Trading Notes for Today, November 11th

The major indexes bounced back on Friday, leaving investors questioning the direction. The selling on Thursday looked liked a mistake relative to the bounce back on Friday. Time will tell as this week unfolds. We need to be patient and see if the downside returns or the buyers take control again as they have previously. Be patient and look for the next movement up or down? If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. The sectors all bunched together again as the broad markets return to the trade as a whole mentality. The downside moves in energy and financials bounced back on Friday to join the pack. Utilities are struggling in the face of interest rates moving higher, but overall the uptrend is still intact off the October 9th low.
  2. Financials were the clear winner on Friday and back at the $20.85 resistance. A break higher will clear the way for the sector to resume the uptrend. The worries over earnings and regulations were put on the shelf for the day, but remain a concern in the sector going forward. Watching KBE, KRE and KIE as well.
  3. The two interest sensitive sectors to watch this week are utilities and telecom. Both suffered on the week relative to the rise in yield on Treasury bonds. They are not attractive as shorts and we will manage our stops relative to the dividend on both.
  4. The US markets have taken the leadership role again and the selling in the global markets will reverse as well if the trend remain higher in the US. The EAFE index and the Emerging Markets are being watched this week for a bounce if we remain positive.
  5. VIX – the index remains at the lows and shows the continued positive sentiment from investors. How low and for how long? Again this is something to watch moving forward.
  6. Dollar (UUP) made a move higher above the $21.75 resistance as other currency reacts to the Fed on stimulus. The ECB rate cut last week pushed the euro lower as well. Watching to see how much impact the move have globally and to commodities.
  7. Gold offered a short signal on Friday with support at $122.50 on GLD.
  8. Real Estate (IYR) is the big negative currently in scanning the sectors. After making a move above the 200 DMA the sector has sold back to support at $63. We have a short trade (micro term) with SRS, the short ETF for the REITs, as a trade opportunity. Manage the position and adjust your stops as the sector look oversold technically.

The models still face the challenge of dealing with the buyers versus the sellers. The sellers made a move on Thursday, but stepped right back in on the jobs report Friday? The AAII sentiment report still shows the bulls at excessive levels. The market has every reason to adjust, test, pullback, sell off, or whatever downside phrase you like, but it hasn’t manage to do so to this point. Thus, you have be careful not to assume the downside will take place. We are still adding 1/2 position sizes with the entries hit as the risk remains elevated. The jobs report is still the buzz relative to strength in the economy. 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. We hit a stops on Thursday, and then saw most bounce back on Friday. That is the way it goes some times when uncertainty is in control. Be patient and manage the risk.

  1. XLF – $20.90 entry. Bounced off low and in position to move higher short term.
  2. ETFC = 17.70 entry. Breaking from a two month trading range on the upside. Let the move validate with a max entry at $17.90.
  3. Follow up on previous trades or posts:
  4. SRS – Bottom reversal. Real estate breaking down on interest rate fears. Short trade on the move above resistance. Entry $20.25. Stop $221.10.
  5. 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.
  6. GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.
  7. CAG – bottom reversal. Cleared the 50 DMA and completing a cup pattern off the bottom. Entry $31.90. Stop $31.90.

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.