Trading Notes for Week of March 16th

Special Note:

Remember there is one consolidate one spreadsheet for all strategies with notes included! The process will make it easier to track the watch list and the play list. The market and research notes below will take on more of what they were intended to be… developing the stories within the market and the resulting opportunities. The bottom half of this report is not on the spreadsheet. The Pattern Trading Strategy and Long Term section will both have sections on the spreadsheet making it easier to follow and track. So, starting Today this report goes back to the research and developing stories in the sectors of the market.

Jim’s Market Notes:

The major indexes show rotation versus money exiting the market overall. Selling volume has risen in the S&P 500 and Dow with the pressure on the large caps. But, volume on the buy side of the small and mid caps shows money staying in the market. To put some balance on the fear/safety side of the equation treasury bonds (TLT) saw some volume buying as well. Currently we would have to use the scoring of a boxing match… split decision favoring the small and mid caps indexes for currently.

We are always looking for defined leadership… at the end of last week that is a challenge from my view. Semiconductors (SOXX) looked good on Friday, but sold off earlier in the week. Internet (FDN) held tough at support and still has hope. Biotech (IBB) is still leading… sideways. Software (IGV) posted a nice bounce on Thursday and Friday showing some promise. But, in the end it is still a watch and see game. Forcing money into the markets is not the best strategy… be patient and let it all unfold in front of you.

Consumer sentiment fell to 91.2 from 95.4 and well below expectations. I am not surprised with the issues around the energy sector impact jobs, large companies are still laying off workers despite the great jobs report. There is still plenty for the consumer to worry about… thus the retail sales report which missed for the fourth month in a row. Economic data remains in a slump from my view. Of course we will see what the Fed thinks with the FOMC meeting concluding on Thursday.

One interesting side note in a recent Gallop Poll: What is important to Americans right now? Economy? No, that is number two… #1 = Dissatisfaction with the US Government! My question: Will voters do anything about it?

Crude oil remains an unfolding story that remains too much supply, and too little demand. The demand has not fallen… supply has risen. This is the same issue that hit natural gas several years ago. Eventually everyone will agree that supply isn’t going to adjust and prices will find a bottom… $50, 40, 30 or whatever it may be, but don’t look for it to rise anytime soon. I noted on Friday the IEA stating prices are tenuous and oil fell 4%… that is volatile to me. You may be able to trade the swings, but it is going to be dead money otherwise until the supply/demand part of the equation finds balance. The short interest in the oil services stocks are piling up and could be of interest with a $30 put on OIH out nine months.

The key to this week is to watch where the money flows… large caps sell and the money will migrate somewhere… even if it is cash (it is a sector despite popular belief). How that unfolds will give insight to what is on tap for the markets moving forward. Be patient, be disciplined and follow the money… it always knows.


S&P 500 index (SPY) Tested the $204.50 support again and bounced late Friday… but, not showing much strength. Rotation again from the large caps is the issue. Does it accelerate is the bigger question or continue to test and drift lower? Short side lacks conviction for now.

NASDAQ (QQQ) broke the $106 level Wednesday to add to the downside pressure. Tested the 50 DMA on Friday and bounced. The large caps are the challenge for the index and that is showing in the NDX. Weakness has money rotating from the index and looking for a better home… the dollar… small caps… etc. Watching to see how this unfolds moving forward, but the sellers have the helm for now.

Russell 2000 (IWM) tested support at $121.20 level again on Friday before the late day bounce pushed it back to $122.61. Seeing rotation from the large cap multinational stocks to the small caps. The value sector shows promise as well (RZV). The move Friday keeps the short term trendline in play on the upside. Attempting to take on leadership role currently along with the mid caps (IJH).

Volatility Index (VIX) bounced back to the 16.5 resistance levels. A move back through this level would show the lack of clarity and concern from investors. A move lower will show confidence returning along with clarity. Like the major indexes we have to let it unfold and take the resulting actions accordingly.

Financials (XLF) moved back near the $24.60 resistance and need to clear this level to make progress. The challenge remains regulation and government interference. That isn’t going to change anytime soon and that means you have to factor in the volatility relative to what test or fine the government will inject at any point. I believe this remains a trading sector and better addressed in parts. KBE is position to break to new high and run and money flow to banks has been positive. KRE is the same with the exception that regional banks have more favor than dislike from the populous. IAI shows the brokers ready to break to new high as well and KIE is the laggard, but still shows strength of late. Overall favorable short term, but with a cautious eye on the government.

Semiconductors (SOXX) Broke the first level of support, but bounced on Friday. This is one of the leaders and if we are going to hold the uptrend short term… it needs to lead. It is an important indicator for the growth side of the market.

Transportation (IYT) Trading sideways as seen with the 50 DMA. Content to swing in the current range. Then why put it here in the sectors to watch? If the downside comes into play historically that is a negative sign for the broad market overall. $156 or the 200 DMA would be the key support level for the sector to hold.

Dollar (UUP) big move on upside and going vertical. Strength getting bad reviews from the multi-national stocks. Didn’t hedge the swing higher correctly. Hurting oil and gold prices as well… as expected. Believe it or not a strong dollar is good for the US… patience as the talking heads get it wrong. Money is rotating to the small cap stocks as a result of the dollar. Watch the correlation if the dollar stalls or retreats.

Bonds (TLT) tried to bounce in hopes of a Fed stall towards hiking interest rates. We will see on Wednesday as the FOMC meeting concludes. Move back below $126 puts the TBT short trade back in view. Watching how this unfolds this week.

Gold (GLD) testing the $110 low wants to bounce? A move back to $113 could take place for those willing to take on the risk of the trade. If a bottom reversal sets ups and confirms with a potential move back to the $116.50 level it would be of interest. There are enough gold vultures still circling to make that happen.

Watching: The bottoms for: XLU, IYR, GLD.  The reversals in: XLB, XLI, XLE, XLK.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese Proverb.

Long Term Opportunities: 

Long term positions take time to manage and patience to let them unfold. The short term can be managed with hedging or trading off the longer term positions. The goal is to build the position and manage the risk. Sometimes the short term news and events cause anxiety… the goal is to mitigate the risk and protect the downside as we allow the stock time and room to grow. If you don’t like long term holdings don’t read the data below.
  • Facebook (FB) – $73.15 entry (10/16/14) added 1000 shares back relative to the long term outlook following the choppy drop in markets. Earning remain good, but the outlook showed higher costs and has kept pressure on the shares to stay in the current trading range. > Added to position: 500 @ $77.50 – 1/8<  TODAY:  The volatility has picked up on the move higher and we will watch how it unfolds. Uptrend has turned into a broad chop, and broad markets selling isn’t helping. 50 DMA back in play.
  • Twitter (TWTR) –  (1) Added 500 shares at $42.80 (10/28/14). (2) Added 500 shares at $39.20 on 1/9/15.  (3) Added 500 shares at $40.25 for trade Sold at $46.25 on 3/10/15. This is a long term holding, but we will trade on short term technical data if warranted. TODAY:  Use $45 at exit on shares added (#2 above) and we will hold the balance for now. Small bounce on the day and watching for now. 
  • Bank of America (BAC) (1) Added Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. (2) Added 2500 shares at the $16.35 mark  on 10/21/14. Banks are gaining some ground on the proposed hike in interest rates and I still like our position going forward as we practice patience. TODAY:  Not shaping up looking forward and we will look at exiting the position to find a better long term opportunity. Said that and we bounced on Wednesday to keep us in the game for now.
  • Whole Foods Market (WFM) (1) Sold our first position for a $6.50 profit on 1000 Shares held from 11/20/14 – 3/11/15. The outlook has improved after making changes to the stores and adding new stores. The earning validated what I have been following for the last year and the company should be at the front side of a long term upside based on fundamental growth. I still like the long term outlook for the company. TODAY: Looking to test the 50 DMA and we watch to see how it unfolds near term. Modest bounce off support.