Trading Notes for Today, September 11th

Notes to Note: 

Market finds bottom at support and buyers step in to push the indexes modestly higher on Wednesday. Do we stay in the chop of the trading range or is this the start of another leg higher. The last three weeks have been nothing if not choppy as traders, investors and guessers look for direction from the broad indexes. I expect today to give some indication of the mindset and bias of the crowd. We remain in topping pattern or sideways trek in the S&P 500 index. The NASDAQ has taken back more of a leadership role, but still need to move above the 4600 level to resume the upside trek. Small Caps bounced back to hold support, but still need to see some upside conviction in a follow through move. Time for patience and risk management.

* Trading environment is compressing holding periods on trading positions again. Thus, the choppy markets are back after two days of hope. Watch how this unfolds and if a test lower results.

* Bottom reversal patterns are working while breakouts are failing. Sign of topping currently.

* If tops fail, define the next support levels. If they hold, trading opportunity. Held on Wednesday and looking for the upside resumption of the trend. Patience as nothing is confirmed.

Sectors to Watch:

Financials (XLF) at key point on the upside trek. Need follow through on the upside and the banks are the sector to watch. Both regional (KRE) and large banks (KBE) are in play on the pattern list and the test lower complete on Wednesday now looking for the upside to push through. (ONLY ETF model and Pattern Trading) TODAY: bounced back from the selling on Tuesday. Set positive tone for trading.

Solar (TAN) broke above the $45 high from June and is in position to move higher and potentially test the $51 high from February. Test it did today as the energy stocks all moved south on worries. The downside risk Tuesday and held on Wednesday, but plenty of work left to do to keep the upside in play short term.. (Sector Rotation Model) TODAY: Follow through on the upside move.

Semiconductors (SOXX) breaking to new high and completing the ‘V’ bottom. How much upside is left in the sector after climbing nearly 9% to this point. Answered on Tuesday… not much. TODAY: The doji candle could give indication of the upside. Investors are undecided still and look for resolution on the direction. (ONLY ETF SOXL)

Energy (XLE) the weakness in the sector is expected as crude oil prices have declined from above $100 to $91.75 on the close Wednesday. The downside or short trade is now the question with the breach of support at the $95 level on XLE. Nice bounce back off the lows, but the downside bias is in play for now. ERY is the leveraged short ETF or DUG.

Model Position Notes: 

Below are some notes on positions in models and what we are watching looking forward:

  • Volatility Index – VXX trade bounced back Tuesday and lower on the move markets move higher on Wednesday. Too much indecision for any trades now on the index.
  • The EAFE index (EFA) Indtraday reversal off support and now looking for clarity in any upside trade.
  • S&P 500 Index (SPY) Tested lower again on Tuesday, but held support at the $199 mark. Still need to follow through on the upside or the exit on stops. A rounding top or sideways consolidation in play. (S&P 500 Model) TODAY: Got the first part of the bounce and now some follow through on direction would be a positive.
  • Small Caps (IWM) Tested back near the $115 support again and bounced back to close above the $115 mark. Stop at $115 as this tests the micro trend higher. Hit the stop, but reversed to close higher on the day.
Watch List Opportunities:
  1. Sector Rotation Model – Updates to Watch List
  2. S&P 500 Model – Updates to positions
  3. ONLY ETF Model – Updates to Watch List
  4. ONE EGG Model – Added position

Pattern Trade Setups:

  1. QLD – entry $128.75. Break from consolidation range. Patience with the entry on trade.

Pattern Trade Tracking:

  1. KBE – entry $32.90. cup breakout. Looking for follow through on the upside. Stop $32.50
  2. KRE – entry $39.50. cup breakout. more upside potential if the sector gains momentum. Stop $38.65
  3. DBA – entry $26.50. Agriculture attempting to reverse off the lows again. Need to clear $26.92 on upside to show positive reversal and momentum. Stop $25.75. HIT STOP
  4. NFLX – entry $477.50. Test of upside in play and holding $470 support. Stop $460.
  5. BAC – entry $16.30. breakout. Held the move higher and now looking for the follow through to $17.30 short term. Stop $15.95
  6. AGN – entry $163.50. Test lower and move through resistance. drug manufacturer. Stop $158.90.
  7. YHOO – entry $36.50. trading range break. Internet sector moving higher. Stop $40.25
  8. CELG – entry $89. wedge breakout. healthcare leadership short term. Stop $92.40.
  9. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $20.10
  10. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $61.75.
  11. PLUG – entry $5.10. Base breakout. Looking for the move from the base to accelerate as the trend is drifting higher. Stop $5.10 HIT STOP
NOTE: The pattern trades above are setups that I see for a potential swing trade or short term 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. The best way to treat these as a learning tool is to assume a $100,000 portfolio and each positions receives a 5% allocation. If we state to take a 1/2 position as an example you would only allocate 2.5% to that position. I would use a downside risk of $500 per trade as a maximum loss. That will help  you learn position sizing and risk management. All investing comes with risk. Our job as investors is to manage the risk. Keep your focus and discipline in place.
Long Term Opportunities:

  • Facebook (FB) – Testing the break higher and has held up well in the recent selling. $73.15 entry point to add 1000 shares back on the long term outlook. (see note page for history. ADDED shares on 8/7 – $73.15 — Stop $71.50
  • 8/26 – pushed back towards the previous high and looks ready to break higher from the consolidation. Watch for opportunity to add to positions short term.
  • Twitter (TWTR) – entry $45.50 1000 shares (last trade). This was recommended on our webinar as the next long term position we have been trading since bottoming in June. Adjust your Stop to $45 for now on position and we will make adjustments as we extend the upside.