Trading Notes for Today, September 3rd

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. This week the focus will be on Syria and speculation of what Congress will do in response to the President’s request to act in some manner for chemical weapons use. Despite the talk, futures are up on positive economic data in Europe and Asia. The week delay before Congress returns to vote on the Syria issue may offer time for bounce on the upside. Either way expect volatility to remain a part of this weeks trading.
  2. Economic data will also be in focus to start the trading week. Watch to see how the ISM manufacturing, ISM services and the jobs report unfold. Bad news may be good news on stimulus cuts to investors? Watch the psychology of the data’s impact on the markets going forward.
  3. Financials attempted to bounce, but when it was over they had given back almost all the gains again and remained near the lows for the week. They cannot get out from under the black cloud of lawsuits and image issues. We own SKF and it the rally does materialize we will have to manage the risk.  Watch to see if there is an opportunity in the sector short or long this week.
  4. Volatility spiked on the Syria news sending the VIX index to 17.75 before settling at 17 to close the week. That explains why investors are confused relative to the outlook currently, uncertainty. The VXX trade held it’s ground, but still not accelerating higher at this point and we will have to manage the position as we start the week of trading.
  5. Utilities are sitting on support and looking for a reason to bounce and I am looking for a reason to own them. Watching this next week for an upside opportunity.
  6. Healthcare (XLV) has tested support at the $49 level and looking for a move back to the upside. This is another sector next week to look for the upside play opportunities.
  7. Technology has held up well during the last four weeks of selling or testing lower. We will look for the bounce or upside move in this sector as well.
  8. Consumer Discretionary is at or near the current level of support also with the uptrend line in play as well. Looking for a upside play in this sector as well.
  9. The global markets move to the downside as the EAFE index (EFA) closed lower and breaking support. Europe is under pressure from oil prices moving higher which pushed Europe ETF (IEV) down as well. China (GXC) was flat after an attempt to move higher and the emerging markets (EEM) have attempted to bounce off the lows. The global markets have reacted to the Fed stimulus cuts creating fear of the impact on the emerging markets, higher oil prices and speculation over Syria. Watching the downside risk in the global markets short term.
  10. Treasury yields fell 3.67% on the 30 year bond, and 2.74% on the ten year bond. The worry over the Fed cutting stimulus in September has been causing challenges for bonds. Throw in the current unrest over Syria and the flight to quality is adding to the downside pressure on yields as money seeks safety Watching the tug-o-war in rates. Oil was a benefactor from the Syria news, the price is settling finally closing the week at $107.65. Gold closed lower to end the week at $1396 after moving above the $1413 resistance. The dollar held support at $21.90 (UUP) and bounced to close the week at $22.19.
  11. The market is focused short term on the news. The lack of any new developments with Syria is pushing stocks around for now, but the uncertainty remains which creates volatility. It was a long weekend and plenty could have happened. But, the biggest event was the White House punting the decision on Syria off to Congress. It was the perfect solution as the President didn’t want to make the decision. I don’t expect much in terms of a resolution this week as Congress remain on recess until September 9th, but I hope there is some direction relative to how we proceed. Watch the positive start to the week based on the futures to see if the bounce lasts.

The models remain under invested for the simple reason of uncertainty going forward. We have added positions, but due to the volatility we have been stopped out of both short and long plays. Thus, we remain patient and let this all unfold moving forward.

  1. The S&P 500 Model. Want to see what unfolds if anything with Syria. Still holding our 25% short position in SH and willing to remain with our downside bias for now. Same for the VXX trade on volatility. Based on the above research we have added entry points for the sectors.
  2. The Sector Rotation Model is net short and that bias remains from our research. We are looking at the sectors above for a bounce, but no signs currently to confirm that move. Watching as we start the week for insight. The futures are trading higher and that gives us a challenge relative to the current conditions and news.
  3. The ONLY ETF Model is net short as well and watching. If the bias in the sectors above shifts we will add some trades. There are still several trades from last week to watch as we start on a positive note for entry. Adjust your stops and manage the volatility on the short trades.
  4. The ONE EGG Model is watching the shift in the selling relative to the NASDAQ on Friday. If this continues to start the week we will establish a short position in QID. Doesn’t look like the negative momentum is going to carry through to start the week. We will adjust the entry if this opportunity remains.

Pattern Setups For Today:

  1. Futures are heading higher with the broad indexes showing gains of more than 1% to start the trading week. There is plenty to worry about as we start with the focus on economic data and Syria reaction. For now the spark from positive economic data in Europe and China on Monday is the focus. This is going to result in a gap open. We will have to exercise patience and not chase trades. The current volatility or lack of direction creates more risk to the entries.
  2. VECO – Base breakout –  $35.35 entry. target $38.10.
  3. Follow up on previous trades or posts:
  4. GLL – bottom reversal. Look for entry no higher than $80, with target at $85. Stop is $78. Entry at $80.20 on test of gap open and entry with follow through. Expect this to be a volatile ride.
  5. AAPL – The buyers are still in play. bounce off the $485 level is of interest short term. Looking at the $495 Oct Call on reversal and move higher. Move above $493 would be the entry point. No entry not entry, but still watching as we start the new trading week.
  6. CLDX – Breakout Test – $21.70 support tested on Wednesday and looking for a bounce back to the $24 high. $22 entry. Added and manage stop at $21.35.
  7. SBUX – Test of support $70. Tested and bounced. Looking for a move above $71.30 for the entry. Added trade $71.30. Stop $69.50.
  8. AFOP – Breakout Test – solid move higher from the trading range at $34.50. If holds support and resumes upside advance, look for trade up to the previous high near $40. added $35. stop $35.
  9. DDD – Test of breakout from trading range. $40.40 is level to hold and then look for entry. $50 max entry on the trade. Target is $54. added at $49.70. stop $50.90.
  10. FST – Cup & handle breakout. Entry is $5.60. Natural gas stock, sector reversing on rise in commodity price. Hit entry and faded back with the broad market reactions. Stop $5.30.
  11. GMCR – break from top of trading range. The stock has been added to the NASDAQ 100 index and should get a boost on the upside enough to break higher. Entry $82.15. Stop $82.75. Nice follow through. Held above the stop. If test holds above the stop gives an opportunity to add to the position. added $84.25 additional to original trade. same stop

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. In addition sell a December $37 Put on FB @ $3.35.  If the stock falls we can put our stock to someone at $37 prior to expiration in December.
  • 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 on Friday for nice gain. Watch and manage the balance at breakeven on the stop.

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.