Trading Notes for Today, March 5th

Market Outlook:

So much for the lingering effect of the Russian/Ukraine conflict. As one analyst put it today, Mr. Putin met Mr. Market on Monday and they didn’t get along very well. The end result was a reconsideration of the action being considered… for now, and the market rallied to new highs. The bigger question from Tuesday related to a blow off top or climax run in stocks. That is a big consideration at this point moving forward. Watch and see how this unfolds and keep your stops in place.

The VIX index jumped to 16.8 intraday on Monday and closed at 14 on Tuesday. So much for worries related to Russia. The rally is on or should we say we are back to the uptrend and melt higher mode for the markets. It is about the fundamentals at some point and the economic data should come back into play the balance of the week. That was the driver we expected as we started the week, before Mr. Putin intervene. Watching to see where the ISM Services numbers are today along with the ADP Jobs report. How will investors respond to the data? Will it show a recovery in February?

One of my favorite Haggar the Horrible cartoons is of him and his team building a bridge across a river with not supports. One worker asked, “what’s holding it up?” to which he replied, “never mind, just keep hammering.” When markets get like they are now I think of that cartoon image and the reply. Never mind why it is going up, just keep buying. That is the making of a climax run… thus, we have to take what the market gives, but we also have to be cautious and proceed with care.

Sectors to Watch:

  1. S&P 500 index moved back above the 1850 level and hit a new high in the process at 1873. Watch how the index responds to the Russia issues and the economic data the balance of the week. As stated above blow off top is a concern. Support remains 1810 and for now.
  2. The NASDAQ equally move to a new high with a 74 point gain on the day. 4225 is the level for support short term. Watch for technology to regain the leadership role if the buyers are going to step back in and push prices higher going forward.
  3. Dow gained 227 points to close higher at 16,395. Still lagging the other indexes, but making some progress on the upside. For now patience as this plays out.
  4. Russell 2000 Small Cap index jumped to a new high to recapture the losses from Monday, climbing 32 points to 1208. This is a new high for the sector and small caps are key to sustaining uptrends. Adjust your stops as necessary.
  5. Europe (IEV) is trading in unison with the US markets, and bounced back from selling on Monday related to Russia. Gapped back above the $47.70 mark as support and worth our attention. Adjust your stops according to risk currently.
  6. Transports (IYT) made the move above $131.20 last week. Now looking for a follow through as the broad markets work through the news mess. Broke from the trading range and looking to hold the move this time around. Patience is key.
  7. Consumer Services (XLY) pushing through resistance with entry at $65.50. Great leadership last week for the sector and getting some upside follow through this week. Stop now is the entry point on the trade to manage the risk.
  8. Financials (XLF) needed some upside leadership from the sector short term and hopefully Tuesday it began with the solid move. That was what we were hoping for this week and now we look for the follow through if markets return to normal. Made move above the entry at $21.65 level again and looking for an upside follow through short term. Manage your risk with trailing stop.
  9. Real Estate (IYR) has continued to add to the upside and made the move above $68 again… Watching for the solid move on Tuesday to help the cause.

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

Sector Rotation Model (updated – 3/4/14)

ONLY ETF Model (updated – 3/4/14)

S&P 500 Index Model (Updated – 3/4/14)

ONE EGG Model (updated – 3/4/14)

Pattern Trading Setup:

Today’s opportunities:

  1. AAPL – entry $532. Downtrend break. Held support and potential move on new product introduction.
  2. HPQ – entry $30.25. Trading range breakout. Looking for upside move with tech sector.
  3. NEE – entry $91.90. Test of breakout @ $90. Holds take entry. Utilities still in uptrend.
  4. NOV – entry $77.10. Bottom reversal (double bottom) breakout. energy still looking to move higher. Gapped higher and could have taken the entry, but passed on the intraday activity versus market. Watch today for test of the move higher as opportunity.
  5. UCO – entry $35.20. Flag. Retraced some of the gains from Russia, but held the $35.20 level intraday and interested in adding to position if the move holds and starts higher again. Max entry is $35.50.

Pattern Trade Tracking & Follow Up:

  1. KOG – entry $12.15. Trading range. Small move higher and then consolidation. Looking for breakout in the energy sector. Stop $11.65
  2. SDS – entry $29.60. Bottom reversal. News and overbought conditions could lead to some selling in the broad index. Stop $29. STOP HIT
  3. PFE entry $32.05. Ascending triangle. Pharma. Positive analyst reports on stock of late. Stop $31.40. Nice upside follow through on Tuesday.
  4. RF entry $10.50. Breaking from consolidation. Financials. Confirmed on the upside. Stop $10.20. Nice upside move from the bank finally.
  5. LEN entry $42. Consolidation breakout. Homebuilders. Stop $43.
  6. 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.
  7. FTK entry $24.75. Flag continuation of uptrend. Energy sector moving higher. Stop $24.25. Nice move higher on Monday and follow through on Tuesday to break to new high.
  8. VIPS entry $106.50. Break higher from consolidation wedge pattern. Stop $155. Gap up of 32% on Tuesday! Earnings and target upgrade on stock.
  9. SPY entry $178. Bottom reversal. Broad market index in position to bounce. Stop $183.90.
  10. FANG entry $54. Ascending triangle breakout. Test and move higher. Energy sector. Stop $62.10.
  11. QQQ entry $85.10. Move through resistance and follow through on bounce off support. Stop $88.80.
  12. 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.
  13. GLD – Entry $121. Bottom reversal. Trade back to the $125 level. Took entry on move higher. Stop $128. Watching the reversal on Russia. 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.