Trading Notes for Today – May 22nd

Energy sector led the markets on Monday and Tuesday that role went to Healthcare. The overall markets have been painfully slow in pushing higher, but the sectors have been more generous in specific areas. This is not uncommon as the upside gets extended and question rise about valuations. Take what is given, adjust your stops and manage your risk.

Home Depot earnings were positive pushing the stock up more than 2.5%, but the home builders didn’t respond in kind. ITB was off nearly 1% on the day and one to watch going forward. Downgrades to Beazer Homes started the trek lower for the sector. Watching the home sales data to see how it impacts the sector overall.

HPQ – earnings are today and they will set the tone in the technology sector? Dell’s earnings were just plain bad… how will this show up in the HP news for PC sales? Did they execute better? Or are the earnings a big disappointment. Either way there will be an opportunity in the stock.

Sectors to Watch:

  1. Gold reversed intraday and hit the stop on GLL. What now? Well based on Tuesday’s trading no one know for sure what direction they want to take the price of gold. The drop back to the bottom of the current range was negative for the metal. Closing at $132.88 was no boost to the upside or downside. Watch today as this unfolds further relative to direction short term. The downside is still the favored direction from my view.
  2. Natural Gas pushed higher on Tuesday and the stocks are attempting to break higher. FCG is attempting to push through the $17.55 resistance short term. Worth a trade if the move follows through.
  3. TLT – is $116.50 support? It has been the last two weeks. Watch to see how this plays out short term and tighten your stop on TBF or TBT.
  4. OIL – Added OIL on the break above the trendline, but that reversed Tuesday. Prices were pressured by the dollar strength and could impact the near term prices looking forward. Refinery usage are up as we head towards the Memorial Day holiday and summer driving season preparations. Gasoline fell on Tuesday as demand expectations are not very lofty currently.
  5. UGA is the play if it clears the 50 DMA or any test of the move above $56.75.
  6. DIA – Short play to $148 and fill the gap left on the move higher. If market moves lower this is the trade.
  7. Facebook – The break of support at $26.50 on Thursday was a negative. Watch $25.25 as support and a break below $25 would raise the question on hold and add to position as it bottoms, or sell and buy back as it bottoms. We are favoring selling and buying back as the next support is 10% lower at $23.28. Facebook research page to track from the webinar is up and you should have received an email link if you requested it following the webinar. You must request access to the page to view it and the updates going forward.
  8. Question… is market setting up for a pullback? The uncertainty of the Fed action is putting some doubts in the market short term. Watch to see if it develops going forward. All the events are in place, but the sellers have to be willing to exert themselves. If it transpires watch to see how quickly the buyers step in as an indication of the upside strength.
  9. Bubble Watch? The earnings growth compared to stock price gains is an sobering detail of numbers. Basic materials are up over 10% this year, but the earnings per share growth is -15.3%. The discrepancy is what has many analyst awake at night… me included. Consumer Staple EPS growth is minus 4%, yet the sector is up more than 20% for the year. Telecom EPS growth is minus 14.1% versus the sector being up 13% this year, and Energy minus 5.4% EPS growth and up 15% this year. The numbers don’t lie as they say, but they are being ignored by investors currently. That is why they created stops! That way you and I don’t have to guess if the bubble will pop, we only need to define where we are comfortable heading to the exits when it does.

Pattern Setups For Today:

  1. IGN – Gap breakout on Cisco news. Watch for test of $28.75 level and continuation higher. (inside trading days continue) Look for continuation on the upside.
  2. FOSL – Flag that should be bullish, but retail struggling. Fill the gap?
  3.  SNE – Continues to push higher as Japan’s market rallies and company turns around profit. PlayStation, Television, etc. sales are improving the bottom line. Watch for test near $20.50-21 as opportunity.
  4. XME – mining stocks set to break above resistance at $38.75 and $39.50. Watch for upside trade to $41.50.
  5. VNM – $20.88 resistance break above cup and handle. target move to $22-23.50.
  6. EWD – Break above resistance and top of range at $33.75.
  7. GXC – China test and move through resistance (cup & handle) at $73.15.
  8. SLX – $44 resistance off reverse head and shoulders pattern. $46 target.
  9. Follow up from Tuesday’s List:
  10. UNG – channel or trading range break on the upside. $22.05 follow through? Got it with a gap higher on Tuesday.
  11. AAPL – building a trading range and support at $420… Moved up to the resistance at $438. break higher opportunity for move back to $465. Still flirting with the upside.
  12. DVN – Flag setup to break above $59.50. (breakout and entry for upside play target at 61.75, stop at 58.75)

Still plenty of positives in traders minds. The adjustments on Thursday were not significant enough to get the attention on the sellers at this point, as seen in Friday’s buying. Watch, protect against what isn’t working and add to what is, don’t fight the trend.