Trading Notes for Today, October 8th

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. Selling continued as Washington argues about the debt ceiling and budget. Actually they are just making comments from afar as no one is really talking. Market unrest is growing in anticipation of a showdown over the next nine days. Saying they will never let it happen is just a way of trying to ease the tension, at this point there is no telling what will happen. Thus, the selling in the equity markets.
  2. All the major indexes showed a negative move on Monday, not just in terms of the close, but the technical setups. The DOW (DIA) and S&P 500 Index (SPY) have already been pushing lower and dealing with the 50 DMA, but the NASDAQ (QQQ) and the Small Cap index (IWM) looking at testing the 50 DMA as well with a bounce today. Congress is putting the catalyst in front of investors and they are on the verge of taking it lower. How far will they take it? At this point the downside is gaining momentum and it will take some quick negotiations if we are going to bounce back.
  3. Solar (TAN) hitting new highs and holding there for now. Be patient and protect the downside risk short term.  Upside momentum still in play.
  4. Small Cap (IWM) is where we continue to look for some direction on the upside. The sector has established a three week trading range of $105-107.50. Testing the downside again on Monday and a break of the lower end of the range would be a big negative for the index. Watch to see how it unfolds short term.
  5. Real Estate (IYR) The sector is struggling to hold support at $63.80. Intraday sold lower, but managed to bounce back before the close on Monday. Watching the downside and SRS as possible play, ONLY ETF Model.
  6. Dow Jones Industrial Average is leading the downside as it confirmed the move below the 50 DMA and 15,100. The index gets the award for short term volatility. 14,750 support level is coming into play on the downside. Watch and let the volatility play out. DXD trade on the pattern list below is benefiting from the short term selling.
  7. Healthcare (XLV) retreated back to the 50 DMA and held. This has been one of the leading sectors with Biotech and others pushing the broad index higher.  Still looking for the buyers to hold the sector up. Move above $51.25 would be positive. S&P 500 Model Watch List.
  8. Added Telecom (IYZ) to the S&P 500 Model Watch List. Need a break higher from the consolidation range above $28.
  9. ONLY ETF Model Watch List has the short set ups for the week. These were covered on the weekend update.
  10. Not pretty as the issues in Washington continue to weigh on investors. The volatility spiked higher on Monday and the VXX trade in the S&P 500 Model is playing out well.

The models are holding steady in the current trading environment. We see 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 or the upside euphoria based on hope. The market is in the midst of a 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. We have updated the Watch List in the models to have some short and some long opportunities based on the strengths and weaknesses of the current situation. Watch and let them unfold without making any assumptions in either direction.

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. We took some small losses in positions on Monday as the selling returned and the bounce off the morning low didn’t hold in the last hour of trading. I have added short plays on the model watch list to offset the risk going forward.
  2. Follow up on previous trades or posts:
  3. TBT – bear flag. 76.30 entry. Watch the negative news around the budget. sold early and still looking for the bounce.
  4. GMCR – bear flag. $77 entry. Watch for bounce off the test lower and move back to the 50 DMA.
  5. AAPL – triangle. $485 Dec Call option @ $23. Stock needs to hold above $483. Entry $24.20. Target is $550. Stop is $22 on the option. Expect volatility.
  6. VXX – Test 50 DMA. $15.55 entry. Uncertainty still in play. Stop $15.50.
  7. SCSS РTrading range. 25.25 entry. Influenced by the housing sector. Like the upside outlook. Stop 24
  8. SFLY РDescending triangle. Support at the 50 DMA. Bounce off support is the entry $55.80. Stop $55.10 STOP HIT
  9. PSX – Base trading range. Entry $59.50 Series of higher lows off the August lows. Ready for move to $64? Stop $58. STOP HIT.
  10. SUNE – Ascending Triangle – Break above the $8.35 mark. Entry $8.37. Semiconductor sector still in good shape. Stop $8.35 break even trade.
  11. COF Рcup & handle. Break above $69.80 new high and entry. Nice move on Friday. Consumer credit. Stop $68.
  12. FSLR – saucer. Break above $41.62 entry. look for test and entry. Entry $42. TAN is running higher showing strength.
  13. AMCC – trading range BO. Entry $12.95. Positive sector on upside move. Tested back on Friday. Stop $12.50.
  14. 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.
  15. JASO – trading range – moved back to the top of the range. entry $9.60. Added and watching the upside? Stop $10.30. Sector remains positive.
  16. STX РCup. Break above $41.90 on volume is the entry. Entry $42.  Stop $43.80. Look for sector momentum to continue to boost the upside. Stop 44.62.
  17. TRIP – Consolidation on gap higher. Entry $75.50. In leading internet sector. Stop $76. Testing the move higher.
  18. XNPT – Pennant. Entry $5.80. In leading sector. Stop $5.60. Looking for upside follow through.
  19. DIA – reversal and support break. This has set up a downside play worth watching. entry DXD $32.60. Stop $33.50. Watch and manage today as news is driving direction. Take exit if stops are hit today.
  20. IWM – base breakout and trendline. $102.50 entry. Stop $105. Watching to see if follows through to new high.
  21. KOG – ascending triangle breakout – cleared $10.30 for the entry and made move higher. Entry $10.40. Stop $12.25. Getting extended on the upside and looking to lock in some gains on half of the position today. Watch to manage the exit.
  22. SBUX РTest of support $70. Move above $71.30 for the entry. Added trade $71.30. Stop $76 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. Still holding the uptrend and dealing with the current volatility of the markets overall.
  • 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.

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.