Trading Notes for Today, October 25th

It’s Friday and another positive week comes to a close. The major indexes have managed to hold the breakaway gap from last Friday. Futures are flat heading into the day with solid earnings from Amazon and Microsoft which should set the tone for the technology sector to bounce back from Wednesday’s selling. Not looking for much different from what we have seen all week. Plan your exits and entries accordingly. If you have specific questions on any posts please forward them directly to Jim@JimsNotes.com.

Sectors to Watch:

  1. Japan (EWJ) off 2.4% and China (FXI) down 1.4% are on watch for an impact on the global markets today. Europe has opened lower as well. Worry about China is rising and the move below the September 30th low on Thursday was an technical negative for the country. Worth watching the global response today.
  2. Semiconductors (SOXX) are struggling with the gap lower on Wednesday and so-so attempt to bounce on Thursday. Need the sector to return to the uptrend as it acting as a drag on the NASDAQ.
  3. Natural Gas (UNG) is a key point technically. The chart shows resistance at the 200 DMA and the $19.73 mark. Last Wednesday the ETF made another attempt to break higher but failed and is now testing the uptrend line off the August low. A break could open the door for a short opportunity to the previous low ($17.10). KOLD is the short ETF for the commodity.
  4. Small Caps (RUT-X) Russell 2000 index posted new high last week and is in the same position on Thursday. The outlook is still for the uptrend to remain in play. The sector 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.
  5. Interest rates and the Fed? Rates on both the 10 and 30 year bond have been moving lower and pushing the prices up. Most believe the Fed will not cut stimulus causing the decline in yield. The bias this week and last has been for the yields to fall and prices on bonds to rise. Nothing definitive on direction, but the rally in bonds is still under way short term. TLT broke above $107 for breakout move from near term lows. Small bounce in yields on Thursday we will watch today.
  6. Gold moving higher on what would amount to speculation. The best it could manage on Wednesday was an inside day, which in turn pushed higher on Thursday. Thus we got the continuation of the move higher. GLD hit the 50 DMA as resistance, but has held and still looking for that convincing move on the upside. I like the miners on the move in GDX. Patience is required with any positions as there are too many opinions about the metals future.
  7. 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.
  8. Energy made solid move higher the last two weeks, but that ended Wednesday 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 in consumption 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 going forward.
  9. Technology struggles near the highs of late. 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, FDN, IGN, IGV and SOXX are all on watch relative to direction in the sector.
  10. Financials (XLF) – The sector hit the previous highs at $20.85. A break higher puts the sector in confirmation mode relative to a consolidation breakout. Watch for $21 entry on the move if it materializes. The resistance remains in play as we held the 10 DMA today, but there is still a lack of conviction in the sector near term. Watch as the downside may come into play again.
  11. 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.

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. Manage your stops on positions and stay alert to the response to earnings and the global markets today. We need to see technology and financials reassert some leadership today.
  2. BEE – Resistance Breakout – Entry 9.10. REITs are moving higher and a break to new high would be positive short term.
  3. HBAN – Flag – looking for the break above $9 as entry. Banks need to lead.
  4. BBBY – Triangle – Entry $77.45 confirm breakout. Still watching as consolidate near the entry.
  5. 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.
  6. Follow up on previous trades or posts:
  7. 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. Stop $12.58. Looking to add to the position.
  8. TITN – bottom reversal breakout. Entry $17.70 got the test and confirmation of the move above resistance. Reversal and hit Stop $17.40.
  9. DTO – Breakout base. Entry$34.70. Climbed higher as oil fell. Set stop at $36.55
  10. K – bottom reversal breakout. $61.40 entry. Nice follow through on the upside. Stop $61.25. Inside day set up to add to the position.
  11. GME – Breakout range. $53.20 breakout and looking for test on entry. The closer to the breakout level the better. Entry $53.50 on nice move higher. Stop $53.50
  12. 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.
  13. CRM – Break downtrend off September high and continue the longer term uptrend. Entry $53.40. Technology sector. Stop $52.
  14. AXP – Breakaway Gap. Look for test of the move today. Entry $$79.50 ish. Added on the test. Stop $79.50.
  15. QQQ – Triple top. Trade on break higher. 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 manage your risk.
  16. AAPL – triangle. $492 entry. Stop $515. 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. Following through on the upside. Gain is nearly 8%… it is about making money!
  17. 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. Hit stop on Thursday.

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 Thursday… watch for now.)
  • 10/24 – Small bounce held the 10 DMA and watching. Puts are still an attractive trade short term.

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.