Trading Notes for Today, November 14th

The major indexes made a move to new highs on Wednesday and puts the buyers back in the driver seat. Did Wednesday put and end to the lack of confidence on behalf of the buyers? Is the seller going back into hibernation? Where do we go from here? Time will tell and we just have to be patient enough to let it all unfold and take advantage of the opportunities that are presented. Where is the catalyst or confirmation on direction? It is still in the defining process. The bias remains with the upside and we need to be patient and see if the downside returns or the buyers take control again as they have previously. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Looking for the entry points on the breakouts on SPY and DIA  and watching the upside hope in QQQ and IWM that started on Wednesday. The rotation of money is causing some of this disparity, thus we are watching to see what is reality.
  2. Financials have taken the long way back to the $20.85 resistance again this week after testing the move from Friday. The challenge remains a break higher to clear the way for the sector to resume the uptrend. The worries over the Fed cutting stimulus and the renewed lawsuits for the 2008 sins keeps the sector in check. Sector Rotation Watch List.
  3. The two interest sensitive sectors to watch this week are utilities and telecom. Both suffered on the rise in yield on Treasury bonds.  They are not attractive as shorts and we hit our stops on both during the volatility. I am not ready to jump in, but interest rates calm or move lower again, the trade opportunity is setting up in both sectors.
  4. Emerging Markets are establishing some leadership on the downside short term. The threat of the Fed cutting stimulus continued to weigh on the sector. Wednesday EEM made a test of the low and bounced back. Is this the near term bottom? That is what we are watching and if so, we will post the entry level for the ETF. Global markets overall have been negative to the stimulus cut issue and it isn’t over yet.
  5. Dollar (UUP) made a move higher above the $21.75 resistance as other currency reacts to the Fed on stimulus. Watching to see if the current test builds or the upside continues short term. The euro (FXE) is reacting to the ECB and talk of more stimulus. It did manage to bounce back from early selling on Wednesday. Yen (FXY) is moving lower as well short trade and YCS is working as a trade. The impact of the currency moves is important to the balance of the equity markets relative to imports and exports.
  6. Gold offered a short signal on Friday with support at $121.75 on GLD. The metal broke lower on Tuesday and looks like it may test the $115 level if the current level of support doesn’t hold. Downside in play with $124 level to clear on the bounce if there is a reversal off support.
  7. Real Estate (IYR) has been the big negative currently in scanning the sectors. After making a move above the 200 DMA the sector has sold back to support at $63.15. We have a short trade (micro term) with SRS, the short ETF for the REITs, as a trade opportunity. (Advised on Wednesday AM – Manage the position and adjust your stops as the sector look oversold technically and the intraday bounce on Tuesday may act as a pivot point for a bounce.) That is what took place on Wednesday and we are close to our stops. Watching XHB in contrast to this sector. Both are in real estate, but you have some divergence between the two, yet both are interest sensitive. XHB made a nice move on Wednesday up 1.3% to bounce off the 200 DMA.
  8. Solar (TAN) continues to be in a uptrend off the April lows and the current consolidation near the highs is positive. Looking for a break higher as the stocks regain their momentum.TAN entry above $41.60 of interest.
  9. Pharmaceuticals broke higher on Friday and they continue their vertical move. MRK and JNJ have been breaking higher to lend weight to the gains. The move has gone vertical and I am looking for a test and possible entry point, but none yet.
  10. Retail (XRT) remains positive off the January lows keeping the uptrend intact. The move above resistance at $83.25 in the sector last month continues to hold and the upside is still advancing. Solid gains the last three trading days to hit new high.
  11. Oil Serviced (IEZ) Equipment and services companies continue to be the benefactor in the sector along with the refiners. A continuation and follow through in the uptrend is the entry for a short term trade. The volatility we were concerned about showed up yesterday as the sector led the downside. The lower cost of crude has been an issue and we get some supply data today and it could set the tone for the sector short term.

The models still face the challenge of dealing with the buyers versus the sellers. The sellers made a move on Thursday, but stepped right back in on the jobs report Friday? The move on Wednesday brings the buy side back into play. Whatever pullback or test was expected by many, has not materialized. The decision is to buy for now… at least that is what the media is reporting. The decision was to move higher on Wednesday and we will see what follow through we get today. The debate of buy or sell is still undecided.  The AAII sentiment report still shows the bulls at excessive levels. We have be careful not to assume the downside will take place as seen over the last couple of week of trading. We are still adding 1/2 position sizes with the entries hit as the risk remains elevated. Manage your risk on trades more aggressively and monitor your longer term holdings.

Pattern Setups For Today: We continue to manage the risk of the market and make our adjustments as necessary. We hit a stops on Thursday, and then saw most bounce back on Friday. That is the way it goes some times when uncertainty is in control. Be patient and manage the risk.

  1. LINE – entry $29.40. Test of the break higher. Holding support at the breakout $28.80. If we hit the entry looking f or at trade back to the 200 DMA.
  2. QQQ – entry $83.60. Break from the current trading range and move higher continues. If the bounce/rally is to continue the NASDAQ will have to participate if not lead the way.
  3. FXP – entry $17.70. China broke support and the short trade triggered on our watch list. Let this confirm before taking the position. Expect volatility the news around China remains mixed.
  4. XLF – $20.90 entry. Bounced off low and in position to move higher short term.
  5. Follow up on previous trades or posts:
  6. MOO – $53.35 Entry. Break above resistance and continuation of the move above the 200 DMA. Tested on Tuesday, but held and is still in position to move higher. Made move following early test. Stop $52.70.
  7. MON – $109 entry. Break from current consolidation. XLB is leader. Look for follow through and leadership. Stop $107.
  8. PSX – 65.70 entry. Flag breakout. Consolidation after break higher. Refiners are leading in energy sector. Lower oil prices help margins, etc. Patience and expect volatility. Stop $64.40
  9. KMX – $49.30 entry. Trading range breakout. XLP is leader. Watch for follow through from the consolidation back to the previous high at $52. Stop $48.50.
  10. ORCL – $34.50 Entry. Completing a break higher above resistance near the $34 level. Earning 12/16.
  11. ETFC = 17.70 entry. Breaking from a two month trading range on the upside. Let the move validate with a max entry at $17.90.
  12. SRS – Bottom reversal. Real estate breaking down on interest rate fears. Short trade on the move above resistance. Entry $20.25. Stop $21.30.
  13. COH – bottom reversal – Entry $51. Gap lower on news and reversal to gap point. The fundamental side of the stock is rebuilding. The play is to fill the gap back to $53 on the turnaround story. Stop $50.19.
  14. GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.25.
  15. CAG – bottom reversal. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $31.90.

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:

  • 10/23 – At issues is earnings and a topping market short term. From the longer term outlook we go into earnings positive. However, the stock has moved a long way and that creates the problem of the data being good enough to justify the price, according to analyst. That is generally a losing battle. Short term support is $51.26 and I want to see how the stock acts today with what looks to be a negative open. (Held support on Wednesday and Thursday… watch for now.)
  • 10/24 – Small bounce held the 10 DMA and watching. Puts are still an attractive trade short term.
  • 10/28 – Earnings … this could get interesting on the results. Add Dec 52.50 Puts for $5.85 or better for earnings announcement.
  • 10/30 – Earnings were great, but too much said by the CFO and erased all the gains after-hours. My concern into earnings, they would not be good enough to please everyone. I was wrong on that account, but the conversation on the earnings call became an issue when the teen usage and not ramping up newsfeed ads. Both are issues, and examples of how when the stock price moves higher in a short period every little detail is scrutinized. Watching how this plays out today? Pre-market showing a small gain. Manage your puts against the stocks activity and be patient.
  • 11/2 – If the price closes above the $51.50 level close out your put contracts. We used our profit on the trade of stock to buy the puts and we will give up some profits for the protection we added. The news around the stock is still creating volatility be patient here as this plays out short term. No need to panic in either direction. Add Stop on 1/2 of position at $48.80. (hit stop on half of position) We still hold the balance plus the puts.
  • 11/5 – small bounce as we test support short term. There is plenty of media hype about the issues with teens leaving FB for other social media. That is all a challenge, but the reality is in the earnings and the outlook for growth. Thus far that has not changed and we will continue to manage the position moving forward. Tested on Wednesday — still watching.
  • 11/7 – Closed below the 50 DMA and on support. A break lower would be a negative with $45 the next support level to watch. This is where long term positions get to be a challenge for investors… having the patience to let the challenges work out. We are long 1000 shares, but own 20 put contracts. We sold half our position to allow half of the puts to add profit on the downside move. So far we have managed the risk accordingly and we are still in a good position going forward. Be patient and let this all unfold short term.
  • 11/13 – manage your positions… we can exercise the put options on the 1000 long shares if this falls below support and collect the premium on the balance for a profit. Watching to see how this handles support at the $45.30 level. A move back above the $47.40 mark would be a good entry point to add shares for a trade on a bounce play.
  • 11/14 – Added 1000 shares as trade on the bounce off support at $45.35. The entry was $47.50 and stop is support break $45.20. Initial target is $51. The bounce was partially due to the attempt to purchase SnapChat. This is getting interesting as the media and analyst have been blasting data and speculation about the stock over the last month. We maintain our puts and other shares as planned.