Trading Notes for Today, November 15th

The major indexes moved to new highs again on Thursday and keep the buyers in the driver seat. Nothing changed of any big concern as Washington determines how to deal with the mess they have created with healthcare coverage. The bias remains with the upside and we need to be patient and see if the downside returns or the buyers maintain control going forward. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Financials have taken the long way back to the $20.85 resistance again this week after testing the move from Friday. They finally made the break above the entry on Thursday and added to the S&P 500 Model. The worries over the Fed cutting stimulus and the renewed lawsuits for the 2008 has kept the sector in check. Sector Rotation Model as well.
  2. The two interest sensitive sectors to watch this week were utilities and telecom. Both suffered on the rise in yield of 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 if interest rates calm or move lower again, the trade opportunity is setting up in both sectors. XLU broke higher on the bounce off the selling and Telecom remains flat.
  3. Emerging Markets are worried about the Federal Reserve cutting stimulus and had the sector moving lower. Wednesday the ETF tested lower and managed to rally back to positive territory? Our question then was if this is the beginning of a bounce or just noise? Bounce is the answer, and it gave a trade signal this morning as the buyers were willing to put money to work in the sector. Looking foran initial move to $42 as we closed on the 200 DMA tonight. ONLY ETF Watch List.
  4. 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. YCS moving higher on the short yen trade.
  5. Gold offered a short signal on Friday with support at $121.75 on GLD. The test of the support at $121.75 held and it has bounced the last two days. Watch to see if the downside continues to trade towards the $114 level or this bounce is something more.
  6. Real Estate (IYR) has been the big negative currently as higher interest rate pressure the sector. After making a move above the 200 DMA the sector sold back to support at $63.15. Got the bounce off the support on Wednesday and nice follow through on Thursday. Watching for an entry and trade on the ONLY ETF Model.
  7. Solar (TAN) continues to be in an 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.
  8. Gasoline (UGA) is moving higher off the bottom reversal. The ETF is thinly traded and makes it difficult to recommend. The first entry was $56 and $57.50 is the next entry level which was cleared Thursday. Alternative to the ETF is the refiners VLO, PSX or TSO.
  9. Oil & Gas exploration ETF XOP is attempting to reverse off the lows or support. $69.50 is an attractive entry point for the trade. XLE is in position to break above resistance as well at $87.20.

The models still face the challenge of dealing with the buyers versus the sellers. The move on Wednesday brought the buy side back into play. Whatever pullback or test was expected by many, has not materialized. The decision is to buy for now… follow the trend and keep stops tight. The decision was to move higher on Wednesday and hold the move on Thursday. 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. All the talk and prognostication produced a sideways move at best. 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 with trailing stops to account for volatility.

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. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail.
  2. VVUS – entry $9.30. bottom reversal. move through resistance and back towards the $11 level. Drug sector moving higher. microcap stock.
  3. Follow up on previous trades or posts:
  4. XLF – $20.90 entry. Bounced off low and in position to move higher short term.
  5. 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.
  6. 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.
  7. 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. Nice follow through on the entry. Stop $52.70.
  8. MON – $109 entry. Break from current consolidation. XLB is leader. Look for follow through and leadership. Stop $107. Solid follow through on trade.
  9. 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 Nice break higher as gasoline prices start to rise.
  10. 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.
  11. ORCL – $34.50 Entry. Completing a break higher above resistance near the $34 level. Earning 12/16.
  12. 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. Stop $17.50
  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 $52.50. Raise stop.
  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.