Trading Notes for Today, May 2nd

Notes for Friday:

May starts out with positive move higher, but fails to hold it throughout the trading day. The focus is on today’s job report. It will tell if things have improved relative to the weather and spring. 215k expected to be the new jobs added for the month. Anything less brings the worries back into play. The jobless claims the last two weeks have been on the rise and hitting 344k on Thursday and well ahead of the 320k expected. Not a good sign for things to come. All the other data was in line with expectations and left everyone happy at least for a couple of hours.

Economic data of note was the construction spending only climbed 0.2%. The homebuilders have been struggling as noted in the chart of ITB. However, they look to be holding at the 200 DMA and looking for a reason to bounce. I am not sure the data helped that cause, but housing sector remain one to watch and look for the upside opportunity as things improve.

We are watching the Dow as it added dropped  38 points to close at 16,544 (back below the new closing high from Wednesday). 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 Wednesday). with hit against resistance the choice was to take the profit and run or stick around and see how it plays out on the jobs report. Sold 1/2 DDM trade with stop at $114 into the trading day.

We are watching the NASDAQ Composite index which gained another 5 points to close 4119. 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 (which was hit and surpassed on the day). We sold half of position on 3610 resistance reversing the gains. Exit was 3600 on NDX today for 1/2 position and moved QLD stop to $98.20.

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 moved to $525 and on option a gain of $1.50 minimum per contract. Moved through $528 resistance and looking for move higher. Watch the impact of the jobs report in the AM.

We are still looking for some clarity relative to the markets going forward. The economic data is not doing us any favors on the upside. The jobs report matters and it will set the tone for any progress. Proceed with caution and take what the market gives one day at a time.

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 has been inching higher. We got the move above the previous high at $69.40 (entry point if you don’t have a trade). We held and followed through with a nice gain on Thursday. 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 to move higher.
  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. Still worries about this heading into the weekend.
  4. Precious Metals/Gold – Held the $123 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 Thursday tested the $123 mark again! The metal remains in limbo and we are not making any commitment in either direction currently. I would now have to say the bias is to the downside. GLL may be the trade if it break above resistance near the 200 DMA.
  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, and has followed that move this week below the $100 mark. The downside is in play, but it makes for a tough trade as there are plenty of support points to bounce off of. Watching to see how this unfolds today. UGA back to support at $59.50 currently as well.
  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 on the news with Russia (still hanging around). The EAFE index (EFA) pushed to new highs (above $68 barely). Some country ETFs worth tracking now are EWC, BRZU and IEV. 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 and followed through.
  9. Bond yields moved up slightly on the mixed stock day. The thirty-year bond fell to 3.40% Thursday hitting new lows not seen since last June. The ten-year hit 2.60% and is now at the bottom of the range it has been trading since January. Watch for a break lower? 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. Are the yields saying the Fed will stop stimulus cuts?
  10. 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. 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. $95 is the level willing to add to positions. (Hit that entry on Wednesday, stop $93.40). Biotech starting to bounce and establish a base worth watching going forward at the $235.50 level.
  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 – 5/1/14)

ONLY ETF Model (updated – 5/1/14)

S&P 500 Index Model (Updated – 5/1/14)

ONE EGG Model (updated – 5/1/14)

Pattern Trading Setup:

Today’s opportunities:

  1. It is all about the jobs report today and watching to see how investors respond. Patience.
  2. S – entry $8.75. Bottom reversal. Telecom sector moving higher.
  3. ANIK – entry $44.50. Trading range breakout. Consolidation pattern giving way to above average volume on buying.
  4. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector.
  5. AKAM – entry $55.40. Bottom reversal. telecom sector moving.

Pattern Trade Tracking & Follow Up:

  1. 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. Stop $58.30.
  2. RAD – entry $7.45. Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
  3. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  4. WNR – entry $42.40. break from consolidation. Look for test on move and take the entry as the refineries move higher. Stop $41.
  5. 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.
  6. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  7. 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
  8. 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)