Trading Notes for Today, March 4th

Market Outlook:

Russia’s move into the Ukraine¬†dominated¬†the headlines on Monday. The question is how long does the impact last if the¬†“war” doesn’t evolve? There is plenty of speculation on what might happen, but overnight the news is that Russia is calling troops back to their bases after a “military exercise”. The futures are up and the hope of peace is in the headlines. For whatever reason this doesn’t seem to be over, but the headlines currently are of the opinion it is. Thus, look for stocks to trade higher today. I love news driven markets!

The VIX index jumped to 16.8 intraday on Monday and closed at 16. Watch to see if the volatility is done as quickly as it began. If the worries subside the SVXY trade may be attractive as volatility will be sucked out of the market and resulting calm will provide the opportunity. 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. S&P 500 index moved back below the 1850 level as quickly as it move above it. Watch how the index responds to the Russia issues and the economic data the balance of the week. Support remains 1810 and for now.
  2. The NASDAQ remained in a negative mood and dropped 30 points on the day. 4225 is the level for support short term on the move above the January high. Watch for technology to regain the leadership role if the buyers are going to step back in and push prices higher.
  3. Dow leads the indexes lower with a move back to the 50 DMA. Still lagging the other indexes and nothing has change with the action on Monday. For now patience as this plays out.
  4. Russell 2000 Small Cap index continued to struggle on Monday dropping 6 points to 1176. Failed to hold the move above the 1181 mark and looking for how this will play out on the week. For now we will hold our positions and adjust our stops.
  5. Europe (IEV) is trading in unison with the US markets, but added to the downside move on Monday on the global fears related to Russia. Failed to hold the $47.70 mark as support for now, but still worth our attention. Adjust your stops according to risk currently.
  6. Transports (IYT) made the move above $131.20 last week. No follow through on Monday as the broad markets worked their way lower. Still in the trading range and holding above the 50 DMA. Patience is key.
  7. Consumer Services (XLY) pushing through resistance with entry at $65.50. Great leadership last week for the sector and watching to see if it continues following Monday’s test. Stop now is the entry point on the trade to manage the risk.
  8. 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 Monday. Made move above the entry at $21.65 level, but failed to follow through thus far. Manage your risk short term.
  9. 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… Watching.

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

Sector Rotation Model (updated Р3/1/14)

ONLY ETF Model (updated Р3/1/14)

S&P 500 Index Model (Updated Р3/1/14)

ONE EGG Model (updated Р3/1/14)

Pattern Trading Setup:

Today’s opportunities:

  1. ¬†Watching the reversal of fear towards the Russia/Ukraine issues. Futures are highers… but still an issue.
  2. NOV – entry $77.10. Bottom reversal (double bottom) breakout. energy still looking to move higher.
  3. KOG – entry $12.15. Trading range. Small move higher and then consolidation. Looking for breakout in the energy sector.
  4. UCO – entry $35.20. Flag. Watch for move higher on the related events in Russia. Trade only. Gap open passed on trade. Watching to see how it responds to the test lower today with the issues calming towards Russia. Holds $35 it is of interest to add to positions.

Pattern Trade Tracking & Follow Up:

  1. SDS – entry $29.55. Bottom reversal. News and overbought conditions could lead to some selling in the broad index. Stop $29.
  2. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late. Stop $31.40
  3. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.20.
  4. LEN entry $42. Consolidation breakout. Homebuilders. Stop $43.
  5. 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.
  6. 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.
  7. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $113.25.
  8. EEM entry $38.75. Bottom reversal and continuation higher. Stop $38.70. HIT STOP
  9. EFA entry $65.25. Bottom reversal and continuation higher. Stop $66.25. HIT STOP
  10. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $183.90.
  11. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $62.10.
  12. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $88.80.
  13. 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.
  14. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $128. Watching the reversal on Russia today. 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.