Trading Notes for Today, May 5th

Notes for Monday:

New week, new attitude? Friday left many scratching their heads over the jobs report response. The shift in concern to wages versus the number of jobs added is interesting, but more a deflection than concern. I am watching for what happens to start the week and where the real concerns or opportunities are. Should make for an interesting week with so much in store.

Yellen is in front of Congress again and it will different this time as the question and examination of the economy will be more direct… there is an election coming up and it is time to start making points with the voters. Only 288k jobs added in March and unemployment falling to 6.3% is not good enough, it is not about their wages… of course that will lead to the new cry in Washington… minimum wage hike.

Last week we added a trade in the Dow. Friday close down 46 points at 16,512 and failed to hit a new high. The technical entry last week was for a trade with a target at 16,575. With the choice of taking our profit and run or, stick around and see how it plays out on the jobs report. Sold 1/2 DDM trade (at target) with stop at $114 into the trading day.

Last week we added a trade in the NASDAQ Composite index. Friday we closed down 3.5 points at 4123. The technical entry last week was for a trade with a target of the 50 day moving average on the NASDAQ 100 index. We sold half of position on 3610 resistance reversing the gains on Thursday. Hit QLD stop $98.20 Friday.

We are still looking for some clarity relative to the markets going forward. The economic data is not doing us any favors. The headline numbers seem to be positive, but then when the details are exposed the reality sinks in that things are not growing. Plenty of new on tap this week and the continuation of earnings.

Outlook for the Week of May 5th (Weekend Update)

Sectors to Watch:

  1. REITs – The sector moved above the resistance at $68.40 and has been inching higher with some volatility on Friday. The move above the previous high at $69.40 was a continuation of the upside. Hold and manage this position with a longer term time horizon. Scan the sector for individual opportunities and trades. Dividend is 3.8% currently.
  2. Emerging Markets – The sector remains challenged by the geopolitical issues in Russia. After all the ups and downs last week we are left with a consolidation pattern to watch. Break on the upside is where we are looking. Still have a 12-36 month outlook on the sector to move higher.
  3. Precious Metals/Gold – Held the $123 support last week and managed to bounce back to the top end of a newly defined range at $125. As we discussed last week, the volatility is a result of speculation. The metal remains in limbo and we are not making any commitment in either direction currently. Patience and look for the direction of the trade opportunity.
  4. Commodities/ Energy – The price of crude oil declined last 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. UGA fell to support at $59.50 currently as well. UNG testing as well. Plenty to watch relative to the downside move.
  5. Commodities/Agriculture – DBA broke to new high above $28.85 last week and is testing currently that move. Manage the volatility of the parts and adjust stop to break-even at $28.50.
  6. Global markets have been tested on the news with Russia. The EAFE index (EFA) pushed to new highs (above $68 barely). Some country ETFs worth tracking now as we are scanning and reviewing this opportunity. The longer term view of the asset class is still attractive and worth trading and potentially building positions as the opportunity unfolds. IEV testing the breakout at $49 level.
  7. Bond yields moved to new lows on the thirty year bond on Friday at 3.36%. The ten-year hit 2.59% 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.
  8. 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. Technically overbought, but watching and managing the stops.
  9. Pharmaceuticals (XPH) attempting to break above the 50 DMA resistance point and reestablish the uptrend. Hit our original entry on the downtrend/bottom reversal at $93.75, stop $93.40. Biotech starting to bounce and establish a base worth watching going forward at the $235.50 level on IBB.
  10. Consumer Staples (XLP) broke higher with solid breakout above with a solid move above $43.70. The defensive sector is still in favor. Raise stop and manage the gains in the position. Small test but holding.


Sector Rotation Model (updated – 5/4/14)

ONLY ETF Model (updated – 5/4/14)

S&P 500 Index Model (Updated – 5/4/14)

ONE EGG Model (updated – 5/4/14)

Pattern Trading Setup:

Today’s opportunities:

  1. New week, new hopes and worries… be patient and disciplined.
  2. SDS – $28.36. reversal in broad market indexes as continuation of Friday. Watch and be patient.
  3. HAL – entry 64. Flag. Energy wants to move higher. Patience.
  4. AKS – entry $7.25. double bottom off 50 DMA support.
  5. S – entry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday, watch how it opens today.
  6. AKAM – entry $55.40. Bottom reversal. telecom sector moving. Gapped open and traded lower balance of the day. Watching today?

Pattern Trade Tracking & Follow Up:

  1. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $76.
  2. ANIK – entry $44.50. Trading range breakout. Consolidation pattern giving way to above average volume on buying. Stop $43.70.
  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. Stop $58.30.
  4. RAD – entry $7.45. Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
  5. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  6. WNR – entry $42.40. break from consolidation. Look for test on move and take the entry as the refineries move higher. Stop $41.
  7. 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.
  8. VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
  9. 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
  10. 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)