Trading Notes for Today, November 25th

The major indexes made a break higher on Friday and again put themselves in position to continue the uptrend despite all the warning signs and challenges that lie ahead. We will have to focus on the short term trend and take what the market gives at this point in time and let the future take care of itself. 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:

  1. Financials finally broke above the $20.85 resistance and has finally followed through. The leadership is large banks (KBE), but regional banks (KRE) and insurance (KIE) have added to the upside along with the brokers (IAI). The sector leadership has been key to the S&P 500 index breaking above 1800.
  2. Healthcare has been a topic on everyone’s lips. I just finished travel for four days and the topic of choice, in planes, trains and automobiles? Health insurance and the impact of the Affordable Healthcare Act. Let’s just leave it that not everyone is happy. The break above $91 for IHF put the providers back on the buy list as they are climbing on positive outlook. Digging into the ETF shows the best opportunities going forward.
  3. Real Estate REITs remain on the downside, but testing support again at the $63 level on IYR. If it bounces off this level could be good for a trade up to $66.25. A break lower and SRS, short trade remains the play. Worth watch this week.
  4. Biotech (IBB) big break from consolidation pattern to gain 3%. GILD was part of the push, but the sector overall has been is solid uptrend. Look for test and continuation of the move higher. Scanning IBB for insight to the move is worth the trip.
  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. Watch to see if the downside continues to trade towards the $114 level or this bounce is something more to produce on the upside. $1200 is my current target and then we will see how it responds from there. This is nothing more than a supply and demand issue. The demand is and has been declining as speculation escapes the sector. Eventually it will bottom and the long opportunity will emerge, but for now not that interested.
  6. Retail is still in an uptrend after testing this week. This is a sector worth scanning for the leadership heading into the holiday season. RAD, at the top of the current trading range. WMT breaking to new high. COST breaking higher from a pennant pattern. AMZN, M, CVS also breaking higher. I like the individual stock picks in the sector for the best upside short term.
  7. Crude oil is hitting resistance near the $95.30 mark. Building a base with the question of moving higher? Or continuing the downside trend? A move above $22.40 on OIL would be of interest on the long side going forward. Gasoline is pushing higher hitting the next level of resistance near $59 on UGA.
  8. It is no mystery that I have not been a fan of gold. Short has been the play for some time now and it isn’t looking much better following last week. GLL is still the fund of choice on the downside play. Goldminers (GDX) is another component of gold that is hurting on the downside. The test of the lows at $22 is worth watching. DUST is short side of the trade should it break lower.
  9. Bonds continue to be at risk of interest rate creeping higher as the Fed pushed towards cuts in stimulus. They did bounce last week on the Yellen effect, but we will have to see if that last versus the stimulus cut threat? Thus, a longer term play with TBF may be in order. Added to the Watch list for Sector Rotation Model.
  10. The dollar bounced and then fell back to end the week. A reverse head-and-shoulder pattern on UUP shows some hope for the upside of the dollar along with the hope of the Fed following though on stimulus cuts. Watch and see how this plays out moving forward.

The models are updated and with our short term view dominating the process currently we are heavy in cash as a result of hitting stops and managing our discipline. The early selling last week followed by a move back towards the highs is the exact action that keeps us from building larger positions. We have added positions from the watch list. We have added to the watch list. We start the week looking for the upside to continue as we head into the holiday season. 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.

  1. Trade shortened week with light volume as we celebrate Thanksgiving on Thursday. We will trade in accordance with the outlook and take what the market gives.
  2. DUST – follow through on move above 200 DMA. Entry $42. Selling in gold continues. This is leveraged 3X be aware of the volatility when trading.
  3. TNA – Breakout. Entry $71.50. Small cap in position to break to new high and follow the indexes higher. This is leveraged 3X be aware of the volatility when trading. IWM is unleveraged way to trade.
  4. Follow up on previous trades or posts:
  5. ICON – entry $38.50. Flag. Consolidation pattern break to continue the upside is a strong sector, retail. Stop $37.20.
  6. 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.
  7. 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.
  8. 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.
  9. MON – $109 entry. Break from current consolidation. XLB is leader. Look for follow through and leadership. Stop $108.50. Solid follow through on trade.
  10. 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. Gap open down we adjust stops for the trading day and let it go.
  11. 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.
  12. 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.
  13. GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.75.
  14. 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.
  • 11/25 – Still sitting on support and we remain in the same strategy as above. We will decide in the next two weeks how to treat our options based on the movement. Patience for now.