Trading Notes for Today, March 27th

The sellers were back on Wednesday pushing the indexes lower, but the growth stocks are where we see the damage as profits are taken and cash is raised. The value stocks held up well despite the negative sentiment on the day. The old saying that growth performs better in low interest rate environments may be coming to roost with money now in motion. We will see how today shapes up as it seems to be alternating day to day on the up and down side.

Durable goods were better than expected growing 2.2% on Wednesday. That news was lost in the worries as investors shift focus. The negative in the data was that business investment was sluggish at best. It is likely to keep GDP from growing at the rates forecast for 2014. A bright spot with a yea, but clause attached.

Again, we have to remain patient as this event unfolds and markets make the rotation or shift from growth to… value? Interesting choice, but we will take what it gives as we work through the Yellen effect on the markets with higher rates on the horizon.

What are we looking for Today?

The NASDAQ has been the downside leadership this week and we look to see if that theme continues as growth stocks are dropped and large cap stocks are in favor. The slow growth picture is driving some of that theme as the large companies still have and maintain a steady market share to meet earnings expectations.

Facebook is at next level on support. Watch to see if it holds and protect gains on the short play. (see below on Facebook section.)

Moves higher in the large cap stocks as a group. They are holding steady which shows some rotation of assets, but no conviction on the move. Need to see a follow through higher if this is to play out in the short term.

Outlook for the Week of March 24th (Weekend Update)

Sectors to Watch:

  1. S&P 500 index watch for 1840-1850 support (held it on Wednesday again) and 1885 resistance. Now we watch to see if the support and bounce works or we return to test the downside support yet again. SDS is posted as trade opportunity on ONLY ETF Model and below on pattern trades if the downside gains any traction.
  2. NASDAQ broke next level of support at 4126 and the 50 DMA on the close. The impact of selling growth stocks is in full bloom. Short or bounce back? We added QID from the trade list below and ONLY ETF Model on Monday. Still letting it play out for now with solid bounce on the selling Wednesday.
  3. EFA is holding support ($64.50 ) and the 50 DMA… barely. May look to add a small position if the move holds and creates an upside trek. Europe (IEV) will be key part of the solution with support at $46.50. Let it unfold going forward. Held support and move on Tuesday. Patience.
  4. Emerging markets (EEM) Brroke the downtrend line back to the upside and showing interest from investors short term. Need to clear the 200 DMA and look for entry point for a trade on the upside. Watch for trade, but don’t fight the US market going forward. Entry $40.20.
  5. Bond yields testing 3.55% again on Wednesday at support? Question… if markets are moving are rotating in anticipation of higher rates, why are rates moving lower currently? ¬†Rotation to safety? For now I would say yes, but we have to watch to see how it trades going forward. Expect higher rates.
  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. We posted the short trade using put options on XLV in the Weekly Update last Saturday. We added that position on Friday and we continue to monitor the outcome with a stop at break even on the entry. Bounced, but still not convincing on the move. Biotech is the drag currently.
  7. Financials (XLF)¬†hit new highs last week, but have stumbled since and attempting to hold the $22.15 level. This the sector that would be a benefactor to higher rates. Watch for the eventual move if the Fed follows through looking forward. The market/investors just need to believe that is the Fed course, and Yellen provided that belief last week. The Fed move relative to Citigroup’s capital plan after-hours Wednesday will weigh on the sector at the open. let it play out and look for the opportunity longer term.

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 Р3/26/14)

ONLY ETF Model (updated Р3/26/14)

S&P 500 Index Model (Updated Р3/26/14)

ONE EGG Model (updated Р3/26/14)

Pattern Trading Setup:

Today’s opportunities:

  1. No simple answers for a market in transition without direction or clarity. The shift from growth is obvious by the sectors selling. Biotech (IBB) and Internet (FDN) have taken the on the downside. Rotation thus far has not been significant to other sectors, but the large cap dividend stocks are finding some money flow as stated above. The S&P 500, Dow and NYSE indexes have held up better the last week. This may be the next wave of money flow.
  2. JNJ – entry $96. trading range breakout. Look for test of the move and entry near $96. If higher don’t chase. (opened higher and then tested lower, watch today)
  3. AAPL – entry $545. downtrend line break higher. Follow through on Tuesday’s move. (gapped open and then worked lower balance of day.)
  4. 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.

Pattern Trade Tracking & Follow Up:

  1. WDC – entry $90. trading range breakout. Follow through on upside move. Stop $88.50.
  2. QID – entry $57.35. bottom reversal. Watch the Tuesday bounce? any legs? Stop $57.50.
  3. AKS – entry $6.65. Trading range. Looking for follow through on breakout. Materials sector. Stop $6.42.
  4. STX – entry $52.23. base, descending triangle. technology sector. Stop $54. Raised stop to see how this breakout plays out.
  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 $59
  8. SMH –¬†entry $43.95. Test of support. Semi’s sold off with broad market. Upside still attractive if the broad indexes bounce. Stop $43.95.
  9. VTSS – entry $3.82. Consolidating after move higher. Semiconductor. Stop $4.10. HIT STOP
  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 $12.75. Adjust your stop.
  13. 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. HIT STOP and held out put contracts. Watch to see how this plays out going forward. Look to lock in gains on half of the position if the selling accelerates.
  • 3/26 – Sold on buyout news and hitting next level of support? Bounce in play. Watch the puts and look to sell half to lock in nice gain and hold half with stop at $62.90 on stock.