Trading Notes for Today, September 12th

Notes to Note: 

Market test support again on Thursday and buyers again step in to push the indexes modestly higher on Thursday, but do so with less conviction. The chop is back and we are still cautious about what is taking place near the highs. The Russell 2000 Small Cap index showed a solid move on the upside to lead the indexes and a move back above the $117.50 level today would be nice. Retail sales data is out today and it could move the needle if the news isn’t in line with expectations. The focus is starting to shift to the FOMC meeting next week and what the Fed will or will not change in the meeting relative to interest rates. Speculation on when the process will start to raising rates. The speculation train never stops!

* Trading environment is compressing holding periods on trading positions again. Thus, the choppy markets are in play and we have to respect that relative to trading.

* 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 Thursday and traders are looking for the upside resumption of the trend. Patience as nothing is confirmed or certain.

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 managed to have a solid move on Thursday. (ONLY ETF model and Pattern Trading) TODAY: bounced back from the selling on Tuesday. Continuation of 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. Building consolidation pattern at resistance and needs a catalyst on the upside to continue the move higher. (Sector Rotation Model) TODAY: Follow through on the upside move and hold the 10 DMA.

Semiconductors (SOXX) stalled after breaking to new high and completing the ‘V’ bottom. How much upside is left in the sector after climbing nearly 9% to this point. Patience as this plays out near term. TODAY: Like most of the sectors today investors are undecided it is looking for resolution on the direction. (ONLY ETF SOXL)

Energy (XLE) the weakness in the sector is expected as crude oil prices have declined. That continued on Thursday and then the buyers stepped in and crude climbed back above $92 on strong buying. That continued overnight with the futures at $93.40 currently. The positive move in crude stalled the short trade with the breach of support at the $95 level on XLE. Nice bounce back off the lows, but the downside bias is in play and we have to watch how it unfolds. Exercise some patience now.

Model Position Notes: 

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

  • Volatility Index – VXX trade did well and then buying shift the momentum upside and the VIX fell. Reflects very clearly the attitude of the markets. Choppy.
  • S&P 500 Index (SPY) Choppy week of trading but holding support at the $199 mark. Still need to follow through on the upside or we take the exit on stops. A rounding top or sideways consolidation in play. (S&P 500 Model) TODAY: Got another test and bounce day and still looking for follow through on direction with a positive bias.
  • Small Caps (IWM) Followed through on the test of the $115 support and bounced back to close above the $116 mark. Hit the stop Wednesday, but reversed to close higher again on the Thursday. Thus the challenge with choppy markets… you have to give wider stops and that is a double edge sword if the markets break lower. Locked in small gain and looking at the upside opportunity if it follows through.
Watch List Opportunities:
  1. Sector Rotation Model – Updates to positions
  2. S&P 500 Model – Updates to positions
  3. ONLY ETF Model – Updates to positions

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. NFLX – entry $477.50. Test of upside in play and holding $470 support. Stop $460.
  4. BAC – entry $16.30. breakout. Held the move higher and now looking for the follow through to $17.30 short term. Stop $15.95
  5. AGN – entry $163.50. Test lower and move through resistance. drug manufacturer. Stop $158.90.
  6. YHOO – entry $36.50. trading range break. Internet sector moving higher. Stop $40.25
  7. CELG – entry $89. wedge breakout. healthcare leadership short term. Stop $92.40. HIT STOP
  8. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $20.10
  9. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $61.75.
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 choppy markets. $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. Nice slow upside drift in play for the stock. Still positive opportunity long term for the position.
  • 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.