Trading Notes for Today, May 9th

Notes for Thursday:

Another day of up… and down action. The downside action credit was once again given to Putin and his military comments and actions on Thursday. The news and speculation is dividing the market short term. S&P 500 Index and the Dow are threatening to breakout to new highs, but the NASDAQ is eyeing the 200 DMA and the Russell 2000 Small Cap index broke below the 200 DMA. This division is the confusion for investors and the tug-o-war for the markets overall.

Putin acting like the market with desire to have peace one day and the next he is threatening over the sanctions.¬†¬†Russia remain a worry for the global markets, but the indexes were flat following Wednesday’s gain in RBL of¬†4.8%. The global markets are still¬†becoming one of the more attractive sectors looking forward if the positive momentum continues.

It is Friday and it nothing has happened to give the market any clarity. The worries are the same and the opportunities are in the resolution to direction. In the short term it is a trading market environment and you have to be disciplined and not overstay your welcome. The topping patterns are building. The resolution to those patterns will come, but the challenge is to be patient in the process. All market cycles bring different opportunities this one is designed to teach us patience.

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

Sectors to Watch:

  1. Small Caps РBack below the 200 DMA and the talk of the financial media. Intraday reversal to remain below the 200 DMA. Watching to see if the downside leadership continues with a break below $108 on IWM. TZA is the short trade on the sector and watch for a move above the $18.50 level.
  2. REITs –¬†The¬†sector moved above the resistance at $68.40 and¬†has been¬†inching higher. The follow through move on Wednesday as a positive for the sector. Hold and manage this position with a longer term time horizon. Scan the sector for individual opportunities and trades. Dividend is 3.8% currently. (JOE at top of trading range, LHO top of range, DFT top of range, DLR broke high from range, LXP broke from consolidation, and WRI are a few of the REITs to watch.)
  3. Emerging Markets РThe sector remains challenged by the geopolitical issues in Russia. Those comments reversed the upside move on Thursday. After all the ups and downs last week we are left with a consolidation pattern to watch. Still have a 12-36 month outlook on the sector to move higher. Added partial position to the EGG Model.
  4. Precious Metals/Gold – Held 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, but in position to break higher. That failed on Wednesday as the Yellen testimony took the winds out of that sail and gold dropped back to $124.17. Nothing new on Thursday, but the patience are wearing thin on the buy side.
  5. Commodities/ Energy РThe price of crude oil declined last week below the $100 mark. The downside was in play, but it reversing back to the upside this week as it moved back above the $100 level and consolidating near support. UGA fell to support at $59 Monday and is attempting to bounce on the bounce in crude. UNG testing, but the drop of 3.5% Thursday puts the upside bias in question. Stops hit and watching.
  6. 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. Topping pattern building, watch to see how it unfolds.
  7. Global markets have been tested on the news with Russia, but bounced on Wednesday’s news, reversed on Thursday’s threats. The EAFE index (EFA) pushed to new¬†highs (above $68 barely). 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.
  8. Bond yields moved to new lows on the thirty year bond last week and currently at¬†3.41%. The ten-year hit 2.59% and is at the bottom of¬†the range it has been trading since January. 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. Yellen wants lower rates for now.
  9. 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. Wednesday broke from consolidation higher and carrying on the uptrend. Thursday reversed the breakout and back within the rage with a 1.4% drop… watch if leaders start to reverse.
  10. 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 are back, but manage your risk to see how it plays out. Biotech sold lower on Thursday acting as a drag again on the sector and the NASDAQ. The bounce is now flirting with breaking below the 200 DMA. BIS may be a trade set up short term.
  11. 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.

Models:

Sector Rotation Model (updated Р5/8/14)

ONLY ETF Model (updated Р5/8/14)

S&P 500 Index Model (Updated Р5/8/14)

ONE EGG Model¬†(New Scan Results Posted –¬†5/8/14) EEM added.

Pattern Trading Setup:

Today’s opportunities:

  1. Argument still in play over direction and the manipulators (Putin and Yellen) still working their magical influence on direction daily. Three things to watch… SOXX and S&P 500 index to hold the upside, Russell 200 Small caps to move back above the 200 DMA, and NASDAQ to hold 3990 support. If these three don’t succeed, sellers will gain the upper hand.
  2. TBT – entry $63.80. bottom reversal. Trade on interest rates being too low. Watch today as there is some indecision on rates and global activity.
  3. SANM – entry $21. Flag. Technology sector. inside trading day look for break today and follow through.
  4. QID – entry $60. Continuation of bottom reversal after test to support of the uptrend line.

Pattern Trade Tracking & Follow Up:

  1. MXWL – entry $15.25. Testing trend (30 DMA). Trade to $17 and exit. Stop $14.70.
  2. SDS – entry $28.30. Bottom reversal. negative sentiment picked up on Tuesday. Stop $27.50. watch the low on the ETF as exit.
  3. S Рentry $8.75. Bottom reversal. Telecom sector moving higher. Tested the move on Friday and moved higher Monday. Stop $8.41.
  4. HAL – entry 64. Flag. Energy wants to move higher. Patience. Stop $62.10.
  5. JBHT – entry $77.10. Flag on bottom reversal. Move to $80 target as transportation continues to be a leading sector. Stop $75.
  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. 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.
  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 $93.60.
  10. 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. (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)