Trading Notes for Today, May 1st

Notes for Thursday:

First day of May and fresh off the FOMC meeting that said nothing new and the market cried relief and moved slightly higher to end the day. Nothing changed, but the most glaring disrespect came from the GDP growth at 0.1% for the first quarter. No correction as weather was again the excuse for the miss relative to growth. Analyst said to ignore the report and investors did. The benchmark was only 1% growth and we missed that! How is that going to play out? There is no economic growth and no one seems to care. Time will tell as we move into more economic data today. ISM manufacturing will be a important number along with the jobs report tomorrow.

We are watching the Dow as it added another 40 points to close at 16,575 (new closing high). We discussed the intraday reversal (Monday) set up a bullish harami (candlestick technical data point) which theoretically, if it opens the next day on the upside (it did on Tuesday) will make a move higher (we have)… target of 16,575 (hit today) on the move and possible trade opportunity (it was). DDM trade with stop at $113.70.

We are watching the NASDAQ Composite index which gained another 10 points to close 4114. We addressed the NASDAQ 100 left a doji (candlestick setup Monday) which if it opens on the upside (it did on Tuesday) would potentially move higher as well with a target of the 50 day moving average. QLD stop to $96.90.

Watching Google (GOOG) which traded lower and closed at the 200 DMA with a doji (candlestick setup) on Monday and if it opens positive will give a continuation off the intraday trade reversal on Monday (it did on Tuesday) with a target of $545. $520 entry on the stock or the 520 June Calls. Stop would be the 200 DMA break for now. Flat trading day for the the stock Wednesday.

We are still looking for some clarity as we close out the month and start the April economic reports on Thursday. Maybe it will bring some clarity and direction to the market near term. Proceed with caution and take what the market gives one day at a time. Future are pointed lower to start the day.

Outlook for the Week of April 28th (Weekend Update)

Sectors to Watch:

  1. REITs – The sector moved back above the resistance at $68.40 and is inching higher. We are still looking for a move above the previous high at $69.40 (close on Tuesday by a penny at $69.41 and added 31 cents on Wednesday). I still want to hold and manage this position with a longer term time horizon. Scanning the sector for the individual leadership has produced some nice plays on the upside as well. Dividend is still 3.8% currently.
  2. Emerging Markets – The sector remains challenged by the geopolitical issues in Russia. The move back above $41 Tuesday ($41.41) was a reversal of the negative moves last week. I am keeping it on my sectors to watch as the upside bias remains… at least for now, letting the Russia issues unfold before getting whipped around in the sector. Watch for some consolidation near term. Still have a 12-36 month outlook on the sector.
  3. Russia – News and speculation sent sent the country ETF lower. RBL, RUSL and ERUS are ETFs that reflects the negative impact of the selling. RUSS is the ETF for the short side of the trade if things get ugly again (Hit stop on Monday). Watch and see how this plays out and for the next trade set up on the news.
  4. Precious Metals/Gold – Held the $123.50 support last week and managed to bounce. As we discussed last week, the volatility is a result of speculation. The gold miners and the metal have returned to trading in the same direction for now. GLD closed lower on Wednesday at $124.22 and still in limbo not making any upside commitment. Move above $125.50 would be a continuation of the upside bounce. Not much in terms of conviction towards the metal currently. Cautious about anything but a trade. GDX not making any upside move either… watch and see how it unfolds.
  5. Dividend/Value Stocks – The asset class remain on our watch list as a upside opportunity. The ETFs like FGD, MDIV, HDV, DVY  or IDV all focus on the dividend part of the equation. In reviewing these you can see the downside move over the last test or pullback was considerably less than growth stocks. For longer term positions these are worth the consideration.
  6. Commodities/ Energy – The price of crude oil declined last week, but held at the $100 level of support. Wednesday we broke that support to $99.76? The downside is in play, but we will have to watch to see how it unfolds. UNG holding the move and UGA dropped on oil price declining.
  7. Commodities/Agriculture – this component climbed nearly 20% in February as coffee (JO) took the jump higher, hit another new high last week. DBA broke to new high above $28.85 last week as well and remains in play. Manage the volatility of the parts and let it run. Adjust stop on DBA to break-even at $28.50. Consolidating near the high and looking for the upside continuation.
  8. Global markets have tested of late on the news with Russia. The EAFE index (EFA) pushed to new highs (above $68 barely). Some country ETFs worth tracking now are EWC, BRZU and EWA. The longer term view of the asset class is still attractive and worth building a position as the opportunity unfolds. IEV hit new high on Tuesday as well.
  9. Bond yields moved up slightly on the mixed stock day. The thirty-year bond fell to 3.45% Wednesday testing the new lows not seen since last June. The ten-year hit 2.65% and remains in the range it has been trading since January. Rally in treasury bond is the result, but I would still be cautious and treat this as a trade on the yield move and nothing more. Holding our bond positions, but aware that yields could rise short term… manage your stops and risk.
  10. Energy (XLE) remains a leader, but it is looking ready to stall or pause short term. Be cautious and adjust your stops according to your time horizon. A test could create an opportunity to add to positions. Technically overbought, but watching and managing the stops. close on a reversal downside Tuesday watch to see how that trades going forward.
  11. Pharmaceuticals (XPH) Positive test and bounce back to resistance near the 50 DMA. Looking for a follow through on the bounce as the earnings have been mixed, but positive. The biotech sell off has been impact the sector overall, but look for the upside to follow through. $95 is the level willing to add to positions. (Hit that entry on Wednesday).
  12. Consumer Staples (XLP) broke higher on Monday with a solid move of 1.2% (big move for the sector) adding to the upside and the defensive stocks story line. Raise stop and manage the gains in the position. Small test but holding.


Sector Rotation Model (updated – 4/30/14)

ONLY ETF Model (updated – 4/30/14)

S&P 500 Index Model (Updated – 4/30/14)

ONE EGG Model (updated – 4/30/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Economic data in the driver seat with the ISM manufacturing numbers today and jobs tomorrow. Watch and take what the market gives. Not much working as the leaders are energy, consumer staples, metals and machinery. Patience.
  2. RAD – entry $7.32. Consolidation range near high. Breakout move should make it to $8 short term.
  3. FB – sold to support at the $54.80 level held and working higher. The bounce has worked its way to $59.78 and looking to add some shares on a move to $60.05. The target would be $63.50 or top end of the trading range currently trading in.

Pattern Trade Tracking & Follow Up:

  1. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  2. WNR – entry $42.40. break from consolidation. Look for test on move and take the entry as the refineries move higher. Stop $41.
  3. 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.
  4. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  5. 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 $92
  6. NEE – Entry $91 on the test of the breakout at $90. Stop $95.16.

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. (SEE NOTES ABOVE)