Trading Notes for Today, September 5th

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. Wednesday the market held the gains from the open as there were no comments about Syria, at least not from someone who mattered to the market. The futures were mixed to start trading, but Apple helped the NASDAQ open positive. Technology and biotech led the way higher for the index. The shift to the upside again today could be a result of short covering? There were some hints that Congress would not approve a strike in Syria, but  later in the day the Senate sub-committee approved a vote to attack Syria? Watch, listen and be patient. There is too much speculation and too much news pushing the indexes on too little volume.
  2. Economic data wasn’t bad as the Fed Beige book was monotone with the same tune playing, the economy continued to expand, blah, blah, blah! Trade deficit widened again after a positive number in July. Decline in exports plus the rising price of crude on imports account for the change. Tomorrow we preview jobs and ISM Services numbers.
  3. Financials attempted to bounce, but when it was over they posted a modest gain of 0.8% on the day. The sector remains challenged by outside events and is still lagging the overall. AIG made a nice bounce off the 50 DMA and positioned itself technically to continue back towards the $48.75 mark. Citigroup made a solid move off support and a move above the 50 DMA would be a upside opportunity to pursue. The risk/reward of most trade setups in the sector are not warranted short term. Patience as this all unfolds.
  4. Volatility spiked on the Syria news sending the VIX index to 17.75 last week. It faded to 16 on Wednesday, but remains elevated short term. That explains why investors are confused relative to the outlook, uncertainty.  The VXX trade is still of interest to me as the news is driving. We continue to watch for the next trade setup on VXX, it held steady Wednesday despite the bounce in the broad index. Still plenty of worry present in the overall outlook.
  5. Utilities broke short term support at $37.10 and set up a short trade. A test and close below support is a short opportunity, but $36.50 support is close. Watch to see how this plays out today.
  6. Healthcare (XLV) has tested support at the $49 level and looking for a move back to the upside. A move above $49.95 would be of interest with good volume, was my comment to start Wednesday, and we got the move through the entry point. We added a position to the S&P 500 Model and looking for a move above $50.20 to follow through the next entry point. Biotech (IBB) has bounced back nicely and moving towards the previous high. It cleared $197 resistance on the move Tuesday and followed through with a nice gain of 1.6% on Wednesday to close at the previous high of $201.
  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 on XLK. $31.30 support was in play. The SOXX cleared resistance at $63.50 early and didn’t look back on Wednesday setting the pace for the technology sector. ATVI bounced through the downtrend and looks interesting. TYL setting up to break from consolidation followed through on Wednesday as well. If the overall market continued higher, look for technology to be one of the leaders.
  8. Consumer Discretionary bounced off the current level of support also with the uptrend line in play as well. Looking for a upside follow through in this sector if we can clear $58.75 level. Have to be patient and let the trade develop. JCP, GM, DG and F led the move higher. The sector has been struggling due to weaker retail data. Watch the August sales reports for more guidance.
  9. The global markets bounced off the downside as the EAFE index (EFA) bounce 1.9% on Tuesday and added 0.9% on Wednesday. Europe has been under pressure from oil prices moving higher, but Europe ETF (IEV) bounced 1.4% on Tuesday and added 0.5% on Wednesday. China (GXC) made a big move higher Tuesday gaining 2.1% and added 1.4% on Tuesday. The emerging markets (EEM) have attempted to bounce off the lows and gained 1.8% on Wednesday and clearing the $38.75 resistance and potential entry point for a trade. Added to Watch List for Sector Rotation Model.
  10. Treasury yields rose again to 3.79% on the 30 year bond, and 2.89% 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. We added short play with TBT today in the ONLY ETF Model to capitalize on the short term move in bond prices.
  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? That was hit on Wednesday and added to the ONLY ETF Model. Watching the impact to the energy stocks as they moved up 0.6% with crude falling 1.2%. Watch DTO as this unfolds. XLB is still climbing despite the move in crude prices, closed above resistance at $41 on Wednesday and adding to the watch list (S&P 500 Model) on upside opportunities.
  12. Commodities were lower on Wednesday despite the weakness in the dollar. Dollar is hitting against resistance at the $22.30 mark (UUP) and looking for a catalyst higher. Gold (-1.2%) and silver (-3%) both traded lower on Wednesday, testing support or start of move lower short term? Natural gas extended the upside with another gain on the day.
  13. The market remains focused short term on the news. Is the market getting comfortable with the issues relative to Syria? I don’t expect much in terms of a resolution this week as Congress remain on recess until September 9th, even with the Senate committee vote on Wednesday the main vote isn’t likely until late next week. The futures are flat again and that led to a move higher on Wednesday… watch and take it one day at a time.

The models remain under invested for the simple reason of uncertainty going forward. We added positions on Wednesday as the bounce pushed some sectors through resistance on the bounce off support. Thus, we remain patient and let this all unfold moving forward.

  1. The S&P 500 Model. The upside gave us the entry points on SPY, XLY, XLF, XLV. Still holding our 25% short position in SH and willing to see how today unfolds.
  2. The Sector Rotation Model added EEM to the Watch List.
  3. The ONLY ETF Model added positions in DTO, UYG, TBT and FXI. We made the adjustments to the entry points and now we manage the risk.
  4. The ONE EGG Model. The bias on the downside is fading, but the bigger question is will it play out or is just more noise. Scans are turning up and that concerns me without some follow through in the major indexes. Technology is the leader the last two days. Watching to see today how it pans out. SOXX broke through resistance and IGN gained nearly 3% on Wednesday. Both lack the volume for this strategy, but SMH could offer a realistic upside trade on a test of the move ($38 level would be best) today. Added in note on the table.

Pattern Setups For Today:

  1. Futures are flat coming off two days on the positive side. The buyers are attempting to assert their will on the direction and sentiment short term. There are upside trade set ups in place, but the short term view remains downside bias. That makes any trades higher risk. If you can stomach the volatility and the risk make the trades. If not, sit it out wait more clarity.
  2. SOXX – test of the downtrend break. $63.90 test, $64.25 max entry. be patient with the entry.
  3. CMG – break from trading range. $413 entry.
  4. NVDA – breakout test. Entry above $14.90.
  5. Follow up on previous trades or posts:
  6. 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. Added $44.75. Stop $44.
  7. VECO РBase breakout Р $35.35 entry. target $38.10. Added today on the upside follow through. Stop $34.20.
  8. AAPL – The buyers are still in play. bounce off the $485 level is of interest short term. Added the $495 Oct Call ($19.80 – 8/28) on reversal and move higher. Moved above $493 entry point. Tested the support and looking for the bounce. Stop $16.50 on call option. Nice gain on the day in anticipation of the 9/10 announcement! Manage the volatility short term. Raise stop.
  9. 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. Nice move higher on Wednesday.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. GMCR Рbreak 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.
  • 9/4 – Some topping starting in the stock after the big run higher.

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.