Trading Notes for Today, February 19th

Jim’s Market Notes:

Another day of watching the grass grow… The major indexes closed the day flat as the uncertainty globally and with the FOMC minutes giving nothing investors were content to watch and let it all play out. The drop in crude on a continued increase is supply didn’t help matter either. Overall we watch, wait and respond when there is the opportunity.

Still considering¬†the following issues going forward… not just this week, but going forward, since this week is not offering much in terms of direction!¬†ZZZZZZZZ

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 FOMC minutes did nothing to offer clarity today other than the Fed is worried about hiking rates too soon. Great that is a real confidence booster. The rise is yields the last two weeks have been in anticipation of the rise happening sooner. The minutes gave relief to rates as the dropped sightly and utilities rose on the hope rate hikes would be delayed furthers. We just keep looking for the opportunities, but most have come in the form of short term trades versus investable trends.

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. Wednesday balanced out the love from Tuesday with some selling.¬†There is one key element of this argument to remember is demand has not fallen… supply has increased to out pace¬†demand, as seen in the supply data on Wednesday. Thus, if the supply side can¬†control production it could level¬†the playing field with demand and balance 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.

4)  Geopolitical issues in Europe and around the globe. Friday gave some signs of peace with Russia/Ukraine. Greece and the EU saw the ECB offer a solution with a line of credit from the central bank using the junk bonds from Greece as collateral. Sounds like a great ponzi scheme to me. Volatility will be elevated and there will be plenty of opportunities as we move forward, but we do so cautiously relative to Europe.

It remains a news driven world and the market/investors seem to have lost focus on what matters relative to the fundamentals are focused on the news. It will eventually come down to fundamental improvements in the economic data as we go forward. Time will tell how it unfolds, but for now we are patient and willing to hold cash as a hedge against the unknown.

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

Adjusted stops on positions in plays for trading today.

Adjusted the entry point on TBT relative to the test on Wednesday. The break above $44.20 was the key point for entry tested the move higher and now looking to hold the 50 DMA and move higher entry off the test is the objective. No magic just let it validate the move with max entry at $45.50.

Added CIEN with the Pattern Trading Strategy.

Added IBB with the ONLY ETF Strategy.

The markets have been flat the last two days watch for test of the move higher and manage your stops accordingly.

Sectors-to-Watch:

Solar energy sector (TAN) is¬†looking at the news from SUNE and SCTY on earnings… They hit the earnings number, but missed on revenue¬†trading lower pre-market. This has been one of the better performing sectors off the lows. Watch to see how much damage is generated today.

Crude oil fell 3% on supply data and watching to see how it impacts the forward sentiment for the buyers going forward. The pre-market quote was¬†below the $50 per barrel level early and is near the $50 level currently. Supply for the third week showed more surplus than expected. The importance of the data is no real drop since the speculation of cuts from the US market in production. The worry is back and as we have discussed… could produce another test of the lows near term. Party isn’t over for oil or the energy stocks which fell 1.2% on Wednesday in sympathy.

Utilities bounce off the lows with some help from the FOMC minutes giving the opinion of a later versus earlier view on hiking interest rates. Looking for a base to build as this unfolds. Not interested in trading the move unless more develops on the interest rate front than currently projected.

Treasury bond¬†reactions to¬†the FOMC minutes were mixed looking for some follow through and direction today. Some now feel it will be late summer or early fall before the Fed hikes rates. That isn’t going to really impact the move higher for yields unless the sentiment shifts towards 2016. The bigger challenge is how much will rates rise and how fast. Ten-year bond yield fell eight basis points to 2.06%. Watching as a move back below the 2% mark would be a positive for the bonds.

Housing starts fall, but ITB had a modest reaction. Some of that was offset by the FOMC statement relative to rising interest rates. In fact the one percent decline was erased following the Fed minutes release. Still a sector to watch as the micro uptrend is extended technically. Test may be in order before moving 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.

Pattern Trade Tracking:

  1. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $19.60
  2. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $14.35
  3. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $20.70.
  4. TRLA – entry $46.80. bottom reversal consolidation break. Target is $52 short term. Sector has been active with M&A. Stop $45.75
  5. 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
  6. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move. Stop $49.15
  7. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move. Stop $15
  8. 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.
  9. 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
  10. 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
  11. 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.
  12. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $440.
  13. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $147.25
  14. 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
  15. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $206.50
  16. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  17. 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.
  18. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  19. 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.
  20. 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 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< ¬†> Added 20 March¬†$75 Puts @ $4.25 as hedge< TODAY:¬†¬†Holding above support, but not able to make an upside move through the 50 DMA which is essentially horizontal currently. Patience as this unfolds.
  • 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 short term trade to $42.25. Stop for added shares raised to¬†$46.25. This is a long term holding, but we will trade on short term technical data if warranted. Gapped higher on earnings and so far holding the move.¬†TODAY:¬†Flag pattern of consolidation on the gap higher in play and willing to let this unfold short term. Raised stop on the traded shares above (#3).
  • 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:¬†¬†Testing support again along with¬†investor resolve. Consolidating with $16.70 as¬†resistance and $16.20 as support.
  • Whole Foods Market (WFM)¬†(1) Added 1000 Shares @$48 11/20/14 starting position. 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. So far so good on the sequential earnings period. TODAY:¬†Upside remains in play following earnings and looking for this to hold the course on a steady climb.