Trading Notes for Today, March 21st

Thursday the market digested the Yellen comments and decided it liked the upside better after all. Financials provided the leadership along with Semiconductors and Telecom. Several sectors broke out to new highs and the positive sentiment return almost as quickly as it left at 3 pm on Wednesday. The economic data from housing and the New York PMI helped shift the negative futures back to positive territory and we closed higher again on Thursday. As we close the week today watch for some profit taking or a continued move to the upside.

It is Friday and we will be cautious about adding new positions into the weekend. The key for today is follow through. Keeping what moves were made relative to breakouts and momentum. Exercise patience as the day unfolds.

What are we looking for Today?

Rotation on leadership? Some of the leaders were fading and laggards gaining on Thursday. Watch to see if the rotation continues today. The internals were not great on the move higher which is another indication of rotation or end of the run? Thus, watch, take what the market gives, but understand the risk you are taking on.

Financials to continue the upside move and potentially add to our positions. Banks (KBE) led the way higher on Thursday and a follow through to the move would be a plus for the broad markets. Regional banks (KRE) and brokers (IAI) made solid moves as well. Looking for the leadership stocks. Scanning the sector shows plenty of pattern breakouts worth watching.

Technology continues to provide solid leadership for the broad markets and semiconductors are leading the way with a new high.

Europe (IEV) to rejoin the US markets on the upside. Bounced back to the 50 DMA and now needs to continue the upside. There are plenty of concerns relative to what is happening globally, but the country charts are still positive with a longer term perspective and a stomach for volatility.

The dollar/euro reversal? Another positive day for the dollar, but no convinced it will last short term. Still expect the downside to in play and gold to rise in conjunction. 

Bonds were flat on Thursday and still watching the downside risk. If all is well, according to the FOMC meeting, then rates should rise modestly going forward and bonds move lower.

Some breakouts worthy of Note:

BAC Рfinally cleared resistance. JPM Рmoved above the $60 resistance and new high. C Рtwo solid days and double bottom move. AMAT Рbroke from consolidation to new high.

Advance with caution and follow the leadership for trades. This is still a market without clarity and direction short term. Longer term the uptrend remains intact. Remember to follow your time horizon on each position and not the news.

Outlook for the Week of March 17th

Sectors to Watch:

  1. S&P 500 index reversed back to the upside after the Yellen slip. The support is 1840-1850 currently and the upside is back in trading terms, never left on the longer term trend. Key support remains 1810 and resistance on the upside is 1874. Watch your stops on positions added in the S&P 500 Model. Patience as this works out.
  2. Watch EFA to hold support ($64.50 ). It did hold support, but still closed in the negative on Thursday. We were looking for the downside to resume, but it has managed to hold steady at this support level for now. Watch for upside opportunity. Europe (IEV) was higher, slightly, on Thursday, but it is the key to the EAFE index rebounding from this test lower.
  3. Emerging markets (EEM) are next on the list to hold support at $38.07 which they did again on Thursday. They key is to find direction short term and then we will decide on how to trade the sector. For now we watch.
  4. The NASDAQ tested 4249 support last week and held. This week it is forming a wedge or triangle pattern of consolidation and looking for a catalyst to define the direction near term. 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) tried to break above the $36.60 high water mark today and closed right at it. The upside in the sector has been a leaders for the broad index and the SOX index is driving the sector higher. Added to the S&P 500 Model.  Watch for the sector 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 Thursday.
  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 trade. Watching XOP for the EGG Model.
  8. Healthcare (XLV) was flat on the day in and we have to manage the position added to the S&P 500 Model. The providers (IHF) continue to add to the new high. Pharma (IHE) and biotech were lower on the day, 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) woke up Thursday gaining 1.4% and back to the previous high. Banks (KBE) started the rally gaining 1.8% as the existing home sales numbers were positive to the lending side of the ledger. KBE hit a new high on Thursday and is looking positive on the break higher. Regional banks (KRE) were up 1.9% and hit a new high as well on the Thursday. This is a sector that if the leadership tag sticks will help push the broad index higher short term.
  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. Holding near $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 Р3/20/14) Updated for the weekly outlook.

ONLY ETF Model (updated Р3/20/14) Short Trade Opportunities for Volatility Posted

S&P 500 Index Model (Updated Р3/20/14)

ONE EGG Model (updated Р3/20/14)

Pattern Trading Setup:

Today’s opportunities:

  1. SUNE – entry $21.55. Breakout new high. Consolidation in an uptrend. Semiconductors. Stop $20.
  2. LVLT – entry $38.90. Trading range. Consolidation in an uptrend. Telecom sector. Stop $37.95.
  3. 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. NFLX – entry $425.60. doji reversal on selling. interesting technical setup. Stop $418.
  2. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  3. STX – entry $52.23. base, descending triangle. technology sector. Stop $51.
  4. OREX – entry $7.58. Trading range breakout. Continuation of the uptrend after the support test on the trendline. biotech sector. Stop $7.35.
  5. 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.
  6. XLK – entry $36.20. Reversal from selling. Watch for follow through move. Stop $35.75
  7. JPM – entry $57.60 ($57.75). higher low, with 200 DMA as trendline. Followed through and added position. Stop $57.33
  8. 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.
  9. AMZN Рentry $375. Breakout follow through back to $400. Gap open sold lower. Stop $360
  10. 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.
  11. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $3.85.
  12. NEE – Entry $91 on the test of the breakout at $90. Stop $92.75. Testing the high.
  13. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.50. Nice upside move from the bank finally.
  14. 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.
  15. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $26.25.

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.