Trading Notes for Today, October 2nd

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. Still no budget and still too many headlines telling us how to invest in light of the shutdown. The move higher on Monday only adds to the volatility of the markets (choppy better description) and that lends itself to a lack of clarity. This is not the kind of market you want jump blindly into with any assumptions in either direction. The bounce started Monday following the gap lower open and continued on Tuesday as the buyers ignored the speculations of a disaster from the budget impasse. While this is all amusing and insightful the real poo to hit the fan is about to begin with earnings. Since I like fundamental data some statistics to think about heading into earnings… Earnings growth in Q2 was 3.8%, estimates for Q3 is 3.2% as published by FactSet data. Prices tend to follow earnings and this could prove to be a challenge going forward. The current forward valuations are 14.4 times earnings. The five year is 12.9 times and the ten year average is 14. All food for thought going forward and this may mean more to investors than the budget issues currently dominating the headlines.
  2. Question… Does the shutdown play into the hand of the Fed not cutting stimulus? This will.could act as bad economic data relative to the Fed actions towards cutting stimulus… could get interesting. The markets would see that as a positive overall.
  3. Solar (TAN) continues to move higher adding 3.1% on Monday. First the move above $31.10 and then the follow through on the upside as stocks in the sector look good. Watching to see if the upside remains… Yes, and adds 4% on Tuesday to the ETF.
  4. Small Cap (IWM) is where we continue to look for some direction on the upside. The sector tested $105.25 bounced and held the 10 DMA. There is continued resistance at the $107.50 ish mark. Looking for some leadership from the sector if the upside is to remain in play. Got it on Tuesday with a move above the $107.50 level for entry.
  5. Real Estate (IYR) The opposite of the small caps as real estate is moving lower. Support at $63.80 held intraday Monday. Fear of the government shut down impacting lending in the housing sector, the economy weakening and just good old uncertainty are adding to the downside pressure in the sector. Solid bounce on Tuesday to push back towards $65 and move higher on break above resistance.
  6. Homebuilders (XHB) is consolidating the solid move higher. $30.20 is support and I still like the upside short term. Look for a move back towards the $31 level short term. Got the move on Tuesday and now looking for the follow through. $31.05 entry point to add to the position.
  7. NASDAQ 100 index (QQQ) bounced back above the 10 DMA for the second day. The move lower has been methodical, and the pennant is looking for direction. This is an index worth our attention going forward… short or long. $78 support held on Monday, but on the downside $77 is the key support should the sellers push lower for now. Nice move on Tuesday to the upside and $79.70 entry opportunity on move higher and follow through.
  8. Dow Jones Industrial Average is leading the downside as it confirmed the move below the 50 DMA to close the week. The index gets the award for short term volatility. 15,450 is the level to watch on the upside and 14,750 on the downside. Bounced off the 15,100 level on Tuesday and looking for a follow through on the upside. DIA comes into play at $151.80 confirm on the upside move.
  9. Healthcare (XLV) has retreated back to the 50 DMA. This has been one of the leading sectors with Biotech and others pushing the broad index higher.  Some downside pressure from the healthcare providers (IHF) as the saber rattling in media over Obamacare has had an impact on the sector. IHF finding support at $87.30, IBB is back from the selling pushing towards the high, and XPH still holding an uptrend. Tuesday… big reversal off support for the sector and XLV. IBB joined with a break to a new high.
  10. Technology broke support at $32.10 after testing that level the last few days (reversed on Tuesday). The longer term uptrend remains in play, but the caution comes with the short term selling. The semiconductors (SOXX) tested support ($65.95) and held up well in this environment… looking for a upside bounce opportunity (got it on Tuesday). Internet (FDN) is trading near it’s high (Hit new high on Tuesday). The internet space has been a leader in the move. Software (IGV) sold lower and in consolidating near the high (reversed off support). The networking (IGN) sector sold lower breaking support at 50 DMA. Downside building momentum short term (reversed course on Tuesday).
  11. Financials (XLF) broke the $20 level as support (move back above on Tuesday)? The new war of suing the banks and regulating the fine, etc have pushed sector lower on speculation. Banks (KBE) remain the challenge and with no clarity it will keep the sector neutral at best (made move higher?). SKF is short financial ETF, $21.05 was our entry and we have to manage against the downside reversal. Patience as this all plays out.
  12. Utilities (XLU) is settling $37.20 support. I still like the sector longer term outlook for the patient investment. 4% dividend and long term growth work well.
  13. Market is defining to the term ‘choppy’. Today it looks to continue with the futures dropping overnight. If the downside holds the negative open could erase yesterday’s gains.

The models are stalled as the current trading environment introduces too much risk for too little reward or, at best, banging your head against the wall. The resulting uncertainty in direction has presented a lack of clarity for the broad markets. Throw in the fight about the budget and you get the potential pullback or test of the uptrend (as seen on Monday) or the upside euphoria (as seen on Tuesday). The market is in the midst of a mild test, but we have to be cautious as the uncertainty has created a choppy market. They are bad for trading as you get whipped in and out of positions. Thus, we remain patient and let this unfold. Earnings are around the corner with plenty of economic data to add to the mix and the budget wars continue with the debt ceiling on the horizon. Look for the opportunities in the over reaction to the news as it all unfolds.

Pattern Setups For Today:
We continue to manage the risk of the market and make our adjustments as necessary. Choppy markets lack clarity and we have to be patient as the trades and leadership establish themselves.

  1. More noise today as the futures point lower for the open as more drama unfolds. A friendly reminder… manage your stops relative to the open and gaps.
  2. XRT – cup & handle. Break above $82.90 new high and entry. Consumer still consuming.
  3. COF – cup & handle. Break above $69.80 new high and entry. Consumer credit.
  4. FSLR – saucer. Break above $41.62 entry. look for test and max entry $42.30. Be patient. TAN is running higher.
  5. Follow up on previous trades or posts:
  6. AMCC – trading range BO. Entry $12.95 on move higher. Positive sector on upside move. Didn’t get the move higher, watching today for the follow through.
  7. SFUN – pennant. Attempting to resume the upside move. In the interest sector which is one of the leaders. Entry test of $51 level. If runs away pass. Took entry on the test at open $51.30. Stop $49.40.
  8. BXP – Trend Test. The spike higher from the FOMC news has fully tested back to the trendline. Held above the 50 DMA and ready to bounce higher. Entry $107.30. Added and looking for the upside follow through. Stop $105.50.
  9. JASO – trading range – moved back to the top of the range. entry $9.60. Added and watching the upside? Stop $9.38. Sector remains positive.
  10. STX – Cup. Break above $41.90 on volume is the entry. Entry $42.  Stop $42. Tech is testing the uptrend short term. Look for sector momentum to continue to boost the upside. Nice bounce higher, but watching the outcome.
  11. TRIP – Consolidation on gap higher. Entry $75.50. In leading internet sector. Stop $72.50.
  12. XNPT – Pennant. Entry $5.80. In leading sector. Still in pattern and watching. Added on Tuesday @ $5.80. Stop $5.60.
  13. DIA – reversal and support break. This has set up a downside play worth watching. entry DXD $32.60. Stop $33.10. Watch and manage today as news is driving direction. Take exit if stops are hit today.
  14. YNDX – Test of Breakout. Moved higher and tested now need a continuation on upside. Internet is one of leaders in tech. Nice push and follow through. entry at $35. Stop$36.20 – HIT STOP.
  15. IWM – base breakout and trendline. $102.50 entry. Stop $105.50. Let the open move through and held the position on the recovery on Monday. Nice break high on Tuesday. Watching to see if follows through.
  16. KOG – ascending triangle breakout – cleared $10.30 for the entry and made move higher. Entry $10.40. Stop $11.50. Getting extended on the upside and looking to lock in some gains on half of the position today. Watch to manage the exit.
  17. SBUX – Test of support $70. Move above $71.30 for the entry. Added trade $71.30. Stop $75 both positions. Add to the position on confirmation of move above $72.50. Back to the top end of the range. Manage the profit as we hit against resistance.

Facebook (FB) Update:

  • Facebook – The sentiment towards the stock has shifted as it found support at the $22.80 level and moved to the top of the trading range before breaking higher and adding positions. The move above $24.50 was entry for position.
  • Added position at $24.75 (1000 shares). Stop is $22.75 for now. A move back above the 200 day moving average and we will add to the position. (Added 1000 shares at $25.65 on break) Sentiment towards the stock short term is gaining. Consolidating at the current levels and holding. Still like the upside near term as it is gaining positive comments from analyst.
  • Earning beat expectations on Wednesday and the stock jumped 29%. Here is where greed versus objective comes into play. This is a long term play and if the gains hold up today in trading the upside gain on the position is tempting. We will now have to design a way of protecting or realizing part of the gain short term. Be patient with the position on the upside as you are on the downside. Interesting link on earnings for facebook
  • 8/13 – The stock broke lower from the pennant. Watch and manage your risk. As stated yesterday we are going to establish a hedge to protect the downside risk. Add a December $37 Put on FB @ $3.35.
  • 9/2 – Nice bounce to $41.34 and new high. Tuesday reversed the move higher as markets react to speculation. Watching for any trading opportunities off the pullback test and then a move higher. Test of $39.30 level is the key to hold. If reverses back to the upside looking to buy 1000 shares as trade back to $42. 8/28 – Added 1000 shares at $39.95 for trade. Stop on that trade is $39.95 or break even now. If we hit the target at $42 sell half of the 1000 shares. Sold 1/2 ($42) on 8/30 for nice gain. Sold balance at $43 – 9/16.
  • 9/16 – Broke higher to continue the move, but it was a result of rumors relative to China allowing Facebook to operate within the country. They currently do not, and this would be a big opportunity. Based on the research behind this rumor there is no substantial evidence to any of the reports. Thus, I would expect the run to soften as the reality takes place on no deal in China.  Sold position on the selling on Monday in opposition to the market. Booked the profit and now watching to see how this news unfolds going forward. I never like a 4% decline in a stock…
  • 9/20 – love the way things work out sometimes. 6% bounce and back to the top and resistance and followed through to new high. Got the last of the sellers out of the way? Watching to see how it acts here. The addition to the NASDAQ 100 index added the initial upside move. Got big follow through on Friday with options expiration and the index rebalanced.  We will hold our long term position and look for the opportunity short term. Patience.
  • 9/27 – upgrade by Citigroup. Cleared the $50 level on Thursday. Watching to see how this holds up as the quarter ends and earnings are around the corner — Oct 21st. Closed at $51.24 and new high again.

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.