Trading Notes for Today, October 16th

The video will resume tonight as I head home today. Sorry for inconvenience.

The Watch List and Play List have been updated for today. Review and execute according to your risk and investment objectives. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Last night the House could not put anything together and today it is back at the Senate and the story gets better with each passing moment. I am personally tired of reading about it and have just to decided to read the final version, if and when they pass one. The futures are pointing higher despite the lack of a solution. Hope is eternally optimistic is all I can say.
  2. The short term yields have been rising as the threat of default has grown, but the long end of the yield curve is moving up slightly as the Thursday deadline approaches. TLT has moved down more than 2% over the last couple of weeks, but that will accelerate if there is a downgrade from the rating services. Watching TBT as a trade opportunity
  3. Natural Gas (UNG) bounced off support at $18 and moving towards the $19.75 high from September. Looking for a continued move on the upside and break above the 200 DMA. See ONLY ETF Model. Got the advance higher I continue to like the commodity near term. Took entry on Monday and managing our risk.
  4. Small Cap (IWM) broke below the 200 DMA and then reversed with the broad market back above the previous $107 mark. Watching for follow through on upside if the markets continue to rally off the budget news. On the downside expect to trade within the range barring any default on debt. No follow through on Tuesday, but the upside is still in play awaiting the outcome of the budget.
  5. Healthcare (XLV) moved back to resistance at the $51.23 mark. Look for trade on the upside is we get a follow through on the the move. Got the move through resistance, but tested on Tuesday. Didn’t hit any stops on the trade opportunity and looks ready to make the move back to the previous higher short term. Watch and play according to your risk.
  6. Volatility index jumped back to 18.6 on the worries again Tuesday. That hit the entry posted on the VXX trade and we added on the worries rising over the budget. The best trades of late have been the VIX index as the issues in the news keep moving the index up and down as investor anxiety surrounding the decisions rise and fall with each report. This is a high risk trade and you have to manage the movement and your emotions. ONLY ETF Model.
  7. Financials (XLF) – The $20 mark was recaptured on the bounce last week and if we hold above the $20.10 level looking for upside trade in the sector. KBE and KRE (banks) could offer some help if the earnings continue to find some upside as well. If the negative sentiment returns from the budget issues pass on any additions from the sector. Nice move higher as the earnings continue to be okay, not stellar, but good enough to keep the buyers engaged. Patiently looking for the opportunity upside.
  8. Real Estate (IYR) The sector remains in a sideways trek and the dividend trade is still worth our attention looking forward longer term. Held the move above the $64.80 mark and still looks like if may want to move higher. Patience is required for any position.

The models are  content to be in cash for the most part at this point. I am willing to buy as the opportunities are presented and the risk is justified. The stops pushed us to cash for the most part and we continue to follow our discipline for both entry and exits, take a deep breath, watch and let this unfold. If the upside is to be the direction of choice we have to get through the current headwinds in Washington and any settlement may be just the catalyst to define the direction going forward. There is still too much risk for too little reward or, at best, banging your head against the wall. The rumored solutions have showed signs of a reversal for the broad markets, but until one is actually signed the downside risk remains in play despite what the markets are doing in anticipation or hope of a solution. Manage your risk on trades more aggressively than your longer term holdings. Cash remains one of the better plays currently.

Pattern Setups For Today: We continue to manage the risk of the market and make our adjustments as necessary. Expect the choppy days to remain as the rumor of a temporary settlement on the budget is discussed.

  1. The great thing about news driven markets is they will make you crazy if you let them. Today is set up for a positive start, but we all know how that can go if there is no deal. Watch and be patient.
  2. Follow up on previous trades or posts:
  3. MXIM – Ascending Triangle. Entry %30.25. Semiconductor and the consolidation is ready to break to the upside on a continuation in the technology space.
  4. QQQ – Triple top. Trade on break higher is the good news play out. Entry $80. Moved through the entry and traded lower again on worries. Still like the upside looking forward. Stop $78.75.
  5. AAPL – triangle. $492 entry. Stop $480. Break from consolidation and run higher. Nice break from the consolidation on Monday as a follow through to the entry. (Note: don’t worry about the price. if you buy 10 shares and the stock move 10% you earn $490. If you buy 100 shares of a $49 stock that move 10% your earn $490.) It is about making money not share price.
  6. KBE – descending triangle. Trend continuation play long term. Move above the 50 DMA and the downtrend line a positive short term for the longer term trend. Entry $30.55. Stop 30.30. Nice move to add to the upside on Monday.
  7. DTO – Breakout NH. $34.35 entry. Still watching for entry. The short side of oil is in play with the break of support ahead in the futures on supply data. Our target for oil remains $98 near term.
  8. STX – Cup. Hit stop and took the re-entry Thursday at $45.25. Stop 44. Semi’s are still leading. Expect volatility. Nice 2% gain on Monday. This is what I was looking for is a continuation of the upside and why we bought the position back.

Facebook (FB) Update:

  • 10/5 – moved below $50 and we were watching to see if we should take half of our position off. Nice bounce on Friday and we continue to watch and manage the current market emotions.
  • 10/8 – Downgrade from Raymond James and negative sentiment push the stock lower. Looking at our options… Today I am looking for a bounce back towards the $49 level. Entry for the trade is $47.50 with stop at $47. If the bounce fails or doesn’t materialize we will take 1/2 the position off at $45.50.
  • 10/9 – got a bounce off the intraday low back near the $47 mark. Still watching and managing our position.
  • 10/10 – Got the move higher today for the trade on the upside move. The entry for the trade was on Wednesday intraday at $47.50 or Thursday at $48.25. We will use the higher price here to keep things simple. we added 1000 shares of the stock with a target back to the high ($51.25) heading into earnings on 10/21.
  • 10/14 – Nice move, but still not trading with much conviction. Be patient and keep your stop at the $48 mark on this trade and minimize any downside risk on the move.

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.