Trading Notes for Today, October 17th

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 and the Senate approved a temporary measure put the government back to work until January 15th. That is not very long in terms of the differences that exist between the parties. The issues are significant enough that it will not get any easier to put together a long term deal. Thus, was for markets to react in similar fashion over the next quarter relative to this topic. The bigger question near term is do we sell on the news? Futures are flat to negative currently, but that will change as we approach the open. Earnings and economic data will be the next obstacles to jump as well.
  2. Natural Gas (UNG) bounced off support at $18 and has moved to the $19.75 high from September. The commodity pulled back in the late afternoon to test the move. I would like to see it hold above support at $19.15 and move higher from there. See ONLY ETF Model. Got the advance higher I continue to like the commodity near term. Took entry on Monday and managing our risk.
  3. Small Cap (IWM) broke below the 200 DMA last week and then reversed with the broad market back above the previous $107 mark. We got the follow through on upside off the budget news and need to see if we follow through on the upside. On the downside expect to trade within the range barring any major events.
  4. Healthcare (XLV) rallied to a new high on Wednesday with a 2% move higher. The upside gains are likely to consolidate the move and test the upside resolve. Watch and play according to your risk.
  5. Volatility index as you expect fell to 14.7 on the news of the deal taking all the worries away for the near term. I would expect a move towards the 12.5 mark barring any unforeseen issues.We hit our stop on VXX and look for a possible trade in SVXY as an opportunity.
  6. Financials (XLF) – The $20 mark was recaptured on the bounce last week and we have held above the $20.10 level with a 2% gain on Wednesday. KBE and KRE (banks) have helped the move and earnings continue to find some upside as well. 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.
  7. Real Estate (IYR) The sector moved back to the $66.20 resistance after another test on the downside. The dividend trade is still worth our attention looking forward longer term. Held the move above the $64.80 mark and still looks like it may want to move higher. If the yields on Treasury bonds remain level it will help the outlook for the sector. Patience is required for any position in the sector longer term.

The models have been  content to be in cash for the most part at this point. I am willing to buy as the opportunities as they are presented and the risk is justified. The stops pushed us to cash during the emotional uncertainties and now we can look forward to the next 90 days of peace and quite! (joke) If the upside is to be the direction of choice we have to get through the current reaction to Washington and the short term settlement. The bigger question is how quickly the attention will return to the fundamentals and reality of growth? Risk remains elevated short term relative to uncertainty, but that will shift in the coming week which is where the opportunity will present itself. Manage your risk on trades more aggressively than your longer term holdings.

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. We have navigated the issues well and we now get to deploy our cash according to our objectives. One day at a time with a bias towards patience. I expect some sideways trading as the markets adjust their focus from Washington to other issues facing growth of the economy.
  2. KEG – downtrend reversal. Entry $7.40. Energy sector regaining momentum. Watch for upside trade to previous high.
  3. Follow up on previous trades or posts:
  4. MXIM – Ascending Triangle. Entry $30.25. Semiconductor and the consolidation is ready to break to the upside on a continuation in the technology space.
  5. 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. Nice gain on Wednesday
  6. 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.
  7. 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 30.55. Nice move to follow through on the upside.
  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 Wednesday. 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.