Trading Notes for Today, March 24th

The topping action we discussed two weeks ago is still building, it is just taking longer to work through with the bounce back to the previous highs. Each top takes on it’s own characteristics and this one is struggling on several fronts. Last week it had to deal with the FOMC news and the comments from Fed Chair Yellen. It is still dealing with what is going to happen, i.e. uncertainty. We know QE is phasing out $10 billion at a time and now down to $55 billion per month. Economic data the first two months of the year are far from promising relative to future growth moving above the 3% level. This has been an ongoing issues and remains an uncertainty for investors. Geopolitical issues with Russia and Ukraine are not over and they offer more uncertainty in the global markets. Throw in North Korean actions and the US has issues that may develop, or it creates another area of uncertainty. The point is there is plenty on the table and plenty to keep the market from advancing.

On the other side, the argument for the markets continuing to move higher are not very convincing either. The primary question is are we breaking as a result of the uncertainty or just re-positioning for other sectors to lead, or rotation? Financials did give up gains on Friday, but the sector does have some leadership in stocks like JP Morgan, Citigroup and Capital One to name a few. Electronics are breaking down some, but are still in a strong uptrend. Semiconductors are still leading with some rotation within the sector on leaders. It is easy to want to be negative, but is discipline that looks for the leaders and follow them.

What are we looking for Today?

Plain and simple… leadership. What character is the market going to take on going forward? The answer to that question is the key issue facing the market overall. Thus, remain patient, let it unfold and don’t force trades. I am posting less to the Watch List on the models by design… I don’t to put money at risk until we can clearly define the risk.

Patient and with an open mind is how we start the week.

Outlook for the Week of March 24th

Sectors to Watch:

  1. S&P 500 index watch for 1840 support and 1885 resistance. Otherwise we watch how it unfolds going forward.
  2. NASDAQ 4244 support and 4370 resistance. Patience to let it trade within the range.
  3. EFA to hold support ($64.50 ). Europe (IEV) will be key part of the solution with support at $46.50. Let it unfold going forward.
  4. Emerging markets (EEM) Break the downtrend line back to the upside and I am interested.
  5. Bond yields tested 3.55% last week and watch to see if we bounce back near the 3.75% resistance and remains in the range.
  6. Healthcare (XLV) broke support closing below $58.44? Look for a bounce back, if fails to do so the short side of the trade will develop. Providers (IHF) his a new high last week in contrast. Drugs (IHE) broke lower along with biotech (IBB).
  7. Financials (XLF) hit new highs last Thursday. Gave back on Friday. Banks (KBE) did same, watch how they open this week. Regional Banks (KRE) Could be strong as stress test less of a drag. Brokers (IAI) stock picking sector. Insurance (KIE) stock picking 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 Р3/22/14) Updated for the weekly outlook.

ONLY ETF Model (updated Р3/22/14) Short Trade Opportunities for Volatility Posted

S&P 500 Index Model (Updated Р3/22/14)

ONE EGG Model (updated Р3/22/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Watch the selling from Friday and tighten stops on positions. Willing to let today unfold before we take on more positions relative to the market direction. Keeping the posts from Friday.
  2. LVLT – entry $38.90. Trading range. Consolidation in an uptrend. Telecom sector. Stop $37.95.
  3. SDS – entry $29.11. bottom reversal. If we get further downside action to the FOMC meeting. Looking for opportunity to trade the news reaction if it develops and hedge positions.
  4. QID – entry $57.35. bottom reversal. If the negative in stocks like AMZN, NFLX and ALXN continue downside will accelerate.

Pattern Trade Tracking & Follow Up:

  1. NFLX – entry $425.60. doji reversal on selling. interesting technical setup. Stop HIT$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. Stop HIT $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.
  • 3/24 – Holding support at the $66.50 level. If we break lower the downside could accelerate towards the $60 mark. Keep stop in place on the shares and manage your put contracts.