Trading Notes for Today, September 8th

Notes to Note: 

As we start a new week the question about direction remains. The reversal on Friday off support was positive statement for the upside, but we still have to watch how the sellers respond. The weekend produced nothing new and the outlook remains positive from average investor. Scanning the sectors and looking at the technical data of the charts there is nothing profound taking place and the bounce off the lows on Friday intraday left most indexes in better shape. As we stated in the notes on Friday, what’s bad is good theme may be returning as investors view weaker economic data as a positive for keeping the Fed engaged in stimulus. That is a trading game and one that is building momentum. Proceed with caution and take what the market gives.

Sectors to Watch:

Russia (RSX) remains a news driven trade as the sector bounces back to the resistance point $25.50 and the 200 DMA. It regained some of the losses on the peace agreement in Ukraine. A break above these levels would offer a trading opportunity if you don’t mind the risk volatility presents relative to the news. (ONLY ETF model)

Financials (XLF) at key point on the upside trek. Tested to end the week and held on nicely. Need follow through on the upside and the banks are the sector to watch. Both regional (KRE) and large banks (KBE) are in play on the pattern list with the test complete looking for the upside to push through. ONLY ETF model and Pattern Trading)

Model Position Notes: 

Below are some notes on positions in models and what we are watching looking forward:

  • Volatility Index (SVXY) Shifting gears as the buyers step in again buy-the-dip theme Friday. This has setup Monday for a break lower in the VIX and upside in ETF that shorts the VIX (SVXY).  High velocity trade as it move quickly… manage the asset accordingly on size and stops.
  • The EAFE index (EFA) finally reversed the short term downtrend started on June 19th as Europe turned the corner to help the upside of the index. EAFE remains in a testing phase. There is some resistance at the 200 DMA on EFA. Need to hold the move and the $66.70 mark to keep the trend. TODAY: Took the entry, tested and now working on clearing resistance again. (Sector Rotation Model)
  • Emerging Markets (EEM) added to position on upside move through $45.10. We tested in the overall sector, but solid strength remains in specific countries short term. Watching the short term uptrend in play. Digging in to see what country ETFs are leading. TODAY: Starting a new week with new opportunities short term for the sector to continue higher. (Sector Rotation Model)
  • S&P 500 Index (SPY) Tested lower on Friday and bounced back near the highs. Still need to follow through on the upside. A rounding top or sideways consolidation in play. (S&P 500 Model) TODAY: Need to follow through on Friday’s bounce.
  • Small Caps (IWM) Tested back near the $115 support and bounced, but needs to clear the previous highs above the $117.50 mark. Stop at $115 as this tests the micro trend higher. Entry added at the $115 level and initial trade at $112.50 for the position. TODAY: Need to hold the move from Friday and maintain our stops. (ONLY ETF Model – TNA)
Watch List Opportunities:
  1. Sector Rotation Model – Updates to positions
  2. S&P 500 Model – Updates to positions
  3. ONLY ETF Model – Updates to positions

Pattern Trade Setups:

  1. Reversal on early selling Friday puts the bias towards the buyers. Watching for the opportunities if upside follows through.
  2. SVXY – entry $87.50. The shift in momentum on Friday points towards less volatility to start the week. break through resistance is entry.
  3. DGAZ – entry $4.65. downtrend reversal. Natural gas has been testing the downside and break off support open way for more short side interest.
  4. TAN – entry $42.25. Test of breakout above resistance. Watch your entry on the test be patient.

Pattern Trade Tracking:

  1. KBE – entry $32.90. cup breakout. Looking for follow through on the upside. Stop $32.50
  2. KRE – entry $39.50. cup breakout. more upside potential if the sector gains momentum. Stop $38.65
  3. DBA – entry $26.50. Agriculture attempting to reverse off the lows again. Need to clear $26.92 on upside to show positive reversal and momentum. Stop $25.75.
  4. NFLX – entry $477.50. Test of upside in play and holding $470 support. Stop $460.
  5. BAC – entry $16.30. breakout. Held the move higher and now looking for the follow through to $17.30 short term. Stop $15.95
  6. TXMD – entry $5.50. break from consolidation. In the drug sector and in position to move higher. be patient and watch the volume it sometimes falls during day. Stop $5.35. HIT STOP
  7. AGN – entry $163.50. Test lower and move through resistance. drug manufacturer. Stop $158.90.
  8. YHOO – entry $36.50. trading range break. Internet sector moving higher. Stop $34.40
  9. CELG – entry $89. wedge breakout. healthcare leadership short term. Stop $92.40.
  10. EEM – entry $44.50. break above resistance again. upside trade still looking longer term. Stop $44.50 for now, but give some room if the volatility picks up.
  11. SSO – entry $113.50. Bottom reversal on test lower. Trade on the bounce only for now. $117 target on the trade. Stop $119.30
  12. SOCL – entry $20.15. Cup and Handle breakout. Upside back in play. Stop $20.10
  13. FDN – entry $59.85. trading range. Upside still in play. held up well in selling last week. Stop $61.50.
  14. PLUG – entry $5.10. Base breakout. Looking for the move from the base to accelerate as the trend is drifting higher. Stop $5.10
NOTE: The pattern trades above are setups that I see for a potential swing trade or short term 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. The best way to treat these as a learning tool is to assume a $100,000 portfolio and each positions receives a 5% allocation. If we state to take a 1/2 position as an example you would only allocate 2.5% to that position. I would use a downside risk of $500 per trade as a maximum loss. That will help  you learn position sizing and risk management. All investing comes with risk. Our job as investors is to manage the risk. Keep your focus and discipline in place.
Long Term Opportunities:

  • Facebook (FB) – Testing the break higher and has held up well in the recent selling. $73.15 entry point to add 1000 shares back on the long term outlook. (see note page for history. ADDED shares on 8/7 – $73.15 — Stop $71.50
  • 8/26 – pushed back towards the previous high and looks ready to break higher from the consolidation. Watch for opportunity to add to positions short term.
  • Twitter (TWTR) – entry $45.50 1000 shares (last trade). This was recommended on our webinar as the next long term position we have been trading since bottoming in June. Stop is $42 for now on position and we will make adjustments as we extend the upside.