Trading Notes for Today, February 13th

Jim’s Market Notes:

Russia/Ukraine peace… EU and Greece finding solutions… NASDAQ and Midcaps break to new highs… S&P 500 and Small Caps flirting with hitting new highs… is this the move that everyone has been waiting for? Do we move higher and is the catalyst sustainable? All good questions and all positive activity… time will tell, but the setups for upside trades are unfolding. It’s Friday and we have to let this unfold today and see how the buyers and sellers respond to the activity from Thursday.

It does remain a news driven world and the market is cheering things that really don’t impact earnings or revenue near term; Greece? Russia/Ukraine? China? While the market is ignoring thing that do impact earnings and revenue; Retail sales lower? Business inventories flat? Jobless claims higher? Manufacturing slowing? At what point will the fundamentals matter to the market? Something to understand and watch going forward.

Oil rallies in response to the Ukraine/Russia peace agreement. Still has nothing to do with supply and demand. In fact, the supply could rise on this agreement. China is advancing in the fracking business and that could add additional supply. OIL gained 4% on the day and I am looking for a trading range to develop at $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 and it attempted to clear that level on Thursday, but failed to hold the move. 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 (UNG) had three days of upside trading, but tumbled 3.6% on Thursday. Looking for a bottom short term and maybe a trading range to result.

NASDAQ index followed through the modest gains from Wednesday and hit a new high on the close. QQQ made a 1.1% move and the leadership from TRIP CSCO, NVDA, AKAM and WFM 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. If we clear resistance on the upside look for the trend to extend short term higher. 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 C, BAC and AKAM as market continues the upside. move. We are adjusting stops to account for the move Thursday. Positive breaks on the upside, but there is still plenty of risk to deal with going forward.

WFM posted solid earnings gains and posted a solid gain on the day. This is good for our positions and we will address the stops in response heading into the weekend.

Outlook:

I posted four sectors to watch as the upside attempts to the tone with a new high on the NASDAQ and the Midcap indexes. Small cap made a nice move above the 1200 mark and is one of the sectors we were watching for leadership… hasn’t been as good as expected on this move. Oil moved back above $50 and a trading range is in development… this is what we wanted to give the broad markets some confidence. Still watching how this unfolds short term. Yields on bonds have flattened the last three days as hype over the Fed takes a break. Watch how yields progress and the sustainability of the move higher. Financials are moving, but not taking on the leadership we had hoped for short term.

Watching Basic Materials, Technology, Consumer Discretionary and Industrials. They showed solid leadership on Thursday and want to see if it continues today.

The volatility index (VIX) broke the uptrend line on the rally in stocks Thrusday. SVXY is the trade on this move. We added it to the SP500 strategy on Wednesday. Nice gain Thursday and we will monitor it now as we go forward.

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. Move to the top of the range is impressive considering the surroundings. We cannot argue with the trend, but we can manage our risk each day as we move forward. Taking what the market gives and remaining focused is the key.
  2. SVXY – entry $57.10. Downtrend line break. Broke the uptrend line on VIX. The short trade as the momentum shifts is the trade currently. target $61.50.
  3. TRLA – entry $46.80. bottom reversal consolidation break. Target is $52 short term. Sector has been active with M&A.
  4. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23.

Pattern Trade Tracking:

  1. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move. Stop $49.15
  2. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move. Stop $15
  3. AKAM – entry $64.50. double bottom breakout. Looking for move back to the previous high if technology resumes leadership role. Took position on opening strength today. Against my emotions, but I like the earnings. Stop $63.50.
  4. 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
  5. 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
  6. 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.
  7. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $440.
  8. 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.
  9. 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.
  10. 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.
  11. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  12. 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.
  13. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  14. 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.
  15. 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 $52.50
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.