Trading Notes for Today, September 4th

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. What is happening with Syria? Nothing new, just more waiting for Congress to return and vote on the next step in the matter. Investors will have to be patient and take what is available in terms of opportunities. This is a traders market driven on news. This is no walk in the park and it is a time to be extremely cautious.
  2. Economic data wasn’t bad with the ISM manufacturing data on Tuesday beating expectations and holding the July bump. ISM services and the jobs report will round out the week and offer any additional adjustments in attitude short term. Watch the psychological impact of the economic data on the markets going forward.
  3. Financials attempted to bounce, but when it was over they posted a modest gain of 0.8% on the day. They cannot get out from under the black cloud of lawsuits and image issues. AIG made a nice bounce off the 50 DMA and positioned itself technically to continue back towards the $48.75 mark. The risk/reward of most trade setups in the sector are not worth the move short term. Citigroup made a solid move off support and a move above the 50 DMA would be a upside opportunity to pursue. Patience as this all unfolds short term.
  4. Volatility spiked on the Syria news sending the VIX index to 17.75 last week. It faded to 16.6 on Tuesday, but remains elevated short term. That explains why investors are confused relative to the outlook currently, uncertainty.  The VXX trade rested moving down 3% on Tuesday and we continue to watch for the next trade setup.
  5. Utilities broke short term support at $37.10 and set up a short trade. Watch today for a test of the break lower from Tuesday. If we bounce back it gets interesting short term. A test and close below support is a short opportunity.
  6. Healthcare (XLV) has tested support at the $49 level and looking for a move back to the upside. There was small move in the sector on Tuesday, but still plenty of work to be done to convince buyers to wade back into sector. A move above $49.95 would be of interest with good volume. Biotech (IBB) has bounced back nicely and moving towards the previous high. Cleared $197 resistance on the move Tuesday.
  7. Technology has held up well during the last four weeks of selling or testing lower. We added a play in the S&P 500 Model, but the intraday reversal was ugly. $31.30 support in play. SOXX cleared resistance at $63.50 early, but fell back and remained questionable on the bounce. ATVI bounced through the downtrend and looks interesting. TYL setting up to break from consolidation as well. If the overall market continued higher, look for technology to be one of the leaders.
  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. Have to be patient and let the trade develop. AMZN, BBY and NKE led the bounce on Tuesday. The sector is struggling due to weaker retail data. Watch the August sales reports for more guidance.
  9. The global markets move to the downside as the EAFE index (EFA) closed lower and broke support Friday, managed to bounce 1.9% on Tuesday. Europe is under pressure from oil prices moving higher which pushed Europe ETF (IEV) up 1.4%. China (GXC) made a big move higher and gained 2.1% on Monday. The emerging markets (EEM) have attempted to bounce off the lows, but no entry point currently. Watching the downside risk in the global markets short term.
  10. Treasury yields rose again to 3.77% on the 30 year bond, and 2.84% on the ten year bond. The worry is back about the Fed and improving economic data overseas sparking growth and inflation. Is this a buying signal for Treasury bonds? Some believe the bottom is in and that a coming correction will send investors back into bonds as a safe haven. Not sure about all of that, but the trading opportunity on the increased volatility is worth watching.
  11. Crude oil has been climbing a flirting with the $110 level. What if a strike on Syria is approved? Does oil move even higher? If history is correct the downside would be the direction for price to move. Target on the downside would be $96-97.50. DTO is the short play ETF. $31.25 Entry point? Worth watching the impact to the energy stocks as well.
  12. 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. I don’t expect much in terms of a resolution this week as Congress remain on recess until September 9th. The meeting with Senate leaders and Secretary of State are not helping. Futures are flat heading into the trading day. Watch the downside pressure until some clarity is gained looking forward.

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. Hit stop on VXX trades, but willing to re-enter the trade if the volatility picks up again. Hit entry point on Technology XLK. Gap higher on balance of the buys held us out for now. They did reverse intraday to the to test lower. Still looking for the direction to clarify.
  2. The Sector Rotation Model hit stops on QID and DXD. JPM entry is still in play and revised the DXD trade if the downside resumes move.
  3. The ONLY ETF Model hit stops on DXD, SDS, VXX to close positions. Gapped above the entry on UYG, TBT and FXI. These were all set up for trades, but not willing to chase them. 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. Negative momentum could accelerate, but watching to see how it unfolds.

Pattern Setups For Today:

  1. Futures are heading higher NASDAQ as the leadership remains. The tug-o-war continues for direction and clarity. Short term trades are becoming choppy as well and making the pattern set up less effective. Be patient and remember the best trade sometimes is no trade.
  2. MZZ – midcap broke lower on Friday and the outcome on Tuesday opens the downside play. Low volume ETF. $17.50 entry held and tested. $17.90 max entry with $19 target. Expect volatility.
  3. XLNX – Trend continuation. The test of the 50 DMA and uptrend. Bounced to resistance at $44.65. Look for continuation of the upside move with $47 target.
  4. Follow up on previous trades or posts:
  5. VECO – Base breakout –  $35.35 entry. target $38.10. Gapped higher at the open and we passed. Still watching to see if trade plays out.
  6. 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, but still watching as we gapped higher, but retreated back to the low.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.