Trading Notes for Today, November 7th

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 pushes interest rates higher, bonds lower and interest sensitive assets move lower. YOu have to make the necessary adjustments as this unfolds. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Rotation is in play with money moving from the previous leaders towards materials, industrials, consumer staples and utilities of late. Watching to see if the shift sticks or just money chasing momentum short term.
  2. Europe post solid gains on improvements in the UK. This could be the first sign of the vertical markets diverging. That would be positive for both Europe and the US as opportunities to put money to work. Watch IEV for a continuation the bounce from Wednesday.
  3. 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. Small caps struggled on Wednesday and we will watch to see how they fare today. The midcaps remain sideways and looking for catalyst on the upside. They have been the leaders and should provide insight looking forward.
  4. VIX – the index is testing the lows as the buyers are content to put money to work. Complacency at it’s best for now. The buyers stepped in on Wednesday and pushed the index to the low. VXX closed at a new low.
  5. Dollar (UUP) made a move higher to the $21.75 resistance currently. Tested some on Wednesday, but the stronger dollar is a matter of belief the Fed will cut stimulus in December? Watching currently for opportunities if this continues to play out according to the Fed’s comments. Short yen (YCS – ONE EGG Model)
  6. 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 in the amount of money to be used. How much? Doesn’t matter, investors are reacting to any level of cuts. TBT is in play to capture the move in the long bond as a result of rates working their way higher. ONLY ETF Model.
  7. Natural Gas (UNG) Broke key support at the $17.90 mark. Made a move to the low at $16.90 and bounced. We are now watching the bounce for any conviction or if it is just a bounce. So far, just a bounce is the belief. ONLY ETF Model. Long or short is now the question.
  8. Gold closed higher and held the $126.50 level on GLD. The shift lower came as a result of the FOMC statement last week. 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. Gold holding support for now.
  9. Energy moved lower first with the market, but then with the drop in crude. This may set up a short trade opportunity going forward, but for now the buyers are still willing to put money to work in the sector. Watch and manage the trade if we hit the entry point on the downside play. ONLY ETF Watch List. Crude supply data today show a small build up than was expected and the rally was on. Crude closed at $94.86 up 1.6% on the day stopping the downside move. Watch to see if that changes anything further today.
  10. 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. No changes to speak of for now.
  11. 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. 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. AMT – entry $79.45. consolidation breakout. Telecom remains one of the leading sectors.
  2. CCI – $76.80 entry. pennant breakout. Telecom sector again on the upside.
  3. Follow up on previous trades or posts:
  4. 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.
  5. PM – double bottom – $90.50 entry. break above the 200 DMA key to the move higher. Stop $89.25.
  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.

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 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. Tested on Wednesday — still watching.