Trading Notes for Today, May 15th

Notes for Wednesday:

Current Story of the market boils down to uncertainty. The US markets continue to be defined by choppy markets as each day meets with new challenges. Treasury bonds are leading in rotation of assets… defensive. Utilities, Consumer Staples and Energy leading the broad indexes… defensive. The emerging markets are taking on a leadership role among the asset classes. Until we gain some clarity cash remains a great option.

Yields dump again spiking bonds higher. Plenty of reasons espoused, but the bottom line from my view is the economy is not showing the strength expected looking forward. The ECB and the Bank of England are said to be preparing to fight inflation, i.e. raising rates. As stated below signs of inflation are starting to show up in the data, at least at the producer levels. Defensive sectors are exerting some leadership again in light of all this talk.

For the second month in a row PPI jumps more than expected. The cost increase a the producer level will eventually get passed on to the consumer is the spike prevails. They rose 0.5% in March and 0.6% in April and we will see if there was any impact to CPI tomorrow with the projections at 0.2% increase. The market response as the open was some selling, but not enough to worry anyone about a reversal from the current push higher.

Volatility remains non-existent which reflects little concern about the downside risk in the current market environment. We all know that can change at the drop of a hat and we continue to watch for signs of this heating up short term.

Until there is good reason to put money at risk we are willing to sit on the sidelines and let it all unfold one day at a time.

Outlook for the Week of May 12th:

Sectors to Watch:

  1. Small Caps – closed down 1.6% and struggled throughout the day. The index continues to trade either side of the 200 DMA, but gave all of Monday’s gains and then some on the day. As we stated Monday one day does not create a trend reversal and now we are back where we started the week watching to see if the downside is going become the trend short term.
  2. REITs – The sector remains in a uptrend, but has spent the last five trading days moving sideways. Still interested in holding and managing 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 (broke higher), LHO top of range, DFT top of range (nice breakout), DLR broke high from range (nice follow through), LXP broke from consolidation (good follow through), and WRI are a few of the REITs to watch.)
  3. Emerging Markets – The sector broke above the April highs as the noise relative to Russia has quieted. After all the ups and downs and a four week consolidation pattern, we got the continuation break on Monday with two solid days of follow through. Still have a 12-36 month outlook on the sector to move higher. Added position to the EGG Model.
  4. Global markets have been attempting to move to a new high on Monday. The EAFE index(EFA) pushed to new highs (above $68). 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 and currently at 3.37% with reversal on Tuesday and Wednesday. So much for the rise in yields that started last week. That is now erased and heading towards a new low. The ten-year hit 2.54% with a move below the bottom end of the current trading range. Holding our bond positions, but not too worry about the rise in yields from last week at this point.
  6. Energy (XLE) remains a leader, but it is looking tired and has paused short term in the consolidation currently. Be cautious and adjust your stops according to your time horizon. Technically overbought, but watching and managing the stops. Started the week on the upside and holding withing the consolidation pattern.


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

ONLY ETF Model (updated – 5/14/14)

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

ONE EGG Model (New Scan Results Posted – 5/14/14) EEM being managed.

Pattern Trading Setup:

Today’s opportunities:

  1. Market remains challenged relative to clarity and confidence. Remain disciplined in your approach and manage the risk of the current market environment.
  2. GOOG – entry $533.85 – $530 July Call Option. double bottom reversal. Patience with the entry on this trade.

Pattern Trade Tracking & Follow Up:

  1. ERUS – entry $$18.75. ascending triangle breakout. Russia has moved off the lows on positive comments from Putin. Move above $18.64 would be breakout point for the ETF. Stop $18.20.
  2. VIPS – entry $147. trading range bounce off low. Trade back to the topside of the range. Stop $143.
  3. AMGN – entry$112.75. Bottom reversal and break from consolidation. Stop $110.70
  4. AAPL – entry $590. Test of gap higher. Splitting 7:1 and should add a upside boost short term to the stock. Stop $580.20.
  5. SANM – entry $21. Flag. Technology sector. inside trading day look for break today and follow through. Stop $20.20.
  6. MXWL – entry $15.25. Testing trend (30 DMA). Trade to $17 and exit. Stop $14.70.
  7. S – entry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday and moved higher Monday. Stop $8.41.
  8. HAL – entry 64. Flag. Energy wants to move higher. Patience. Stop $62.10.
  9. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $75.
  10. RAD – entry $7.45. Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
  11. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  12. 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.

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)
  • 5/12 – solid bounce off the low, but remains within the trading range. could trade the move back to the upper end of the range at $63. Watch today to see how it moves.