Trading Notes for Today, February 12th

Jim’s Market Notes:

The week to blaming Greece continues with no resolution seen relative the debt issue with the EU. In fact, the speculation is growing more than stocks. This worry may be around for awhile when you consider they have until the end of the month to make a decision. All I can say on this issue is to be patient and let the facts be presented. Betting on one solution over another is still gambling. Not my cup of tea and, if anything, I would prefer to sit on the sideline or look for the opportunity in the aftermath of the decision. Even if the fire destroys the forest there is still an opportunity for the land. One day at a time on this issue.

It does remain a news driven world as this morning Russia announced a cease fire for February 15th. That has oil prices moving higher as well as stock prices in Europe. Watch how RBL responds today to the announcement as the fund has been trading in a micro uptrend in anticipation of the settlement.

Oil inventory was out Wednesday as expected supply grew more than expected showing demand still lagging and it again put pressure on crude prices. OIL fell 2.4% as a benchmark for the commodity, but it did create a doji on the close. This could see a trading range develop in the commodity from $10.70 to $12.30 currently. This is worth watching short term for some clarity.

Energy has stalled as well with the price of crude fluctuating. The $80.50 level is resistance, but the upside off the January low is still in play. The trading range remains in play as the uncertainty is still driving. The sector has presented some trading opportunities for the brave and continues to work through the challenges in the sector. Natural gas has joined in the volatility exercise for energy based assets bouncing off the recent lows as a result of the colder temperature in the north. Watch and trade at your own risk in this volatile sector.

NASDAQ index showed some interest on Wednesday as the index refused to close in the red, but equally was able to show some positive sentiment in the afternoon trading session. ESRX, MDLZ, AKAM, AAPL and NXPI led the upside for the index.

Utilities have taken on the role of selling lower this week. XLU has dropped 6.8% the last two weeks. The driver on the downside? Interest rates have climbed. Two variables at work in the sector… first, the income or dividend side which doesn’t like the thought of interest rates moving higher. Second, the industry or product produced by the utility relative to the demand. The first, interest rates, are the current drag on the sector the later will come into play as we move forward. Stops were hit at $47 or $48 for any positions… if you still own the sector make sure you understand the risk and set your exit points accordingly.

Visibility has been lasting 1-5 days currently and unless that perspective changes the traders remain in control. Focus on what strategy is working and maintain your discipline daily as this works out and the clarity is regained.

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

Added NXPI, F, AMD and NFLX to the pattern trading strategy on Wednesday. Despite the slow trading on the day some stocks posted solid moves on the day. We still have to monitor our risk as the uncertainty is rising with geopolitics in Europe, oil prices and the Fed.

WFM posted solid earnings gains after-hours and is trading higher. This is good for our positions and we will address the stops in response as the day unfolds.

Outlook:

I am still watching these sectors posted earlier this week as they hold some implications going forward. First, the Russell 2000 Index which cleared the 1190 level again and has shown 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 which has moved back below the $50 mark trading lower on supply data. Now looking for a trading range to develop as the supply/demand issue works out. Third, the thirty-year bond benchmark TLT broke below $130.50 and is sitting on the 50 DMA as support. Yields have been rising on belief the jobs data will put the Fed in play on hiking interest rates later this year. If this moves too fast the ripple effect will have a negative effect on sentiment. Fourth, financials (XLF) are moving higher as a result of higher interest rates and anticipation of better margins to help the bottom line. Some movement to help the cause, but still plenty of work to do going forward. All of these have implication on direction moving forward.

The volatility index (VIX) Greece has added to the volatility, but the key is to remain patient as this impact is speculation on the outcome. The uptrend is what bears 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.

Number one priority for me now…¬†patience. 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 of this¬†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
  2. Sector Rotation StrategyР Watching
  3. ONLY ETF Strategy–¬†Watching
  4. ONE EGG Strategy –¬†Watching – Managing¬†IWM
  5. Pattern Trading Strategy – Below added new plays.
  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. AKAM – entry $62.30. double bottom breakout. Looking for move back to the previous high if technology resumes leadership role. Gapped on news –¬†if we test the move near the $63 level it would be of interest to add… otherwise we look elsewhere for now.
  3. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move.
  4. C – entry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move.

Pattern Trade Tracking:

  1. 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. Stop $81.20
  2. F Рentry 16.12. trend reversal and break above 200 DMA. upside momentum from sales and target of $17.25 in play. Stop $15.80
  3. AMD – entry $3.07. trading range breakout test. Broke higher and testing the move in pennant pattern. Upside trade on the confirmation. Stop $2.93.
  4. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $440.
  5. 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.
  6. 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.
  7. 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.
  8. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  9. 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.
  10. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  11. 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 $13.25.
  12. 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 as investors confidence isn’t there short term. Held support, but no volume or momentum in the stock.
  • 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 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.¬†Beat earnings after-hours and trading up 3%… hold and see how it unfolds short term.