Trading Notes for Today, September 26th

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. Five days of selling… longest of the year… that is the headline? The “selling” remains mild and well within tolerance for the uptrend to remain in play. The bias, from my view, remains with the buyers. It is what’s on the horizon that is causing the concerns. That lack of clarity is keeping the buyers in check, but it is also keeping the sellers at bay. Each are doing just enough to make their points, but neither is exerting control at this point. Thus, we take one day at a time and accept what the market gives relative to the trend.
  2. Small Cap (IWM) is where we continue to look for some direction. The sector tested and held the 10 DMA and equally tested the resistance at the $107.50 ish mark. I am still looking for the upside to continue if we are going to continue the upside short term.
  3. NASDAQ 100 index (QQQ) still hanging near the 10 DMA. The move lower has been methodical, but the move is still lower. This is an index worth our attention going forward… short or long.
  4. Dow Jones Industrial Average is leading the downside. DIA sold to support at 50 DMA and closed below that mark on Wednesday? Added the short play Wednesday with the downside possibilities short term as a short trade with DXD.
  5. Treasury bonds continue the bounce off the recent lows. The upside I have viewed as limited, but the move in the thirty-year bond yield to 3.64% completed the rounded top on the yield chart. That could lead to a further drop in rates. Thus, the rally in the bonds. TLT moved above the $106.20 resistance and is poised to make a run at $110.30 on the upside. The double bottom set up is worth watching and trading going forward. TMF is the leveraged trade on the bond.
  6. Mid Cap (IJH) fell to support at $123 held and bounced. I am still watching for signs of downside leadership on the current setup.
  7. Healthcare (XLV) moved above the July high, but has moved back below that level currently. Some downside pressure from the healthcare providers (IHF) and the saber rattling in media over Obamacare. Sitting on the 50 DMA and looking for support. Biotech (IBB) hit our stop at the 10 DMA, but is holding steady for now.
  8. Technology made move above $32.40 and is now testing that level the last few days, but it remains suspect in the current conditions. The semiconductors (SOXX) tested the high at $68 on a vertical move and could test from the aggressive gains. $66.70 level tested and held as support. Internet (FDN) experienced some serious selling on Monday and bounced back on Tuesday and an inside trading day on Wednesday. I am watching to see how this leader plays out. Software (IGV) sold lower, but is holding the next level of support. The networking (IGN) sector sold lower testing support at 50 DMA and closed with an inside day on Wednesday. Tech is struggling in this test for the major indexes.
  9. Financials (XLF) looking to hold $20 as support? The government attacks on the sector continue with more suits against JP Morgan and the hindsight regulations. The proposed settlement sent JPM up 2.7% today and that helped overall sentiment. Banks (KBE) remain the challenge and earnings may not favor the sector short term. Mortgage business has been weak with the higher interest rates and the write-offs due to lawsuits has been significant. SKF is short financial ETF, $21.05 was our entry on Tuesday and we have to manage against the downside reversal.
  10. Utilities (XLU) is settling in at the 200 DMA and I still like the sector longer term outlook for the patient investment. 4% dividend and long term growth work well.
  11. Energy (XLE) reversal moved below support at $83.85, previous high, watch to see if selling accelerates and tighten stops. Crude oil (OIL) reversed to $103.37 and caught support at the bottom end of the current trading range near the $102.50 level. Hold or we head towards our target of $98. Refiners remain the weakest sector and the downside is in play.
  12. Gold (GLD) too much speculation and uncertainty for my taste. $125.50 level to watch for now.
  13. Today is again about support. We are at the various levels of support and how investors/traders deals with the current sentiment will give direction for the near term. Not excited about being short, but we have to watch and take what the market gives. The key is not to assume anything and trust what you see, not what you feel.

The models are stalled looking for new plays as the spike last Wednesday (FOMC meeting with not cuts in stimulus) elevated the risk, followed by uncertainty in direction as a lack of clarity. I am speculating the market is setting up for a test on the downside from the move higher (five days of modest testing). We added some positions on the bounce through resistance and we continue to scan for opportunities, but the risk/reward is out of balance. Thus, we remain patient and let this unfold. This is the final week of the month and quarter. Earnings are around the corner with plenty of economic data to add to the mix. The bias remains modestly with the buyers for now.

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

  1. SOHU – pennant – moved above the $73.42 mark and looking for follow through today. Entry test of $73 or max of $74 on the trade. Stop is $71.30.
  2. SMH – pennant – move above the $40.50 mark would be positive for this leader. Has held great during the test the last week.
  3. JASO – trading range – moved back to the top of the range. entry $9.60. Stop break of the 30 DMA.
  4. ESRX – bottom reversal day. Look for a follow through on Wednesday’s move. Entry $63.25.
  5. Follow up on previous trades or posts:
  6. STX – Cup. Break above $41.90 on volume is the entry. Tech is testing the uptrend short term. Look for sector momentum to continue to boost the upside. Closed near the entry point. Took the entry when hit early in the trading day. Solid gain of 4.9% on the day put stop at break-even.
  7. TRIP – Consolidation on gap higher. Entry $75.50. In leading sector. Added early, but then reversed. Stop $72.50.
  8. XNPT – Pennant. Entry $5.80. In leading sector. Still in pattern and watching.
  9. DIA – reversal and support break. This has set up a downside play worth watching. entry DXD $32.60. Stop $32.15
  10. 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$35.50
  11. NTES – pennant. Move above $73.50 entry. Internet one of leaders as well. Nice move higher. Stop $73. still looking for the stock to break above the $77 level on upside.
  12. IWM – base breakout and trendline. $102.50 entry. Stop $105.50. Manage the stop in follow up to solid move higher. Watch how it plays out going forward, if we break above the $107 resistance look to add to the position.
  13. KOG – ascending triangle breakout – cleared $10.30 for the entry and made move higher. Entry $10.40. Stop $10.90. Break above $11.30 would be positive short term. Watch to hold the move and manage the exit. Hit target look for exit if reverses.
  14. 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. Inside day on Wednesday, watch to see how it plays out.

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.
  • 9/24 – upgrade by Citigroup. Watching to see how this holds up as the quarter ends and earnings are around the corner — Oct 21st.

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.