Trading Notes for Today, May 12th

Notes for Monday:

Dow at new closing high? Why are investors not celebrating? Tale of two markets when you look at the NASDAQ index testing key support levels near the 3990 level. The intraday volatility has been in play as we start the day in one direction and end in another. There is plenty to watch and not much to buy at this point. I remain in the camp that cash is a sector and letting the market define a direction versus forcing positions. This is a market environment for patience, plain and simple.

Money is still in the rotation process from the growth sectors to the more large cap value sectors. The “flight to quality” mode is still in play. That may offer some opportunities this week and as we move forward. I would prefer a good wash out to support and then a reversal back to the upside. That would give some clarity and stop the media stock of the day headlines. But, we will be patient and let this unfold put the risk/reward in our favor.

Outlook for the Week of May 12th (Weekend Update)

Sectors to Watch:

  1. Small Caps РBack below the 200 DMA and the talk of the financial media. Intraday reversal to remain below the 200 DMA. Watching to see if the downside leadership continues with a break below $108 on IWM (tested on Friday). TZA is the short trade on the sector and watch for a move above the $18.50 level.
  2. REITs –¬†The¬†sector moved above the resistance at $68.40 and¬†has been¬†inching higher. The follow through move last week was¬†a positive for the sector. Hold and manage this position with a longer term time horizon. Scan the sector for individual opportunities and trades. Dividend is 3.8% currently. (JOE at top of trading range, LHO top of range, DFT top of range, DLR broke high from range, LXP broke from consolidation, and WRI are a few of the REITs to watch.)
  3. Emerging Markets РThe sector remains challenged by the geopolitical issues in Russia. After all the ups and downs last week we are left with a consolidation pattern to watch. Still have a 12-36 month outlook on the sector to move higher. Added partial position to the EGG Model.
  4. Global markets have been tested on the news with Russia, but bounced last week testing the highs. The EAFE index (EFA) pushed to new highs (above $68 barely). The longer term view of the asset class is still attractive and worth trading and potentially building positions as the opportunity unfolds. TUR, EPHE, EPI, THD, EWZ, EWP and EWL all trading positive direction with consolidation near the highs.
  5. Bond yields moved to new lows on the thirty year bond last week and currently at¬†3.46% following a bounce of 5 basis points on Friday. This is worth our attention this week as the bounce could bring some selling in the sector short term. The ten-year hit 2.62% with a modest bounce after trading at the bottom of¬†the range it has been in¬†since January. Holding our bond positions, but aware that yields could rise short term… manage your stops and risk. Yellen still wants lower rates for now.
  6. Energy (XLE) remains a leader, but it is looking tired and ready for a pause short term. Be cautious and adjust your stops according to your time horizon. Technically overbought, but watching and managing the stops. Ended the week with some selling/profit taking, but still in a solid uptrend.
  7. Watching patiently for some leadership this week. More rotation in play from growth to value or cash last week. Has it played out? What will it take to bring money flow back towards the growth sectors? Economic growth would be a good start, but that is happening in the current data releases, so be disciplined in where you put your money at risk.

Models:

Sector Rotation Model (updated Р5/11/14)

ONLY ETF Model (updated Р5/11/14)

S&P 500 Index Model (Updated Р5/11/14)

ONE EGG Model¬†(New Scan Results Posted –¬†5/11/14) EEM added.

Pattern Trading Setup:

Today’s opportunities:

  1. New week and same three things to watch… SOXX and S&P 500 index to hold the upside, Russell 2000 Small caps to move back above the 200 DMA, and NASDAQ to hold 3990 support. If these three don’t succeed, sellers will gain the upper hand.
  2. SANM – entry $21. Flag. Technology sector. inside trading day look for break today and follow through.
  3. AAPL – entry $590. Test of gap higher. Splitting 7:1 and should add a upside boost short term to the stock.
  4. AMGN – entry$112.75. Bottom reversal and break from consolidation.

Pattern Trade Tracking & Follow Up:

  1. TBT –¬†entry $63.80. bottom reversal. Trade on interest rates being too low. Watch today as there is some indecision on rates and global activity. Stop $63.
  2. MXWL – entry $15.25. Testing trend (30 DMA). Trade to $17 and exit. Stop $14.70.
  3. SDS – entry $28.30. Bottom reversal. negative sentiment picked up on Tuesday. Stop $27.50. watch the low on the ETF as exit.
  4. S Рentry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday and moved higher Monday. Stop $8.41.
  5. HAL – entry 64. Flag. Energy wants to move higher. Patience. Stop $62.10.
  6. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $75.
  7. RAD –¬†entry $7.45.¬†Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
  8. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  9. GE – entry $26.30. Trading range breakout. Value stock coming back into favor. Gapped on earnings above the entry… patience. Got the test early and added the position. Stop $25.70.
  10. XLE – entry $89.90. Breakout test and bounce. Tested the $88.50 level and held, now looking for a follow through move on the upside. Egg Model as well with leveraged ETF. Stop $93.60. HIT STOP
  11. NEE – Entry $91 on the test of the breakout at $90. Stop $97. HIT 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)

  • 4/17 – Still looking for some positive action in the stock to warrant going long. Opened lower fought back to positive, but never showed any conviction and closed on a doji. Watch to see how it does in trading today. We could see another test of $56 before gaining any momentum on a bounce off support. Earnings are Wednesday and that isn’t a great thing to get in front of with a new position.
  • 4/23 – It is all about earnings today. Ad revenue good stock runs higher. The option trade we discussed last week has played out nicely on the move Tuesday. Take some profit on half and carry half into earnings would be the suggested play. I will be interested to read the earning report and determine how we want to deal with the position¬†moving forward.
  • 4/24 – Sold lower by 2% into earnings. Earnings were positive and stock gains the 2% back after-hours. Watching the open today. Need to hold the move above $63 and willing to add a longer term position back in the stock with 1000 shares. Attempted to make the move higher, but traded lower on the day. Plenty of opinions on the stock currently keeping it in check and a bottoming trading range. Patience as it all plays out.
  • 4/28 – Tested support at the $54.85 level. Watch to see if it breaks support. If it does the downside trade in order. (Trade result…¬†FB –¬†sold to support at the $54.80 level held and working higher. The bounce has worked its way to $59.78 and added some shares on a move to $60.05.¬†The target would be $63.50 or top end of the trading range currently trading in. Stop $58.30. HIT STOP)