Trading Notes for Today, May 7th

Notes for Wednesday:

Some selling on Tuesday sends another wave of worry about the momentum stocks and shifts the focus back to value play. Despite that nine of the ten sector for the S&P 500 index closed in the red. The selling was stronger on the NASDAQ as small cap and technology were a target. Financials and consumer services were the laggards for the large cap index. The futures are flat as I post this update and we will see how today trades for more insight.

Russia still in the headlines and the bigger concerns for them economically are the sanctions from the US and Europe, and the lower demand for crude oil. RBL has fallen nearly 25% and the pressure is still mounting.

Alibaba IPO is all the buzz in the headlines this morning. As it draws closer it may help the outlook for technology, but for now it is just buzz.

Russell 2000 small cap index is back below the 200 DMA and testing support near the 1100 level again. The move lower off the May high is firmly in a short term downtrend. The move validates the rotation to value or safety currently under way.

Downgrades to GDP from all the major firms! Goldman Sachs lowered the forecast to -0.6%!

Sell in May? We are six days into the month and down 0.8% on the major indexes. There is no volatility to speak of per say. Worries are the only real worry. But, there is still plenty of May left for things to change. I say steady as we go. Keep your eyes on the horizon and let the trend tell you what direction we are going… even it that is sideways for awhile. Consolidation is not a bad thing and if it is orderly all the better. Watch to see how today unfolds in light of the selling from Tuesday.

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 of late. 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 РThe 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 and made move in that direction on Tuesday. Still have a 12-36 month outlook on the sector to move higher.
  3. Precious Metals/Gold РHeld the $123 support and managed to bounce back to the top end of a newly defined range on Monday with gap to the $126.50 resistance. Filled the gap on Tuesday. Futures are pointing to the upside as equities get restless and worries rise. Looking for entry at $126.50 on upside follow through.
  4. Commodities/ Energy РThe 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. Futures are back over the $100 mark today and watching to see if it holds the move. UGA fell to support at $59 Monday and flirting with the 200 DMA. UNG testing, but bounced 2.3% on Tuesday with uptrend in play.
  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. TUR, EPHE, EPI, THD, EWZ, EWP and EWL all trading positive direction with consolidation near the highs.
  7. Bond yields moved to new lows on the thirty year bond last week and currenty at¬†3.38%. The ten-year hit 2.59% 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.
  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. Worries back on Tuesday pushing sector lower… watch and manage your exit points. 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 of the break higher, but holding.
  11. Trading Notes

Models:

Sector Rotation Model (updated Р5/5/14)

ONLY ETF Model (updated Р5/5/14)

S&P 500 Index Model (Updated Р5/5/14)

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

Pattern Trading Setup:

Today’s opportunities:

  1. SDS – entry $28.30. Bottom reversal. negative sentiment picked up on Tuesday.
  2. TBT – entry $63.80. bottom reversal. Trade on interest rates being too low.
  3. SANM – entry $21. Flag. Technology sector. inside trading day look for break today.

Pattern Trade Tracking & Follow Up:

  1. S Рentry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday and moved higher Monday. Stop $8.41.
  2. HAL – entry 64. Flag. Energy wants to move higher. Patience. Stop $62.10.
  3. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $76.
  4. ANIK – entry $44.50. Trading range breakout. Consolidation pattern giving way to above average volume on buying. Stop $46. HIT STOP
  5. 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.
  6. RAD –¬†entry $7.45.¬†Consolidation range near high. Breakout move should make it to $8 short term. Stop is $7.30.
  7. FCX – entry $34.20. trading range breakout. Copper moving higher again. Volatile trade, but nice setup and follow through. Stop $33.35.
  8. WNR – entry $42.40. break from consolidation. Look for test on move and take the entry as the refineries move higher. Stop $42.
  9. 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.
  10. VLO – entry $56.10. Resistance breakout. Three attempts to break above $57.12. Sector leading. Stop $54.40.
  11. 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 $93.60.
  12. NEE – Entry $91 on the test of the breakout at $90. Stop $97.

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)