Trading Notes for Today, March 6th

Market Outlook:

Now back to our regularly scheduled event of the week… economic data. ISM Services numbers were a big disappointment Wednesday falling well below expectations  at 51.3%. The decline from January was equally disappointing, but the drop of 8.9% in employment was the most eye catching for me. Coupled with the ADP jobs report on Wednesday it doesn’t paint a very good picture for the jobs report on Friday from the government. ISM Manufacturing bounced back in February and the hope was for both to point to an improving economic picture short term. So much for hope!

The Fed beige book was as expected, but the key data point was the number times that weather was used to explain the comments and slowing in several regions. Chair Yellen had already eluded to this talk in the testimony to Congress last week which took some of the surprise out of the message. The hope now rests on the bounce effect once the weather clears 🙂

Volatility moved below 14 on Wednesday in a digestion day following the move higher from Tuesday. You still have to be aware of the issues in Ukraine and not take for granted the issues are resolved. Equally the economic data is not setting a trend on the upside and at some point it will matter. Still using our trailing stops and taking what the market gives.  

Crude oil is in position to hold support or move lower. OIL at $23.74. Holds the upside is likely to continue. Breaks sets up a potential short trade. Monitor your positions in UCO as it is sitting on the stop and oil is slightly lower overnight.

Gold is testing the move higher from the Russia news event. Holding a move above $129.50 gets interesting for a potential run to $137. adding the potential trade to the ONLY ETF Model.

Sectors to Watch:

  1. S&P 500 index moved back above the 1850 level and held near the new high at 1873. Watch how the index responds to Russia and economic issues the balance of the week. Support remains 1810 and for now as we manage the stops accordingly.
  2. The NASDAQ move to a new high with a 6 point gain on the day. 4225 is the level for support short term. Technology is regaining the leadership role and buyers look to step back in and push prices higher going forward.
  3. Dow gained dropped 35 points to close at 16,360. Still lagging the other indexes, but making some progress towards the upside. For now patience as this plays out. Goldman Sachs led the index on a breakout move along with the Financials posting a positive move on Wednesday.
  4. Russell 2000 Small Cap index jumped to a new high to recapture the losses from Monday. The small give back on Wednesday leaves the index near the new high and 1205. The small caps sector is one 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. Need move above the $48.60 mark.
  6. Transports (IYT) made the move above $131.20 and broke from the trading range. Now looking for a follow through as the broad markets work through the news. Patience is key going forward.
  7. Consumer Services (XLY) pushed 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) market needed some upside leadership from the sector short term and Tuesday it began with the solid move followed up with another 1% gain on Wednesday. That was what we were hoping for this week and now we look for the upside to continue going forward. Manage your risk with trailing stop.
  9. Real Estate (IYR) made the move above $68 again and tested on Wednesday near the $68.80 level before bouncing into the close. Patience and stop management.
  10. Bond yields have bounced off the low again and put bonds in position to pullback again from the move higher. TLT is showing double top and a move back near $106 is not out of the question. Thus,  TBT shows a double bottom pattern worth watching. ONLY ETF Model.

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

Sector Rotation Model (updated – 3/5/14)

ONLY ETF Model (updated – 3/5/14)

S&P 500 Index Model (Updated – 3/5/14)

ONE EGG Model (updated – 3/5/14)

Pattern Trading Setup:

Today’s opportunities:

  1. FAS – entry $93 (post 3/6) Bottom reversal and break to new high. Financials making a run towards leadership.
  2. HPQ – entry $30.25. (post 3/5) Trading range breakout. Looking for upside move with tech sector.
  3. NEE – entry $91.90. (post 3/4) Test of breakout @ $90. Holds take entry. Utilities still in uptrend.
  4. NOV – entry $77.10. (post 3/1) 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.

Pattern Trade Tracking & Follow Up:

  1. AAPL – entry $532. Downtrend break. Held support and potential move on new product introduction. Stop $523.
  2. KOG – entry $12.15. Trading range. Small move higher and then consolidation. Looking for breakout in the energy sector. Stop $11.65
  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.
  • 3/5 – Target upgrade and stock runs higher on the move. Move stop to $65 and what how this plays out from this point patiently.