Trading Notes for today, February 10th

Jim’s Market Notes:

Greece gets the credit for the lack of participation on Monday. Concerns that Greece will not be willing to find a solution brought more worries relative to the impact to the Euro Zone and sentiment. Still watching as it unfolds.

Treasury yields on the ten-year bond remained at the 1.94% mark the five day jump from 1.67% has been in response to the Fed’s view of the jobs data and a willingness to hike rates moving forward. If this belief sticks the yields are likely to move back to the 2.3% level short term. Stops should be in place if you own the bonds. Hedge them if you don’t want to exit those positions.

Energy shows signs of life on the continued bounce in oil prices. XLE gained slightly on the day, but has hit resistance at $80.50 and is holding in the basing pattern. The trade on the speculation is in play, but the sustainability of the move will have to be validated to turn the bounce into a new trend.

Crude is at $52.86. Needs to clear the 50 DMA as resistance. I am still cautious about this move higher on speculation and not demand. Lock in some profit and manage your stops.

Midcap sector hit a new high on Thursday, tested the move the last two trading days. Small caps tested the move higher as well. Both are leading the upside and deserve attention on direction side of the equation.

S&P 500 index drifted lower on lower volume to test the 50 DMA again. The test sets up a possible follow through on the upside if it holds and the buyers step in. Short set up below 2040 could be a trade if it it unfolds today. SPY needs to hold 50 DMA or look for move back to the bottom of the range short term.

NASDAQ index continues to lag as the large cap and technology sectors, primarily semiconductors, struggle to advance. Earnings have been the biggest hindrance along with comments about global growth within the earnings statements. Nothing we have not heard building up to this point, but the fact sometimes have a way of changing the perspective. QQQ back below the 50 DMA and $102.25 support back in play.

This all adds up to clarity looking forward. This remains a trading environment and not an investing one (longer term view). Visibility is lasting 1-5 days currently and unless that perspective changes the traders remain in control.

Understanding the environment you are trading in is the first key to not losing your money without a fighting chance. The market is a battleground and you have to be well trained to fight

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

No additions on Monday to positions.

We did add the major indexes as opportunity on the upside and I will watch to see how today unfolds to make decisions on how to manage any additional risk as or should it arise.

Outlook:

Worth our attention currently are several sectors that will hold some implications going forward. First, the Russell 2000 Index which cleared the 1190 level again and has show leadership for the broad markets to potentially move higher. It held that level and the 50 DMA which are key for the move higher. Second, crude oil did hold above $50 and if it can move through the 50 DMA it would have a shot at moving towards the $58 level, but more importantly it keeps the positive sentiment in play. Third, the thirty-year bond benchmark TLT held $130.50. Yields have been rising on belief the jobs data will put the Fed in play on hiking interest rates later this year. Fourth, financials (XLF) barely held the double bottom move higher as a result of higher rates and anticipation of better margins if rates move higher. These are the stories set in play from last weeks trading and if they are validated moving forward the uptrend will find sustainability. We will see how today unfold in these areas and others.

The volatility index (VIX) bounce off the bottom of the wedge pattern to close at 18.5. Greece got credit for the uncertainty on the day pushing the index higher. The uptrend is what shows interest to me going forward. VXX showed a cross of the 50 DMA through the 200 DMA which is bullish. While that offers a trade setup for the index it also is a negative implication for the broad index. We have to focus on managing the risk of our portfolio while also taking advantage of this opportunity as it unfolds. VXX entry $35.25 posted.

If ever there were a time to be patient, it is now. I believe it is harder not to trade than to trade. The activity makes you feel like you are at least in the game versus sitting on the sidelines watching. The deception we take on is to confuse activity with success. Activity without progress is stress. Patience for the opportunity to take action founded in reality gives you the upper hand as well as confidence in the process. Now is a good time to practice patience and let the opportunities present themselves.

Money Management Strategies Links:

  1. S&P 500 Strategy¬†–¬†Watching – ADDED updates on what trades to take short term.
  2. Sector Rotation StrategyР Watching
  3. ONLY ETF Strategy–¬†Watching
  4. ONE EGG Strategy –¬†Watching – added IWM
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. Volatility is back as concerns over earnings and data continue plague the outlook. Bounced on Thursday sold on Friday.  Manage risk with your stops and see where we go this week. It is a choppy market and reversals happen at the drop of the hat these days.
  2. NXPI – entry $82.30. trading range breakout. The earnings report helped the upside and looking for the follow through short term. Semiconductor sector. Target $88.

Pattern Trade Tracking:

  1. VIMC – entry $9.13. trading range. Semiconductor sector in position to move higher again with broader indexes. Stop $9.
  2. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $141 to give room for volatility.
  3. IWM – entry $119.50. break in range. The move through this level puts the upside back in play and expect leadership from the sector going forward. Stop $114.50 to give room for volatility.
  4. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $198.50 to give room for volatility.
  5. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $45.
  6. ERX –¬†entry $56. Bottom range breakout. We have been faked out before on oil, but still made money. Looking for the bounce to gain some momentum short term on crude prices. Give some room for volatility. Stop $56.
  7. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  8. VIPS – entry $23. Flag. Break above short term resistance and trade to $24.75. Stop $22.
  9. ENPH – entry $11.10. bottom reversal within the trading range. Semiconductors have been a leader and looking for move at least midway in the range to $12.60. Stop $12.25.
  10. GDX – entry $19. Break from consolidation bottom. Look for trade on the upside move in gold miners short term. $20.50 short term trade target. Stop $21.75 HIT STOP
  11. WFM – entry $48. Flag. Longer term outlook very positive off earnings. Look to hold this position going forward. May add to our long term strategy below. Stop $51.50
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: 
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) added 1000 shares back on the long term outlook following the choppy drop in markets. 10/28 – Earning¬†were good, but the outlook showed higher costs and the first reaction is sell the shares from traders. Still trading sideways range as investors sort out the facts and fiction. (we added to our positions. 500 @ $77.50 – 1/8) Watching how the downside plays out. (Bought 20 of¬†the $75 puts for March on¬†the downside break $4.25 – looking to roll them forward if we test the bounce).¬†TODAY:¬† Earnings¬†beat, but like last quarter speculation on expenses weighing down the stock.¬†Sold lower on Monday as investors confidence isn’t there short term.
  • Twitter (TWTR) – ¬†Added 500 shares at $42.80 (10/28). This is a long term holding and we will manage the downside risk going forward. Looking to buy shares on break above $39.20. (Added 500 shares at $39.20¬†on¬†1/9.) 2/4 Added 500 shares at $40.25 for trade to $42.25 short term.¬†TODAY:¬†Made¬†break from¬†top end of the trade range in the bottoming pattern.¬†Got the follow through on Thursday and beat earnings! Jumped 16% on Friday and need to adjust the stop on the added shares we traded to $45.50. The target was¬†$42.25 on those shares and we will protect the gain, but let it run.
  • Bank of America (BAC) We own the Jan 2016 $17 Calls at $1.15 (avg price)/300 contracts. Banks were¬†gaining some ground and I still like our position going forward. We add our long positions in stocks back (Added 2500 shares at the $16.35 mark ¬†on 10/21). Stop is $15. TODAY:¬†¬†Testing support again and¬†investor resolve.¬†Nice bounce on Friday as the outlook for action from the Fed relative to interest rates sparked a rally in the bank stocks. Looking to add to position if this bounce holds and gains momentum.
  • Whole Foods Market (WFM)¬†11/20/14 Start coverage. 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. Adding 1000 Shares at $48 to start the position. TODAY: Cleared the $52¬†resistance and moved up to maintain the uptrend.¬†Watch and see how broad indexes move and impact going forward. Ended trading week slightly positive and looking for the buyers to step in and take it higher.