trading could be quite heading into the afternoon announcement. Any surprises from the Fed relative to the overnight funds rate rising anytime soon (rumored to be on the docket) the market will react in negative format.

S&P 500 index to regain some upside momentum. Financials (XLF) are lagging this bounce and it will need to kick in and help the upside if momentum is to continue. Consumer services (XLY) are lagging as well on this bounce and we know the consumer is important to any sustainable upside move.

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.

Some breakouts worthy of Note:

Z – broke from trading range at $92.50 and heading towards the September high. SCHN – broke from a trading range as well at $26.60 with the 200 DMA just ahead. MSFT – broke from trading range on iPad software rumors. A look at the weekly charts shows the significance of the move for the stock.

Concerns in the data points on Tuesday with the housing starts disappointing and lower for the third month. This is not your typical housing recovery type of data as you dig into the numbers and find that multifamily housing is dominating (apartments/rentals). Higher interest rates and affordability are a challenge for the sector and something to keep in mind moving forward in the sector. It is also a barometer for the strength of the economy overall.

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 Monday and closed at 1872 up 13 points or 0.7% on Tuesday. Watch how the index responds today in relationship to this new found sentiment. Support remains 1810. We added SPY and other sectors to the S&P 500 Model on Monday and Tuesday.
  2. Watch EFA to find some support ($64.50 ). It did and has bounced to the upside along with the US markets. We were looking for the downside to resume this week, but based on the Ukraine resolution the buyers are back at work and now we look for the best opportunity as it sets up near term. Europe (IEV) was the other part of the downside move, but that has reversed to the upside as well.
  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. We will look to establish a position again if this can break through. Patience as it unfolds.
  4. The NASDAQ tested 4249 support last week and held. With sentiment shifting on Ukraine the buyers have been willing to step in and push the index back towards the previous high of 43.70 with a close on Tuesday at 4333. Now looking at a position in QQQ on the reversal. $90.60 entry looks good heading into today’s trading.
  5. Bond yields tested 3.55% last week and then bounce to 3.61% on Monday. 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 has reversed back to the previous high the last two days. Talk about your sentiment shift! Watch for the upside to lead if the broader indexes are going higher. The semiconductors are back in a leadership role as well.
  7. Energy (XLE) tested support at $85.80 and bounced back the last two days on the broad market sentiment shift. We would be interested if the resistance break through the $88.50 level of resistance near term.
  8. Healthcare (XLV) gained 1.1% and moved through out entry point of the S&P 500 Model watch list. The providers (IHF) gained 1.6%and are in position to move to a new high. Pharma (IHE) was up 1.6% and biotech jumped 2.6%. This was one of the previous leaders and in position to reestablish that role again.
  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.

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 Р3/18/14) Updated for the weekly outlook.

ONLY ETF Model (updated Р3/18/14) Short Trade Opportunities for Volatility Posted

S&P 500 Index Model (Updated Р3/18/14)

ONE EGG Model (updated Р3/18/14)

Pattern Trading Setup:

Today’s opportunities:

  1. OREX – entry $7.58. Trading range breakout. Continuation of the uptrend after the support test on the trendline. biotech sector.
  2. STX – entry $52.23. base, descending triangle. technology sector.
  3. RBCN – entry $14.13. Flag, continuation of uptrend. technology sector.
  4. ADBE – entry $69.52. Trading range breakout. beat earnings.

Pattern Trade Tracking & Follow Up:

  1. 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.
  2. XLK – entry $36.20. Reversal from selling. Watch for follow through move. Stop $35.75
  3. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $57.33
  4. 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.
  5. AMZN Рentry $375. Breakout follow through back to $400. Gap open sold lower. Stop $360
  6. 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.
  7. 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
  8. FIO – entry $11.50. Breakout trading range. technology. Stop $11.50. Nice break higher, but raised stop on current environment. HIT STOP
  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.
  14. 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.