Trading Notes for Today, September 22nd

Notes to Note: 

The indexes jumped higher at the open and then spent the rest of the day struggling to hold on. By early afternoon the indexes had moved into negative territory and then worked to end the day close to even on the S&P 500 index. The NASDAQ closed down 0.3% and the Russell 2000 small cap index was down 1% to lead the downside movers. This shows the lack of conviction on the buy side of the market and remains something to watch going forward. As we have discussed clarity remains an issue for the near term.

Gold continues to struggle along with commodities overall. The short side of the commodities have been the better choice to make. Watching first for a possible bounce to reverse the current selling and second, a downside trade if we break the next level of support. Either way this is setting as a potential opportunity.

* 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.

* No ability to mount or sustain a move to the upside short term as the sellers remain in control. Challenging environment and patience is required.

* We are still in need of clarity relative to the outlook if we want the direction to solidify and establish itself. Otherwise it remains partly cloudy with a chance of rain.

Sectors to Watch:

Bonds (TLT & IEF) as stocks retreat so do rates on bonds. The give back is in response to the weakness in stocks, but also to the assumption that the Fed isn’t going to move on interest rates and that pushed yields lower. In January the belief was the Fed would start moving rates towards the 1% level this year. That has not materialized and yields fell as a result. But, the January benchmark of yields is a good target for rates as they should move in anticipation of the Fed rate hikes over the next 6-12 months. Thus, the thirty-year bond target yield would be 4% and the ten-year bond would be 3%. Thus, a hedge or trade on the short side with a longer term outlook is prudent at this point. TBT or TBF (Sector Rotation Model & ONLY ETF Model) TODAY:¬†Patience with the bond yields moving lower… this is a longer term hold on the short trade.

Financials (XLF) We got the initial follow through on the upside and the banks led the way as expected. Both regional (KRE) and large banks (KBE) are in play on the pattern list and managed to have to make a move higher. The opportunity going forward is if rates rise. (ONLY ETF model and Pattern Trading) TODAY: continued bounce in the sector and some upside follow through.

Consumer Services (XLY) I like the sector taking a longer term view as the retail sales reports have consolidated for the last three months, but August showed positive upturn again. Good news right? The consumer sentiment moved higher and spending remains steady. The Fed has a positive outlook for GDP and that should result in a positive run for the consumer, right? The short term volatility around interest rates is noise. Focus on the fundamental drivers for this sector and use the volatility to add a position near term and build on it going forward. XRT is direct play on the move in retail sector. (Sector Rotation Model) TODAY: upside confirmation of the current trend in play.

Solar (TAN) Sold with the rest of the growth sectors and $43 is support to watch for opportunity if we hold and bounce. Not much in terms of the bounce as volatility steps into the sector. Our stop is in place if the upside does not unfold. (Sector Rotation Model) TODAY: Follow through on the upside move and hold support breaking higher from the consolidation.

Energy (XLE) the weakness in the sector is expected as crude oil prices have declined. There is some volatility in prices, but the downtrend is well confirmed in oil and now in the energy sector. The modest bounce delayed any short side trade, but still watching how this plays out near term as the fundamental data has not changed. The short trades with DUG on the stocks are still an opportunity. (ONLY ETF Model) Remember bull cycles die hard and this will be the case in the energy sector unless oil finds an upside bid that reverses the trend. The weakness in the Natural gas commodity is only adding to the downside pressure (bounced off current lows as well). TODAY: Watch for reaction to the bounce in price and let it unfold and validate in either direction. $93 is the level to break or hold for now.

Semiconductors (SOXX) solid move short term back near the previous high. One of the few sectors showing positive attribute currently. big reversal on Friday and we have to watch the response following options expiration. Watching to see if the upside remains in play and offers a trading opportunity. Needed move above $88.50 to hold. Watching for this to continue if the upside is going to play out.

Model Position Notes: 

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

  • S&P 500 Index (SPY) Choppy week of trading¬†but held support on Tuesday. Nice¬†follow through on the upside as we establish new highs. (S&P 500 Model) TODAY:¬†Got¬†the bounce? Looking for upside follow through to add as we go.
  • Financials (XLF) made the move¬†higher, but steady as we go with some renewed chop on Friday. ¬†Upside with banks adding to the gains and positive for now, but proceeding with caution.
  • Upside bias attempting to establish itself for the broad markets and work through the challenge in place currently.
Watch List Opportunities:
  1. Sector Rotation Model – Watch List
  2. S&P 500 Model РUpdates to positions (stops) & Watch List
  3. ONLY ETF Model РUpdates to Watch List

Pattern Trade Setups:

  1. TZA = Entry $15.25. bottom reversal on weakness. The lack of conviction is hurting the sector short term.
  2. XLE – short trade $93 Entry. The downside opportunity remains in place and we will add a short position on the break below this level.
  3. TBT – Entry $59.75. consolidation break and continuation of uptrend. Downside of bonds is the longer term view going forward and adding a position on the move higher is start.

Pattern Trade Tracking:

  1. TKMR – entry $21.50. triangle consolidation. Upside continuation move on the breakout is good trading opportunity in leading sector. Stop $20.
  2. TAN – entry $44.40. uptrend continuation on test. If growth recovers this will go higher. Patience. Stop $43.50
  3. KBE – entry $32.90. cup breakout. Looking for follow through on the upside. Stop $32.50
  4. KRE – entry $39.50. cup breakout. more upside potential if the sector gains momentum. Stop $38.65
  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 $163.50.
  7. YHOO – entry $36.50. trading range break. Internet sector moving higher. Stop $41.25 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: 
Both positions held on in the storm Monday and Tuesday. Exercising some patience as the issue of the Fed unfolds. These are long term holdings and we don’t want to over react tot he short term news. If the short term volatility made any rationale sense we would trade the events, but they are too news and emotion drive for now. There will be opportunities on the other side of this and we will take advantage of that as it arises.
  • 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.