Trading Notes for Today, November 4th

The major indexes struggled as fear concerning the FOMC statement opens the door to cuts as early as December. This is once again stimulating the worry trades and creating some concern short term. We will have to be patient and let this play out one day at a time. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. As discussed, the FOMC meeting has put the worry back into the market. First, if the Fed is eluding to the possibility of cutting stimulus in December, rewind to the reaction in August following the last announcement of cuts. Interest rates rose, bonds fell, interest sensitive assets fell, dollar climbed, commodities fell. As a result of all that activity stocks fell in price. Thus, we may be looking at a replay if that is in fact what investors interpret from Bernanke and Friends comments in the FOMC statement. This promises to be an interesting week for the markets.
  2. Dollar (UUP) made a move higher again to the $21.75 resistance currently. Stronger dollar equals weaker commodities? Watching both currently for opportunities if this continues to play out according to the Fed’s comments. Short yen (YCS – ONE EGG Model)
  3. Interest rates and the Fed? The initial response was for rates to tick higher. The Fed promised more money, but they also eluded to cuts the amount of money to be used. How much? Doesn’t matter, investors will react to any level of cuts. TBT was added to the ONLY ETF Model.
  4. Natural Gas (UNG) Broke key support at the $17.90 mark. Short trade in KOLD was added on the move Tuesday. Got the continuation break below $17.90. Now commodities are reacting to the dollar, and that is adding to the downside of this play. Nice gain on the move, raised stop and looking at taking some gains of the table on Monday.
  5. Gold was moving higher on what would amount to speculation. That shifted gears on the FOMC statement Wednesday and the downside ‘speculation’ is in play now. The move below the 50 DMA was  negative, but now the $126.50 level is key support or back to $122.50. GLL is the short ETF for the metal. We added DUST is the short ETF for the miners (ONLY ETF Model). Added smaller size due to the gap and higher risk of the trade. Raised stop to break-even and managing the outcome from here. May take some off with the bounce in gold into the close on Friday.
  6. Small Caps (RUT-X) Russell 2000 index posted a new high Tuesday and tested lower on Wednesday (FOMC). The move filled the gap and tested lower on Friday. If we continue lower this could be the leadership on the downside as it was on the upside. Watching for support to hold and trade the bounce. Added to Sector Rotation Watch List.
  7. Energy moved lower first with the market, but then with the drop in crude. This may set up a short trade opportunity going forward. Watch and manage the trade if we hit the entry point on the downside play. ONLY ETF Watch List
  8. Financials (XLF) – The sector hit the previous highs at $20.85. The FOMC meeting didn’t help despite the promise of more stimulus on the way… oops they didn’t say all of it was on the way. The drop Thursday put the downside in play short term. Watch $20.45 support on XLF short term. Bounced late on Friday? Watching to see if it follows through or reverses lower again. SKF was on the pattern list for a trade as well stop at break-even.
  9. Real Estate (IYR) The sector moved through resistance at $67.30, however the Fed on Wednesday evidently said they were cutting stimulus in December. I didn’t see it or hear it, but evidently there was statement in the release following the meeting that eluded to an earlier exit start on stimulus. Great, there aren’t enough rumors to deal with let’s make up some more. Added to the Sector Rotation Watch List as longer term investment opportunity. We also have a short trade (micro term) with SRS, the short ETF for the REITs, as a trade opportunity as well. Trade on Pattern List.
  10. Overall we are looking to see if the chain reaction starts and follows through. Today promises to be interesting for all the sector, but primarily those outlined above.

The models still face the challenge of dealing with the buyers versus the sellers. The sellers are still unwilling to take on any risk short term (i.e. Thursday early selling gave way to the buyers… again, as well as on Friday). We are still adding 1/2 position sizes with the entries hit as the risk remains elevated. Added some short plays on ONLY ETF Watch List for next week. Will the speculation with the FOMC comments continue or is the worst of it over? It is a stretch to believe the Fed will cut stimulus in December… my view. Crazier things have happened, but we will still trade the charts. The one key data point that give Fed ability to cut is ISM manufacturing and the Chicago PMI. A good jobs report on Friday would add to the rationale. 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. Manage your stops on positions and stay alert to the response to the Fed statement again today.

  1. GLL – Reversal. Held support at $83 and break above $88.90 Entry ($89). Negative sentiment building again towards the metal with stronger dollar outlook on stimulus cut speculation.
  2. EPI – Resistance Breakout – Entry 17.07. India picking up momentum
  3. TTWO – Descending Triangle. $18.25 Entry. positive earning in positive sector.
  4. COST – Trading range. Entry $119.50. look for test of the move higher on Friday and take the entry. no test clear Friday’s high as entry.
  5. SRS – Bottom reversal. Real estate breaking down on interest rate fears. Short trade on the move above resistance. Entry $20.25. Still watching as the open on Friday showed buyers willing to step in for now?
  6. Follow up on previous trades or posts:
  7. TRP – Trading Range Breakout. The move above $45 is key. Entry $45.20.
  8. SKF – Break of support. Entry $19.60. The reversal of another attempt to break higher on XLF is in play. The failure is the inverse play with SKF. Stop $19.60.
  9. 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.
  10. GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.
  11. BBBY – Triangle – Entry $77.45. Confirmed breakout. Hit the entry and looking for the follow through. Stop $76.
  12. CAG – bottom reversal. Entry $32.30. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $31.40.
  13. T – Double Bottom. Entry$35 on test. If no test 35.60 entry on break above the 200 DMA. Patience with the entry. Dividend plus growth play. At the 200 DMA and looking for the follow through on the upside. Entry 35.70. Stop $35.
  14. AMGN – V bottom. Entry $117.30. Look for test of the break higher on Monday as the entry point. Tested lower at open and took entry. Stop $116.
  15. GME – Breakout range. $53.20 breakout and looking for test on entry. The closer to the breakout level the better. Entry $53.50 on nice move higher. Stop $54.25
  16. QQQ – Triple top. Trade on break higher. Entry $80. Moved through the entry and traded lower again on worries. Still like the upside looking forward. Stop $82.45. Breakaway Gap? Watch and manage your risk.

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 were 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.

NOTE: The pattern trades above are setups that I see for a potential swing trade or 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. All investing comes with risk. Our job as investors is to manage the risk. Keep your focus and discipline in place.