Trading Notes for Today, February 18th

Jim’s Market Notes:

Flat trading day for the major indexes, but some underlying moves to note. There was no really exciting news or speculative issues to drive stocks higher. The speculation relative to the Fed and interest rates are pushing bonds lower (TLT) and the price of oil continues to trickle higher on speculation of a weaker dollar and rising demand as the economic picture improves. This remains a news driven market and what is positive today could be the negative sector tomorrow. Patience is the key.

Consider the following issues going forward… not just this week, but going forward! Nothing changed in trading on Tuesday except to confirm these are issues that are playing out short term.

1)  Interest rates and the Federal Reserve. This has been on the table since the September 2014 meeting. In many ways it has been the one giant unknown for the markets looking forward. When will the Fed take action? How fast will they act in hiking rates? How will the economy respond? The questions come fast and furious when you consider this issue. The biggest concern is how big will the price destruction be in the bond market? We are getting a glimpse right now. This sector poses the most risk moving forward from my view. The price destruction as rates rise will first come from fear or uncertainty and then level out going forward. This is a key sector to watch and manage the risk.

2)  Related to the first concern is real estate. The housing market is very interest sensitive as it impacts the affordability of housing for those wanting to buy. It is important to remember that housing is a key part of the US economic cycle. Home construction (ITB) has move up more than 12% off the January lows as the outlook for the sector gained some traction on lower rates. This again is a sector to watch as it relates to the rate changes. Wednesday offers insight with the housing starts.

3) ¬†Oil remains a love/hate thing for investors. Tuesday was love with oil moving higher after a early test to prices. There is one key element of this argument to remember is demand has not fallen… supply has increased to out pace¬†demand. Thus, if the supply side gains control of production and levels the playing field with demand the balance in pricing will return. It is a simple equation, it is just hard to implement. I would expect the volatility in the sector to remain, but we are establishing a bottom from which the future will be measured by. The opportunities in oil, drilling, refining and related technology will remain going forward we will have to be more selective in the process. This remains a sector full of opportunities on the horizon.

4)  Geopolitical issues in Europe and around the globe. Friday gave some signs of peace with Russia/Ukraine. Greece and the EU may find a solution with a extension being solicited today? But, when it is all said and done these and other issues are similar to the oil sector, bottom may be in for now and hope is on the horizon, but it is far from over. Volatility will be elevated and there will be plenty of opportunities as we move forward.

It does remain a news driven world and the market/investors are cheering things that really don’t impact earnings or revenue near term¬†going forward. They do provide less worries in the immediate view, but that is window dressing. It will come down to fundamental improvements in the economic data as we go forward.¬†At what point will the fundamentals matter to the market? That is something that will be answered going forward, for now we treat this as news driven market with short term opportunities, until the clarity is gained and the longer term views make sense.

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

Adjusted stops on positions taken.

Added to the Watch List on the individual strategy tables.

Added INFI to the Pattern Trading List below. Silver fell and removed SLW from the watch list. UNG traded in place and still watching today.

Sectors-to-Watch:

Semiconductors (SOXX) sector is back at the previous highs and resuming some leadership in the current move. A break through this level would be a positive for the continuation of the upside. A positive test of the move would provide an even better entry point near term.

Europe (IEV) moving again on the resolution (supposed) with Greece on extension of the debt. Cleared $44.25 again and now $45.25 target short term. As this unfolds Adding to long term positions would be on my agenda.

The volatility index (VIX) broke the uptrend line on the rally in stocks. SVXY is the trade on this move. We added it to the SP500 strategy and Pattern Trading strategy. Nice gain on move, but watching as volatility took a slight bump higher.

Money Management Strategies Links:

  1. S&P 500 Strategy¬†–¬†Added to Watch List
  2. Sector Rotation StrategyР Added to Watch List
  3. ONLY ETF Strategy– Added to Watch List
  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 higher gives hope to investors, but stop management to me. 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 as we adjusted stops below.
  2. UNG – entry $14.40. bottom reversal. energy sector gaining some momentum. Weather related move for this trade.
  3. SLB – entry $88.10. reverse head and shoulder. Energy sector broke through resistance and stocks are moving higher in the sector.
  4. SIMO – entry $30. cup. Semiconductor sector exerting leadership of late. continuation of the move higher is the trade.
  5. TBT – entry $45.60. V – bottom continuation. The decline in yields continues. A test of the move would provide better entry, but we will go with how it unfolds. May start with half a position without a test.
  6. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again?

Pattern Trade Tracking:

  1. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $14.35
  2. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $20.70.
  3. TRLA – entry $46.80. bottom reversal consolidation break. Target is $52 short term. Sector has been active with M&A. Stop $45.75
  4. SVXY – entry $57. Downtrend line break. Broke the uptrend line on VIX. The short trade as the momentum shifts is the trade currently. target $61.50. Stop $55.50
  5. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move. Stop $49.15
  6. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move. Stop $15
  7. 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 $65.
  8. 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 $82.30
  9. 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
  10. 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.
  11. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $440.
  12. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $147.25
  13. 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 $118.50
  14. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $206.50
  15. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  16. 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 $62.70.
  17. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  18. 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 $13.60. Adjusted stop on the gap lower pre-market view.
  19. 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 (10/16/14) 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 (10/28/14). 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.¬†stop on the added shares we traded to $45.50.¬†TODAY:¬†Made¬†break from¬†top end of the trade range in the bottoming pattern. Jumped 16% on earnings and still holding the gains… manage your stop on those shares.¬†
  • 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. Consolidating with $16.70 as entry point to add some shares for trade.
  • 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:¬†Nice gain on earnings and holding for now. Upside trend still in play.