Trading Notes for Today, November 12th

The major indexes took the Veterans Day holiday off as volume was low along with interest in the markets. The reaction to last weeks trading is still in play along with worries about the outlook. 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. Midcap made solid move on Monday clearing $128.53 and inching back towards the previous high. Clearing $129.80 for a potential entry is the level to watch if the upside continues.
  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. Sector Rotation Watch List. Watching KBE (tested the move above $31.64) , KRE (tested move above $38.07) and KIE (moved above $60.45) as well.
  3. The two interest sensitive sectors to watch this week are utilities and telecom. Both suffered on the rise in yield on Treasury bonds. Bond market was closed Monday, and today we get a better picture. They are not attractive as shorts and we will manage our stops relative to the dividend on both should we get a buy signal. Some stops hit in the XLU position and looking to add it back.
  4. Emerging Markets are establishing some leadership on the downside short term. The threat of the Fed cutting stimulus continues to weigh on the sector. I am not ready to short the sector, and if EEM can hold support at $40.75 could trade the bounce. Global markets overall have been negative to the stimulus cut issue.
  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. Watching to see if the test on Monday builds or the upside continues short term. The ECB rate cut last week pushed the euro lower as well. Watching to see how much impact the dollar move has globally and to commodities.
  7. Gold offered a short signal on Friday with support at $122.50 on GLD. The metal is holding $123.45 currently and the last effort to hold support or off we go to the June low.
  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 $63.15. 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. Watching XHB in contrast to this sector. Both are in real estate, but you have some divergence between the two, yet both are interest sensitive.
  9. Solar (TAN) continues to be in a uptrend off the April lows and the current consolidation near the highs is positive. Looking for a break higher as the stocks regain their momentum.TAN entry above $41.60 of interest.
  10. Pharmaceuticals broke higher on Friday and they have followed through today. MRK and JNJ have been breaking higher to lend weight to the gains. The move has gone vertical and I am looking for a test and possible entry point.
  11. Retail (XRT) remains positive off the January lows keeping the uptrend intact. The move above resistance at $83.25 in the sector last month continues to hold and the upside is still advancing. Solid gains the last two trading days to hit new high. Breakout moves in FRAN, BWS, BKS, SBH and others are keeping the trend moving.
  12. Oil Serviced (IEZ) Equipment and services companies continue to be the benefactor in the sector along with the refiners. A continuation and follow through in the uptrend is the entry for a short term trade. Expect some volatility as the market remain challenged near the new highs.

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. 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. MOO – $53.35 Entry. Break above resistance and continuation of the move above the 200 DMA. MOS cleared $47.22 resistance and leading the sector. DD, MON also in position to break higher for the ETF.
  2. ORCL – $34.50 Entry. Completing a break higher above resistance near the $34 level. Earning 12/16.
  3. XLF – $20.90 entry. Bounced off low and in position to move higher short term.
  4. Follow up on previous trades or posts:
  5. 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.
  6. SRS – Bottom reversal. Real estate breaking down on interest rate fears. Short trade on the move above resistance. Entry $20.25. Stop $221.10.
  7. 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.
  8. GE – Flag. continuation of the upside on break. Entry $26.40. Moved higher and tested. Stop $26.
  9. 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.
  • 11/12 – 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.