Trading Notes for Today, September 6th

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. Thursday the market held the gains again, but the lack of conviction was present. It seems to be trading on hope while being distracted by Syria. I liked the economic data as the ISM Services number came in at 58.6% up from the 56% mark in July. That validates the ISM Manufacturing number on Tuesday and shows the US economy is making progress. Without the overhang of Syria this data would have pushed the broader indexes higher… my opinion. Regardless we continue to see the markets bounce off the recent lows and push through some near term resistance levels.
  2. Jobs Report today and that will set the tone for how we end what has been a positive week of trading.
  3. Financials attempting to bounce, as they post a another gain of 0.4%. XLF moved above the $19.78 mark and looks to move towards the 50 DMA as the next resistance. The sector remains challenged by outside events and is still lagging the overall market. Regional banks added 1% on the upside Thursday providing the best push in the sub-sectors.
  4. Volatility index started the week at the short term high of 17.75, it had faded to 15.65 on Thursday, but remains elevated short term. With the buyers attempting to reassert control of the trend you would expect a faster decline in volatility if the sentiment was changing. Uncertainty around the global and domestic events is keeping the sentiment elevated.  The VXX trade is still of interest to me as the news is driving. VXX added back to the S&P 500 Model.
  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 too close. Based on the spike in yield on both the 10 and 30 year bond the sector should have fallen more… leaving an opening for a potential bounce. Watching to see  how this unfolds today for better perspective on how to play the move.
  6. Healthcare (XLV) has tested support at the $49 level and is making a move back to the upside. The move above $49.95 hit the entry point for the S&P 500 Model as a trade was added. Thursday we failed to move above $50.20 to follow through the next entry point, watch to see how that works out today. Biotech (IBB) has bounced back nicely and moved above the previous high. Watch and manage the elevated risk on the sector, stop at the entry point of $198.
  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 XLK has stalled at or near the resistance of $31.80. The semiconductors (SOXX) cleared resistance at $63.50 and didn’t look back on Thursday with a solid follow through for the sector. Scanning the sectors for the movers has been profitable the last two days. ATVI and TYL have been two we were tracking. BRCM has made a nice bounce off the lows and Thursday put a trend reversal in play for the stock. CRUS broke from a big bowl base on Thursday as well.
  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. It stalled on Thursday, but held in place. Have to be patient and let the trade develop. JCP (again), KSS, M and KMX all put in solid upsides with breakout or reversal moves on Thursday. The sector has been struggling due to weaker retail data, but some individual stocks are pushing higher. Stock picking sector.
  9. The global markets bounced off the downside as the EAFE index (EFA) 2.8% to start the week, but today had an inside trading day of 0.1%. Europe has been under pressure from oil prices moving higher, but Europe ETF (IEV) bounced 1.9%, but flat Thursday with an inside day as well. China (GXC) made a big move higher and has gained 4,5% this week, and 73.10 is level to watch now. The emerging markets (EEM) has bounced off the lows and gained 3% on the week and heading back to the key resistance at $40.
  10. Treasury yields rose again to 3.87% on the 30 year bond, and 2.97% on the ten year bond. The worry is back about the Fed, improving economic data and the overseas growth pushing inflation (like China). So much for the buy signal some have called for in Treasury bonds. We added a short play with TBT in the ONLY ETF Model to capitalize on the short term move in bond prices and it has done exactly that.
  11. Crude oil has been retreating of late, but that ended Thursday with a gain of 1% and back to $108.35 as the inventory data was favorable to prices moving higher. 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. Patience as this all plays out.
  12. Commodities were lower as DBC is testing support again at the $26.50 mark. Watch to see if we hold here or break lower. The dollar moved above resistance at the $22.25 mark (UUP) and heading higher. Gold (-1.8%) and silver (-1.4%) both traded lower again on Thursday, are we testing support or is this the start of a move lower short term? Natural gas reversed on Thursday losing 2.7% as the inventory data was disappointing. The reversal in equities is resulting in commodities moving lower.
  13. The market remains focused short term on the daily events. That makes for more volatility as well as a tug-o-war on direction. Is the market getting comfortable with the issues relative to Syria? Yes, as long as it stays out of the headlines and the consensus is leaning towards no action will be taken, which in turn is helping buyers put money to work.  The futures are on the flat side again, but the jobs report at 8:30 am will have some say in how the day plays out.

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. Added SVXY short VIX play on Thursday. Watching our short play and will exit in the AM if the jobs report keeps the upside in play. Adjusted some stops.
  2. The Sector Rotation Model. Positive move on the upside for the model. The trade on EEM wasn’t taken as the test didn’t materialize at the open. If you took the play manage it against the posted stops and target.
  3. The ONLY ETF Model. Adjusted stops and looking for additional opportunities.
  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. (no test back to $38 and the with resistance just overhead at $39.70 passed.)

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. IWM – base breakout and trendline. $102.50 entry. Small caps are setting up to join the NASDAQ in leading if the upside continues. Look for some volume on the move.
  3. YY – cup. $44 entry. upgrade on Thursday pushed towards the high. Breakout and follow through on the upside.
  4. KOG – ascending triangle breakout – cleared $10.30 for the entry and looking for a test of the move higher. Entry $10.30 (max $10.40).
  5. AMZN – reversal. move back above $294 on volume is interesting trade. Oct $295 call.
  6. Follow up on previous trades or posts:
  7. SOXX – test of the downtrend break. $63.90 test, $64.25 max entry. be patient with the entry. No test passed on the entry for now.
  8. CMG – break from trading range. $413 entry. No breakout, no entry.
  9. NVDA – breakout test. Entry above $14.90. Added, but didn’t get much upside follow through.
  10. 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 $45. Held gains and adjusted stop.
  11. VECO – Base breakout –  $35.35 entry. target $38.10. Added on the upside follow through. Stop $34.20. Testing
  12. AAPL – The buyers are 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. Some selling today? Watch and see how it plays out.
  13. 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, attempted to move more, but settled flat on the Thursday.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. 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 8/30 for nice gain. Watch and manage the balance at breakeven on the stop.
  • 9/5 – Broke higher to continue the move on Thursday. Raise stop to $40.50 on the 500 shares purchased for a trade.

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.