Trading Notes for Today, March 5th

Jim’s Market Notes:

Stocks could not find their way on Wednesday starting out much lower than expected early. They did find a bid later in the day and managed to close lower, but not a meaningful downside move. The topping range continues to develop and we are looking to see how this unfolds near term.

Downside leader remain utilities (XLU) which is now sitting on the 200 DMA. Industrials are testing lower along with consumer staples near term. The balance of the sectors show signs of fatigue, but are holding their own for now.

Today we watch how this unfolds. I don’t expect the buyers to wither and die just yet. Looking for some leadership from somewhere. Biotech was the leader on Wednesday with XBI breaking to a new high. Overall leaders are holding up and that is what makes or breaks market trends… follow the leaders. We will let this topping pattern play out and take what the market gives in the process.

NOTES OF INTEREST:

Economic data was of interest on Wednesday with the ISM services landing on 56.9 and beating expectations (surprised me). ADP employment report was lower than expected and the beige book from the Fed showed half and half on the twelve regions growth outlook. Lower oil hurt in the oil producing regions and the stronger dollar got the blame in the manufacturing regions. Typical results in this flat economic period relative to growth.

Biotech (XBI) showed the large caps were alive hitting a new high clearing the $218 resistance from the last week. IBB posted a solid gain as well but still needs to clear the $342 mark.

Solar (TAN) gapped higher again as the sector continues to lead in the energy sector. There are only nine stocks in the ETF and you have to be aware of the volatility, but for now it is leading the way higher.

Euro (EUO) remains under pressure and the short trade resumes the uptrend after five weeks of consolidation. IEV was on the downside as well with the global markets again under pressure on the sell side. Additionally, EEM fell back to support.

Bonds fell as yields were rising again on Monday. The thirty-year bond is now at 2.71% and the ten-year is 2.12%. We continue watch with a focus on yields rising and bond prices declining. TBT is of interest this week to add again if bonds decline. (Added on Monday)

Crude oil (OIL) supply data was higher, but less than expected and the price jumped 3.1%. Now that is a motivating reason for the price to jump. Still watching, but not interested until some of the speculation that is oil subsides.

Gasoline (UGA) broke higher on the strike concerns cutting into capacity and supply. Watching how the speculation in the commodity plays out.

Heating oil (UHN) continued to move higher as well on colder weather and consumption, but tested the move this week and holding the uptrend for now.

Gold (GLD) attempted to push back through $116.50, but failed to hold the move. Now raises the question of base building or reversal? Watching this week for a trade on the upside, but if the downside follows through a short trade if breaks back below the previous low ($115).

Action Taken: “Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Adjusted stops on positions in play as we flip-flop to start the week. I am expecting the upside to remain in play, but we have to plan for the unexpected should our beliefs not play out as expected.

Added STMP on the upside move on Wednesday in pattern trading.

Hit stop on FAS in the pattern trading strategy.

Sectors-to-Watch:

All the major indexes are showing signs of topping short term. This is not unusual following a nice run higher short term. We are watching the first levels of support with interest and looking for the opportunity that results from the pending catalyst… either direction. Stops need to be addressed and eyes open as this unfolds. I have cleaned the slate based on the last two days of movement. Sector are rotating and looking for he resulting leadership. Today is a good day to watch how it unfolds.

Treasury bonds fell again on the rise in interest rates. The Fed continues to convince investors they are ready, willing, and able. TMV or TBT the short trades relative to rates going higher short term.

Solar (TAN) continuing the upside move with a follow through above the 200 DMA. Big move higher on Wednesday as the sector remains a reborn leader short term.

The week unfolds showing some signs of weakness, but we don’t assume anything we follow the trend and look for what validates or shifts as we move forward. Markets remain in uptrend, but caution is advised along with managing your stops.

Money Management Strategies Links:

  1. S&P 500 Strategy
  2. Sector Rotation Strategy
  3. ONLY ETF Strategy
  4. ONE EGG Strategy
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. Starting to show topping formation, but no downside catalyst in place currently and we will watch for that issue. Question is will the upside continue? The sentiment is positive, the money flow is positive and outlook is neutral. We continue with our stance of taking the opportunities and managing the risk as it unfolds.
  2. JD – entry $28.25. Cup pattern. break higher for the sector and the stock has been one of the methodical leaders the last two months. Stop $27. Target $33. Gapped at the open and sold… watching how this follows up today following a solid earning report.
  3. PXLW – entry $5.45. uptrend test consolidation. In position to continue the uptrend off the December lows. Stop $5. Target 6.50.
  4. RIG – entry $16.80. bottom reversal. Still attempting to reverse in the energy sector. Trade back to $19.80. Stop $16.
  5. GLL – entry $97. cup and handle. Gold is at support and break lower sets up the short trade. Stop $95.
  6. INTC – entry $34.80. double bottom reversal. Semiconductors still in leadership position. Stop $34.30.

Pattern Trade Tracking:

  1. STMP – entry $59. Flag pattern. Follow through on gap higher is the entry. Stop $55.70. Target $62.50.
  2. VMW – entry $86. reverse head and shoulder breakout. Stop $83.50. Target $92.50.
  3. TSEM – entry $16.50. Weekly chart breakout of bowl pattern and 2012 high. Semi’s taking on leadership role in NASDAQ. Stop $16.75. Target $19.50
  4. FB – entry $80.25. pennant break upside. in mid consolidation phase. looking for upside trade on move. Stop $77.
  5. NKE – entry $95.50. trendline break upside. Retail remains a leader and the resumption in momentum for Nike is a trade. Stop $95.50. Target 99.40.
  6. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $21.40. Target $25. ADDED to TRADE Below.
  7. AMBA – entry $55.25. micro trend reversal. Tested support at $50 and looking for reversal and longer term uptrend to resume. Stop $63. Target $60.20 (HIT).
  8. FAS – entry $126.70. resistance break. continuation of the double bottom reversal following test. if upside continues financials join the party. Stop $124. Target $133. HIT STOP.
  9. GMCR – entry $122.80. bottom reversal. Move to the 200 DMA and then look for break of trendline higher. Stop $126. Target 139.60.
  10. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $20.25
  11. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $14.75
  12. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $21.20
  13. SVXY – entry $57. Downtrend line break. Broke the uptrend line on VIX. The short trade as the momentum shifts is the trade currently. target $61.50 (HIT). Stop $62.80 – raised stop and managing the risk, hit the target.
  14. C – entry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move (HIT). Stop $52.50 target protected.
  15. AKAM – entry $64.50. double bottom breakout. Looking for move back to the previous high if technology resumes leadership role. Took position on opening strength today. Against my emotions, but I like the earnings. Stop $67.50. Manage the stop and let this unfold on direction.
  16. NXPI – entry $82.30. trading range breakout. The earnings report helped the upside and looking for the follow through short term. Semiconductor sector. Target $88 (HIT). Stop $95. Merger news sends stock flying. Stop up and protect the gains.
  17. F – entry 16.12. trend reversal and break above 200 DMA. upside momentum from sales and target of $17.25 in play. Stop $15.80
  18. AMD – entry $3.07. trading range breakout test. Broke higher and testing the move in pennant pattern. Upside trade on the confirmation. Stop $2.93. Nice break higher and looking to follow through.
  19. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $460.
  20. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $149
  21. IWM – entry $119.50. break in range. The move through this level puts the upside back in play and expect leadership from the sector going forward. Stop $121.25
  22. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $209.
  23. FSLR – entry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $57.50. Gapped higher and adjusting the stops with the target hit.
  24. WFM – entry $48. Flag. Longer term outlook very positive off earnings. Look to hold this position going forward. May add to our long term strategy below. Stop $53.80.
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.
Long Term Opportunities: 
Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. > Added to position: 500 @ $77.50 – 1/8<  TODAY:  Holding above support and finally made move on the upside breaking above $80.50 only to reverse, but now tt is trading higher again? CRAZY! Watching how it unfolds… still work to be done.
  • Twitter (TWTR) –  (1) Added 500 shares at $42.80 (10/28/14). (2) Added 500 shares at $39.20 on 1/9/15.  (3) Added 500 shares at $40.25 for short term trade to $42.25. Stop for added shares raised to $46.25. This is a long term holding, but we will trade on short term technical data if warranted. Gapped higher on earnings and so far holding the move. TODAY: Raised stop on the traded shares above (#3). Testing move on upside and watching how it unfolds short term.
  • Bank of America (BAC) (1) Added Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. (2) Added 2500 shares at the $16.35 mark  on 10/21/14. Banks are gaining some ground on the proposed hike in interest rates and I still like our position going forward as we practice patience. TODAY: Two day rally ends with some selling on Wednesday. Tough issue for the bank and we are digging deeper on what we want to do going forward with the position. $15 is our exit point for now.
  • Whole Foods Market (WFM) (1) Added 1000 Shares @$48 11/20/14 starting position. The outlook has improved after making changes to the stores and adding new stores. The earning validated what I have been following for the last year and the company should be at the front side of a long term upside based on fundamental growth. So far so good on the sequential earnings period. TODAY: Upside is rolling over. This is where the challenge comes in owning a long term position, dealing with the downside risk. The breakout on earnings was at $53.80 an we are going to use that as a stop for now. If we get stopped out we would look for the reentry point point and go from their. Patience as the selling is on lower volume.