Trading Notes for Today, May 26th

Notes for Tuesday:

Friday closed out a profitable week and sent traders smiling into a long weekend. As we start the new week we have to be prepared to deal with the uptrend that was renewed and shift some thinking towards what looks to be a positive sentiment towards stocks. The story-line we have been tracking has not changed and we continue to look for direction and conviction. The S&P 500 is at new highs, the NASDAQ is looking to break above 3675 and Russell 2000 needs to move above 1137.

As we have discussed the current story of the market boils down to uncertainty. Last week the tendency is to believe that all is well with the markets going forward, however nothing really changed other than buyers stepping in and taking advantage of what they believed to be an oversold market. Thus, we still with our cautious outlook relative the the geopolitical issues, the Fed’s desire to hike interest rates and cut stimulus, slow economic growth, and eroding earnings in stocks. The buyers maintain a belief the economic improvements being prognosticated by the Fed and other economist of 4% growth for the second quarter, and they were willing to put money to work last week. The sellers believe the economy is growing slower at maybe 1-1.5%, and are willing to sit on the sidelines, and take their shots at shorting stocks as the opportunity permits. The buyers are winning based on the current uptrend that remains in play.  As stated, the longer term outlook is for growth to return, if it fails to show up, eventually the sellers win, and the correction takes place. We continue to track this story line and will act accordingly as it unfolds.

There were some trading opportunities presented on the upside last week with the major indexes clearing key resistance points. They were able to finally follow through with four of five days closing higher. The growth sectors, NASDASQ and Russell 2000, came back to life and showed solid moves on the upside. We start the week with the positive bias in play, but plenty on the table to watch and be aware of as progress through the week. This is the last week of May… that may create some window dressing on the upside as we head towards another round of economic data. If the improvements don’t show up it could get very interesting relatively speaking.

Outlook for the Week of May 26th:

Sectors to Watch:

  1. Small Caps (IWM) – They added to the upside on Thursday and Friday clearing resistance at the 1120 level and an upside bias in play. The sector cleared the 200 DMA as well. Watch and see again how this play out today and the week? Up would be my logical guess on direction, at least based on the current up and down decision making from last week. Entry hit at the $111 mark on Friday.
  2. REITs – The sector remains in a uptrend, but has spent the last two weeks moving sideways. Still interested in holding and managing this position with a longer term time horizon, but the time has come for the worry to step in. Set your stops according to the risk you are willing to accept as this unfolds. Hold positions and keep moving forward.
  3. Emerging Markets – The sector broke above the April high, but is in the process of testing that move. Uptrend is in play, uncertainty of the markets is still a concern, and the global markets are gaining momentum again. Set your stops accordingly and focus on the horizon as we still have a 12-36 month outlook on the sector to move higher. Entry $43 on EEM hit last week. Stop $41.76.
  4. Bond yields moved to new lows on the thirty year bond last week and this week closed at 3.39%, nothing dramatic, but it stems the buying in bonds. The ten-year hit 2.53% and is holding steady for now. The sentiment on yields is lower short term, but I would not be overly aggressive with that stance. The potential bounce in yields is more likely than a push lower, baring any fear factors evolving short term in the markets.
  5. Energy (XLE) remains a leader, but has picked up some volatility short term and is in a consolidation period. Be cautious and adjust your stops according to your time horizon. Technically overbought, but watching and managing the stops. Crude has been moving higher on political worries again and could give some upside to the stocks, but still needs some validation. Crude holding near the $104 level currently.
  6. Semiconductors broke from the wedge consolidation pattern to the upside Friday. This is the move we have been looking for in the sector and if we follow through on Tuesday we will add a position to our model (SOXX @ $80.35). I like the upside if the technology stocks can recover some of the lost momentum. XLK moved back to the current highs at $36.90 and broke above on Thursday at $37 (added position)… still need follow through on upside.
  7. S&P 500 index hit the 1900 level and new high for the index. What does it mean now? Watching for upside break through the 1900 level to hold and move higher.
  8. NASDAQ 100 index has been the bounce back index after selling lower the last nine weeks. The close above 3675 s point for adding to the position we established this week. Large cap leading the way for the broad markets currently. QLD hit entry At $100.70. and has moved up nicely on this break higher. Willing to add to the position at $104.


Sector Rotation Model (updated – 5/26/14)

ONLY ETF Model (updated – 5/26/14)

S&P 500 Index Model (Updated – 5/26/14)

ONE EGG Model (New Scan Results Posted – 5/26/14)

Pattern Trading Setup:

Today’s opportunities:

  1. Market in positive trek the last week and now we see how it unfolds to start the new week. Positive moves still require discipline approach to managing risk. Stay focused.
  2. IBB – entry $235.15. Ascending triangle. looking for upside follow through on breakout.
  3. RVBD – entry $19.90. trading range. technology moving higher short term.
  4. AMAT – entry $20.20. Flag following a trading range break on upside. Look for volume to pick up on the move higher.
  5. SMH – entry $45.50. Triangle breakout. the consolidation pattern is breaking to the upside. technology leadership.

Pattern Trade Tracking & Follow Up:

  1. CURE – entry $81.42. Ascending triangle. looking for upside follow through on breakout. Stop $80.
  2. BIDU – entry $164.50. Trading range. Following the large cap NASDAQ stocks. Made the move higher and letting it play out. Stop $162.85.
  3. YELP – entry $58.15. Base and bottom reversal. Technology bounce and upside. Stop $57.39.
  4. DDD – entry $51.70. Base and bottom reversal. Technology bounce and upside. Gapped open and move higher from there. I like the move. Stop $51.20.
  5. ERX – entry $106.42. uptrend test of support in consolidation. Energy is one of the leaders and looking for upside continuation of the previous trend. Stop $105.10.
  6. XLU – short entry $41.45. Break of support. Short trade on the downside setup in Utilities. $40 target. Stop is $42.30 on reversal.
  7. TRIP – entry $86.95. Higher low, ascending triangle. Be patient with entry as it needs room to validate the move on the upside. Internet sector oversold. Stop $88.65.
  8. 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 $19.40.
  9. VIPS – entry $147. trading range bounce off low. Trade back to the topside of the range. Stop $165.50.
  10. AAPL – entry $590. Test of gap higher. Splitting 7:1 and should add a upside boost short term to the stock. Stop $595.
  11. MXWL – entry $15.25. Testing trend (30 DMA). Trade to $17 and exit. Stop $16.
  12. S – entry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday and moved higher Monday. Stop $8.75.
  13. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $75.
  14. RAD – entry $7.45. Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
  15. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $34.20.
  16. 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)

  • 4/28 – 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. 5/15 – The move lower stays within the range, but pressure is being put on the growth stocks again. Watch for a short trade if we break from the current trading range.
  • 5/19 – Definitely has moved into a consolidation period and not much happening worthy of the risk at this point. The range has narrowed and the risk of trading has risen without some clarity in the stock as well as the sector. SOCL has dropped more than 20% the last two months, and in light of that move, FB is looking good short term. Be patient for now and let this all unfold.
  • 5/26 – Moved above the $60 mark and held… looking for a trade opportunity on the upside.