The major indexes starting to show some signs of moving lower? The risk is 3-5% currently on the downside relative to stocks. If it pans out then we would look to add positions at support or short the downside if it breaks support. To short at this point would be pure speculation. Take it one day at a time and keep your stops close by on trading positions and give longer term holding room for volatility. The bias remains with the upside. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.
Sectors to Watch:
- Semiconductors (SMH) the downside is in play and the break of support at the 50 DMA and the short term trendline put the downside in play. I am willing to look at the short trade on SMH or buying SSG. The volume on SSG is very low. ONLY ETF Watch List.
- S&P 500 index breaks support at the 1775 mark the downside risk could get ugly. I am looking for a short play if that develops short term. The same would be true with the NASDAQ 100 index.
- VIX index finally saw some life intraday as the selling began on Monday afternoon. The index erased the move lower and closed slightly higher. This is a positions to trade if the volatility and uncertainty pick up in the current market. VXX is the ETF to trade the index.
- Financials tested our patience to break above the $20.85 resistance. They made the break above the entry last week and we added positions. Of course the good news could not last in the sector as the four major banks were downgraded on valuations. The reason… stimulus cuts from the Fed would impact the earnings. Some selling on Monday with the intraday reversal and held its own on Tuesday. However, JPM lawsuit settlement got the ear of many with the $13 Billion. Watching to see how this unfolds.
- Emerging Markets finally managed to rally back to positive territory after the worries over the Fed stimulus cuts. However, the minutes on Wednesday put the issue back on the table and the selling resumed. We hit our stop on the upside trade and posted the downside trade again in the event the stimulus issue gains momentum.
- Gasoline (UGA) has moved higher off the bottom reversal. The ETF is thinly traded and makes it difficult to recommend, it is worth a look on the upside short term. The test back near the support at $56.40 held and the upside resumed on Wednesday. What happens from there is what matters. A continued upside move would add to the position at $57 (Wednesday). Manage your risk.
- Dollar (UUP) made a move higher above the $21.75 resistance as other currency reacts to the Fed minutes. $21.72 broke support slightly, but it reversed on the news Wednesday. You could pair the trade with the euro (EPV). Watch for follow through on the move today. ONLY ETF Watch list.
- Gold bounced off support at $121.75 on GLD last week, this week it is testing the lows again. I am not in the bull camp on the metal and I still believe the downside is the direction of choice. Any break of support would look to add a position in GLL. Got the entry on Wednesday at $95. Watch and manage your risk.
- Interest rates remain a area of concern looking forward. The impact on bonds and interest sensitive sectors was noted over the last two weeks. The yield on the 30 year Treasury now sits at 3.8% currently. We have been pricing in a Fed stimulus cut in December, but that may be changing. Ooops, said that too soon… the Fed is back on the table and the rates are climbing again.
The models still face the challenge of dealing with the buyers versus the sellers. The move last week brought the buy side back into play. However, this week we are seeing some push back from the sellers as the Fed gets a big assist on Wednesday. The shift has to be watched and patience practiced on how this will unfold short term. We are still adding 1/2 position sizes with the entries hit as the risk remains elevated from our view. Manage the risk on trades more aggressively and monitor your longer term holdings with trailing stops to account for any rise in volatility.
Pattern Setups For Today: We continue to manage the risk of the market and make our adjustments as necessary. Ready to take money off here and exit the positions below.
- Watching to see how this unfolds today. ONLY ETF has posted trades on downside move.
- Follow up on previous trades or posts:
- VXX – Bottom Reversal. Entry $47.60. Volatility meter moved in late day trading. Watching to see if it continues and use as hedge against holdings. 10% allocation versus the normal 5%. Give some room short term and let this pan out relative to the market intraday.
- ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $37.20. Sell $37.60
- VVUS – entry $9.30. bottom reversal. move through resistance and back towards the $11 level. Drug sector moving higher. microcap stock. Stop $9.20. Nice jump on Friday for stock.
- XLF – $20.90 entry. Bounced off low and in position to move higher short term. Stop $20.90. Nice follow through on upside break of resistance.
- 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. Stop $29.35. Sell in AM
- MON – $109 entry. Break from current consolidation. XLB is leader. Look for follow through and leadership. Stop $108.50. Solid follow through on trade. Sell AM
- 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 $67 Nice break higher as gasoline prices start to rise, but tested on Friday.
- ORCL – $34.50 Entry. Completing a break higher above resistance near the $34 level. Earning 12/16. Volatility alive and well in the stock. Stop $34.50.
- 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 $53.20.
- GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.75.
- CAG – bottom reversal. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $32.
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. I am want to take the stop off and use the puts if this continues to move lower. 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.
- 11/18 – ugly day of selling for the stock and now facing our support line for exiting the trade added. manage your stop and let this play out short term. The puts continue to protect our positions. If the stock moves lower we are better off to put the 2000 shares at $52.50. We paid $5.85 and anything below $46.65 it is to our advantage to exercise the puts.