Trading Notes for Today, November 6th

The major indexes continue to find buyers to step in whenever the sellers show any attempt to push stocks lower. The question concerning the FOMC meeting and stimulus cuts to deal with and adjustments are made to interest rates, bonds and interest sensitive assets. 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. Small and Mid Cap indexes continue to test the upper levels of the move higher. A move back above the 10 DMA would be a plus and keep the micro term trend intact. Midcap is looking more like the NASDAQ in movement (that is a positive).
  2. VIX – the index is testing the lows as the buyers are content to put money to work. Complacency at it’s best for now. Small bump in early selling Tuesday, but it evaporated as the buyers stepped in to push the indexes off their lows. VXX closed near the lows.
  3. Dollar (UUP) made a move higher 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)
  4. Interest rates and the Fed? The initial response was for rates was 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 are reacting to any level of cuts. TBT gained 2.3% on the push higher in yields Tuesday. ONLY ETF Model.
  5. Natural Gas (UNG) Broke key support at the $17.90 mark. Short trade in KOLD was added on the move, but with the bounce in natural gas Tuesday we hit our stop on the position for nice gain. Commodities are reacting to the dollar, and that added to the downside of this trade. ONLY ETF Model. Watching to see if the move holds on the upside.
  6. Gold was moving higher, but shifted gears on the FOMC statement last week and the downside ‘speculation’ took over. The move below the 50 DMA was  negative, but now the $126.50 level is key support and then $122.50. GLL is the short ETF for the metal. We added DUST (ONLY ETF Model) as a play on the downside for the miners. Raised stop to break-even and hit the stop Tuesday. Gold holding support for now. GLL trade still setting up for entry.
  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. Crude hit $93.40 on the close and opens the door to a move below the $90 level?
  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. Watch $20.45 support on XLF short term. Watching to see if it bounces or reverses lower again.
  9. Real Estate (IYR) The sector moved through resistance, however the FOMC speculation of cutting stimulus in December hasn’t helped the upside move. We have a short trade (micro term) with SRS, the short ETF for the REITs, as a trade opportunity. Patience and risk management for any positions.

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. Tuesday early selling gave way to the buyers… Dow recovered 117 point drop). We are still adding 1/2 position sizes with the entries hit as the risk remains elevated. Added some plays on ONLY ETF Watch List. 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 will give Fed ability to cut is ISM manufacturing & Services along with 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. FB – support bounce. $50.25 entry. bounced off the 50 DMA and looking for a move back towards the previous highs as trade.
  2. PM – double bottom – $90.50 entry. break above the 200 DMA key to the move higher.
  3. GS – ascending triangle – 163.25 entry. target $170. In position to run back to top of trading range. Financials ready to bounce if broad markets move higher.
  4. 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.
  5. Follow up on previous trades or posts:
  6. SRS – Bottom reversal. Real estate breaking down on interest rate fears. Short trade on the move above resistance. Entry $20.25. Stop $20.04.
  7. COST – Trading range. Entry $119.50. look for test of the move higher on Friday and take the entry. Stop $118, retail doing well. (XRT)
  8. TTWO – Descending Triangle. $18.25 Entry. positive earning in positive sector.
  9. EPI – Resistance Breakout – Entry 17.07. India picking up momentum. Stop $16.80.
  10. TRP – Trading Range Breakout. The move above $45 is key. Entry $45.20. Stop $44.70.
  11. 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.
  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 $50.19.
  13. GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.
  14. BBBY – Triangle – Entry $77.45. Confirmed breakout. Hit the entry and looking for the follow through. Stop $76.
  15. CAG – bottom reversal. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $31.90.
  16. 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.
  17. 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. HIT STOP
  18. 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
  19. 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.
  • 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.

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.