Notes for Tuesday:
We were hoping for a new attitude and what we got was more of the same with the twist of selling early and rallying back the balance of the day. The challenge remains Russia/Ukraine, earnings, economic picture and valuations. Each is either a reason or excuse depending on the day and the bias remains the uptrend on the charts. Money flow continues to favor the buyers despite the worries and churning near the highs on the S&P 500 and Dow are evidence of no real conviction in either direction currently.
Hit stop on NASDAQ and Dow positions with the negative open on Monday. We let it work back towards the stop on the early reversal, but took the exits on the day based on the uncertainty in the outlook.
Worries in China remain as FXI slips back to support at the $34.50 mark. Setting up FXP (short China) as a trade opportunity to watch if the negative sentiment and data continue.
Crude oil is at a decision point of bouncing off support or selling lower. If Russia steps out of the news, the downside pressure continues as supply/demand favors lower prices. Speculation is the upside driver on crude prices with the geopolitical issues around the world. Watch SCO and break above the $29 mark for short trade.
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:
- 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.
- 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.
- 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. On Monday gapped to the $126.50 resistance and back in the push to move higher again. Patience and look for the direction of the trade opportunity which is now in an attempt to move higher.
- 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 Monday and held, but struggling in the face of crude’s decline. UNG testing as well. Plenty to watch relative to the downside move.
- 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.
- 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.
- Bond yields moved to new lows on the thirty year bond last week and started the week with a bounce to 3.41%. The ten-year hit 2.61% and is 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.
- 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.
- 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.
- 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.
- Trading Notes
Pattern Trading Setup:
- Markets are churning and looking for leadership. Be patient with the trades and note that the time frame is compressed on the holding periods.
- PDCE – entry $64. trading range. Energy sector.
- VIPS – entry $160. trading range. Retail sector. Call options at 160 for June work on to trade short term.
- MA – entry $74.80. ascending triangle, break downtrend line. financials.
- TBT – entry $63.80. bottom reversal. Trade on interest rates being too low.
- SANM – entry $$21. Flag. Technology sector.
Pattern Trade Tracking & Follow Up:
- S – entry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday and moved higher Monday. Stop $8.41.
- HAL – entry 64. Flag. Energy wants to move higher. Patience. Stop $62.10.
- JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $76.
- ANIK – entry $44.50. Trading range breakout. Consolidation pattern giving way to above average volume on buying. Stop $43.70.
- 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.
- RAD – entry $7.45. Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
- FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
- WNR – entry $42.40. break from consolidation. Look for test on move and take the entry as the refineries move higher. Stop $41.
- 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.
- VLO – entry $56.10. Resistance breakout. Three attempts to break above $56. Sector leading. Stop $54.40.
- 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
- 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)