Trading Notes for Today, March 3rd

Market Outlook:

The focus will shift to the economic data for February. Friday’s data was helpful in setting a positive tone going forward. The Chicago PMI was better than expected at 59.8 and hopefully is a sign of things to come from the ISM Manufacturing number on Monday. Consumer sentiment was in line and pending home sales improved to the positive side gaining 0.1%. The hope is for improvements to show in February’s data.

The key is to keep your discipline in place and not get caught up in the hype over the markets moving higher. If they go, great! However, if they correct you know where the exits are. There are too many mixed signals from both the buy side and the sell side. For now the trend is higher and we will follow the trend, but the downside risk is also elevated and thus the need to manage your exit points.

Russia’s move into the Ukraine is weighing on the futures this morning and we have to respect the short term catalyst of the event on global markets. The VIX index will move higher on the news and give and indication of the sentiment. Be patient and watch how it plays out in the early part of the trading day.

Manage the risk of the positions in the models and take gains based on risk of the event relative to trade positions. Longer term positions we will manage the outcome and give more room to the volatility.

Sectors to Watch:

  1. Commodities are responding to the issues in the Ukraine as well. Gold is up nearly 2%, oil is up 1.4% and natural gas is up more than 1%. You don’t want to chase them, but look for an opportunity based on how the news unfolds this week.
  2. S&P 500 index made the break above 1850 finally. Now comes the challenge… holding it and moving on from here. Watch how the index responds this week as economic data sets the tone. Support remains 1810 and for now.
  3. The NASDAQ struggled late on Friday with profit taking as the index closed negative on the day, but higher on the week. 4225 is the level for support short term on the move above the January high. Watch for technology to regain the leadership role this week or the sector may struggle.
  4. Dow made nice gains on the week as it cleared the 16,300 level. Still lagging the other indexes, but it is beginning to play catch up. For now patience as this plays out.
  5. Russell 2000 Small Cap index struggled on Friday with the NASDAQ. Held the move above the 1181 mark and looking for leadership this week to continue. For now we will hold our positions and adjust our stops on the move higher.
  6. Europe (IEV) is trading in unison with the US markets and held above the $47.70 mark as support for n now. I would like to say the data matter in Europe, but it matter more what happens in the US markets. Adjust your stops according to risk currently.
  7. Transports (IYT) made the move above $131.20 to end the week, but we need to see a follow through this week or it could be drag on the broad markets. Still in the trading range and holding above the 50 DMA. Patience is key.
  8. Consumer Services (XLY) pushing through resistance with entry at $65.50. Great leadership this week for the sector and watching to see if it continues. Stop now is the entry point on the trade to manage the risk.
  9. Financials (XLF) need some upside leadership from the sector short term? That was what we were hoping for this week, but it didn’t materialize… on to next week and see how it unfolds. Made move above the entry at $21.65 level, but failed to follow through thus far. Manage your risk short term.
  10. Real Estate (IYR) has continued to add to the upside and we are at the next entry level if the upside continues. Made the move above $68 again Friday? Watching.

The models can be linked to below and each has been updated for the current outlook:

Sector Rotation Model (updated – 3/1/14)

ONLY ETF Model (updated – 3/1/14)

S&P 500 Index Model (Updated – 3/1/14)

ONE EGG Model (updated – 3/1/14)

Pattern Trading Setup:

Today’s opportunities:

  1. SDS – entry $29.55. Bottom reversal. News and overbought conditions could lead to some selling in the broad index.
  2.  VXX – entry $44.70. Geopolitical issues are in play and volatility will rise on the worries about the outcome of the events. Watch for move towards the $48 level initially on the anxiety.
  3. UCO – entry $35.20. Flag. Watch for move higher on the related events in Russia. Trade only.

Pattern Trade Tracking & Follow Up:

  1. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late. Stop $31.70
  2. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.20.
  3. JBL entry $18.80. Trading range consolidation. Technology sector. Stop $18.80 STOP HIT
  4. LEN entry $42. Consolidation breakout. Homebuilders. Stop $43.
  5. PXLW entry $5.25. Reversal top and test of support. Held the support at $4.80 and now positioned to reverse direction back toward upside. Software sector. Stop $5. Stop HIT
  6. AEIS entry $27.85. Triangle consolidation breakout. Energy sector. Passed on entry with volatile open. Watching today for the trade with positive day. (2/18 post) Stop $27.50. STOP HIT
  7. TQNT entry 9.37. Flag on break higher. Looking for continuation of the upside move. Semiconductor. Stop $11.50. Gap higher and still moving higher, adjust your stop.
  8. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $24.25. Nice move higher on Monday to break to new high.
  9. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $113.25.
  10. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.70. Willing to add if clears the $39.90 mark today.
  11. EFA entry $65.25. Bottom reversal and continuation higher. Stop $66.25.
  12. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $183.90.
  13. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $62.10.
  14. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $88.80.
  15. BHI entry $57.15. consolidation breakout. Oil Equipment sector. Stop $60.30. Nice break higher and expect a test of the move as follow through.
  16. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $127. Momentum remains positive short term and watching to see how it responds to the move.

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.