Trading Notes for Today, October 24th

Thursday starts a new trading day with the futures pointing higher. The consolidation selling on Wednesday isn’t showing signs of accelerating at this point and we will approach the day with an optimistic outlook. As you know that can change quickly and we always need to be aware of our exit points as well as our entry points. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Small Caps (RUT-X) Russell 2000 index had a runaway gap on Friday and it partially filled it today. The outlook is still in an uptrend. Accelerated to a new high and is testing the move. So far it has held and we are looking for the upside opportunity on any test short term. Watching IWM.
  2. Interest rates and the Fed? Rates on both the 10 and 30 year bond have been moving lower following a test higher on Monday. If the Fed worries relative to cutting stimulus emerge rates will rise. However, if everyone believes they will not cut stimulus,  rates will fall. The bias this week and last has been for the yields to fall and prices on bonds to rise. Nothing definitive yet, but the rally in bonds is still under way short term. TLT broke above $107 for breakout move from near term lows.
  3. Gold moved higher on the drop in rates and the fall in the dollar on Tuesday. The best it could manage on Wednesday was an inside day. That is worth watching for a continuation of the move higher. GLD hit the 50 DMA as resistance, but watch to see if it follows through on the upside. Move through the resistance could be a opportunity to own the metal or the miners with GDX.
  4. S&P 500 index (SPY) held the breakaway gap and has continued to add to the upside. Not willing to step in front of the train on this sector currently, but watching for a test or pullback opportunity short term. Small test on Wednesday, but still in solid uptrend short term.
  5. Energy made solid move higher the last two weeks, but that ended today with the supply data. Oil prices have been dropping the last four weeks and now the supply data is reflecting what we have been warning about… slower demand. I don’t believe it is slower it just isn’t growing and supply/production is increasing. Thus, our short oil play has benefited, but we have to watch what happens with the energy stocks. XLE? Downside may be in play.
  6. Technology struggled again today. The earnings guidance from several technology stocks were not good and the impact was selling. This follows up on the heels of the Netflix intraday washout on Tuesday. There is increased selling relative to the high beta stocks which could signal some rotation of assets near term. How this plays out short term will be important to how we play the sector near term. SKYY pushed lower as the cloud stocks participate in the selling. Watch and act accordingly.
  7. Financials (XLF) – The $20 mark was recaptured on the bounce and hit the previous highs at $20.85. A break higher puts the sector in confirmation mode to the consolidation breakout. Watch for $21 entry on the move if it materializes. Attempted the move on Tuesday, but failed to hold the move. Wednesday’s move lower is not a good sign as it is setting up another top at this level that failed to break through. Watch as the downside may come into play again short term.
  8. Real Estate (IYR) The sector moved to resistance level at $67.30. Looking for the break higher, depending on what happens with interest rates above. The positive move in rates helped the upside for the sector. Watching for a follow through and opportunity to add to existing position. S&P 500 Watch List. Patience is required for any position in the sector longer term.
  9. Rotation? Bond yields as we have discussed above are in play on the downside. That has pushed bond prices higher in TLT, IEF, HYG, LQD, etc. This move lower in yields is also rotating money into Utilities (XLU), REITs (IYR), MLPs (AMLP) and Dividend stocks (DIV). This is something to pay attention to short term for trade opportunities.

The models have been updated for the trading day. The challenge is dealing with the buyers versus the sellers this week. The sellers are unwilling to take on any risk short term. Even the move on Wednesday was tentative. I can’t blame them at this point, but the short side of the market isn’t attractive until the sellers are willing to poke their nose in and get it bloody. We have put some money to work, but cautiously. We are adding 1/2 position sizes as the entries are hit as the risk remains elevated. The bigger question is how quickly the attention will return to the fundamentals and reality of growth? We continue to see rumbling from analyst and now the financial networks are picking up on the theme. 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. This is a new week with new opportunities and worries on the horizon.

  1. Wednesday started lower and closed lower. Not much in terms of volatility, but effective in getting the attention of investors. Today looks to be ready to resume with the buyers. The futures are up, but there is plenty of data on tap today between earnings and economic news.
  2. BBBY – Triangle – Entry $77.45 confirm breakout. Still watching as consolidate near the entry.
  3. LEDS – Cup & Handles. Semi sector as leader. This is a low price stock. Don’t play if you don’t like risk. Entry $1.40. Still watching as failed to move higher… yet.
  4. Follow up on previous trades or posts:
  5. VXX – bottom reversal? This is setting up to bounce. Bounced, but still watching to see how it plays out short term. Entry $13.20. Hedge for portfolio.
  6. TITN – bottom reversal breakout. Entry $17.70 got the test and confirmation of the move above resistance. Stop $17.40.
  7. DTO – Breakout base. Entry$34.70. Climbed higher as oil fell. Set stop at $36.
  8. K – bottom reversal breakout. $61.40 entry. Nice follow through on the upside. Stop $61.25
  9. GME – Breakout range. $53.20 breakout and looking for test on entry. The closer to the level the better. Entry $53.50 on nice move higher. Stop $53.
  10. AKRX – Breakout. Hitting new high on upside. Healthcare stock and leading sector. Entry $20.65. Positive moved, but watch and post stop at $20.15.
  11. CRM – Break downtrend off September high and continue the longer term uptrend. Entry $53.40. Technology sector. Stop $52.
  12. AXP – Breakaway Gap. Look for test of the move today. Entry $$79.50 ish. Added on the test. Stop $79.50.
  13. 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 $81.30. Breakaway Gap? Watch and set stop at Friday’s low
  14. AAPL – triangle. $492 entry. Stop $503. 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. Nice move to the previous high and raising stop.
  15. 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 31.21. Nice move to follow through on the upside.

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.
  • 10/21 – Made the break through resistance and breakaway gap. Adjust your stop on the 10/10 shares to $52.90 and let them ride today. Remember earnings are next week and we will have to deal with that.
  • 10/22 – banked our gain on the 10/10 shares of $4.65 a share. Looking at adding the Jan 55 puts  into earnings and beyond. I will finish up the research and make a decision for tomorrows 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 we watch for now.)

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.