Trading Notes for Today, February 24th

Jim’s Market Notes:

Nothing… AGAIN! This market is stuck as investors are unwilling to commit in either direction. Volatility index started higher, but faded as well to close flat. Healthcare, utilities, consumer staples and technology closed up… barely. Telecom sold off nearly 1% to lead the downside or any activity on the day. The balance minor selling on the day. The rotation chart shows no changes off the February 1st pivot point. Energy gave up some ground, but overall market is moving sideways and attempting to trade consolidation only gives you a headache. Holding what we have and letting this unfold for now as we have gone five trading days without much of any progress… despite the glowing headlines.

NOTES OF INTEREST:

Yellen testimony today promises to keep everyone’s attention on what stance the Fed will take looking forward. If she¬†takes what some consider a ‘hawkish’ tone relative to interest rates increasing sooner… it will rattle investors. Last week the slow markets were blamed on the oil supply and rig count data as a rationale for the stall, “investors were¬†waiting for the results”… this week they¬†are looking at what Yellen will say in her testimony to both the Congress and Senate Tuesday and Wednesday as rationale for the stall… no one wants to get in front of what some consider a dangerous outcome for the markets should the wrong comments be uttered… right? If you believe it to be true, it must be true, right?

Crude oil is back to the worries about supply. This is still not a surprise from my view as these companies cannot stop producing oil or some will collapse under the debt pressure. Others need the income stream to keep the process going. This will take much more of a concerted effort if the levels are going to decline significantly. Crude closed at $49.30 down 3% on Monday. Watching to see how this unfold looking forward with futures lower this morning.

Heating oil (UHN) is rising on the cold weather of late. The 2.3% jump on Friday was a result of the supply data. With warmer weather forecast for the next week watch how the speculation unfolds for the commodity. Down 0.5% on Monday… shortage relative to demand is pushing price and this is worth watching.

Strikes are hitting the refiners and that could back up things further for oil supplies. The growing concern is relative to how much production will be off line and for how long. The Unions want more safety programs and thus far have rejected every offer from Shell. This is a story to watch as it unfolds as well. This could impact gasoline, heating oil and other distillates production.

Euro is attempting to put in a bottom on the solution with Greece. There is plenty of speculation around the euro and the EU, I would let this issue settle before putting my neck or money on the line here. Dollar is still the leader in the currency sector.

Yields on the ten and thirty-year bonds are in position to continue higher. This is a negative for the bond sector and any positions that are deemed to be interest sensitive. Stops are a must if you own any of these positions currently.

Semiconductors (SOXX) made a break to new high on Friday and that is worth watching this week for follow through on the upside. Slow, but steady progress in the sector off the January lows. Showing a pennant pattern setup.

News is driving and the market/investors seem to have lost focus on what matters relative to the fundamentals and are focused on the news. It will eventually come down to fundamental improvements in the economic data as we go forward. Regardless of my beliefs I continue to follow the trends and for now they are pointing higher.

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

Adjusted stops on positions in play as we head to the new week of trading. I am expecting the upside to remain in play, but we have to plan for the unexpected should our beliefs not play out as expected.

Added GMCR to the Pattern Trading Strategy on follow through break higher.

Added XLP to the S&P 500 Strategy. Need an upside follow through to hit new highs.

Sectors-to-Watch:

Monday did little to change our view on the sectors below and we continue to be watch the sectors we outlined to start the week, patience as we see how it unfolds.

Energy (XLE) maintains the top spot on my watch list with so many moving parts and the consistent headlines of speculation around direction and supply. Crude fell 1% on the week and energy stocks¬†fell 1.8% after three consecutive down days. Is the bounce over? The micro trend off the January low is still up and consolidation in the move is expected. However, if the price of crude moves back below $50 and holds… I would expect the energy sector to test the 50 DMA. Hold positions with stops in place.

Europe (IEV) could equally have been the top spot with all the speculation and worries surrounding the outcome of so many issues. Greece is only the tip of the iceberg in this sector of the markets and world. GREK did move above resistance with a 10% gain on Friday. $15 is the target assuming the agreement is finalized. That makes any trading here speculative and risk management essential. IEV cleared $44.95 resistance and is poised to move back to the September highs $47.25. The country ETFs of the EU are worth digging into as well with some nice move from EWG, EWK and EIRL. I posted all these in Friday post to the blog.

Retail (XRT) broke to new high following the major indexes or maybe leading them, but the move has been drifting higher more than breaking higher from my view. The underlying stocks are where to spend your time if you are willing to take on the additional risk. For the week PCLN was the leader up 11% on earnings. TRIP also jumped on earnings from a bottoming base. GRPN and DG both are in consolidation patterns and attempting to break to new highs. TSCO is in a consistent uptrend and there are plenty of other stocks in positions to move higher in the sector. Scanning the stocks clearly shows the winners and losers.

Healthcare (XLV) break above the $71.20 resistance on Friday was positive for the sector. It had been lagging on concerns over the Affordable Healthcare Act challenges. But, the numbers released on Friday showed an increase in enrollment, hike in premiums and all is well for the stocks. Can’t say the same for the consumer, but when does that matter? You need to own these stocks if you want to be able to afford the new premiums. The providers (IHF) is the sector to own as well. All is well in the sector again… for now.

Biotech pushing back into the leadership role it has enjoyed the last year plus breaking above the $328 level on IBB. Resumption of the uptrend is a positive sign for the long term holdings and it offered another entry point for those wishing to enter the sector. 50 DMA is good trailing exit point for new trades.

Volatility index moved below the 200 DMA to show the comfort investors are building looking forward. Note I said comfort more than confidence. The index gains didn’t reflect confidence as it only drifted higher. That could change this week, but for now comfort is a better word to describe the sentiment. ¬†SVXY has played out well and I would raise to tighter stop to protect the nice gains.

Interest Rates/Bonds is another area of concern for many investors and analyst. The Fed wants to hike rates and rightfully so, but that is causing disruption in the bond sector. Rising rates generally do, but when you throw in the speculation it creates emotional reactions. I am not a buyer or holder of bonds at this point other than to trade. TLT, IEF and BND charts show the issue in living color. The short side of this trade is the only logical spot if you are willing to accept the risk of the trade.

Money Management Strategies Links:

  1. S&P 500 Strategy
  2. Sector Rotation Strategy
  3. ONLY ETF Strategy
  4. ONE EGG Strategy
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. Broke to new highs on Greece settlement. Question is will the upside continue? The sentiment is positive, the money flow is positive and outlook is neutral. I take this to be a news driven trading environment and nothing more. Fundamentals are not in line with the move. Trade the move.
  2. FAS – entry $126.70. resistance break. continuation of the double bottom reversal following test. if upside continues financials join the party.
  3. AMBA – entry $55.25. micro trend reversal. Tested support at $50 and looking for reversal and longer term uptrend to resume. Stop $54. Target $60.20.
  4. TBT – entry $45.60. bottom reversal. Break of downtrend as rates rise. Yellen testimony will have an impact on this. Stop $44.10. Target $48.10.
  5. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $21.40. Target $25.

Pattern Trade Tracking:

  1. GMCR – entry $122.80. bottom reversal. Move to the 200 DMA and then look for break of trendline higher. Stop $119.50. Target 139.60.
  2. UNG – entry $14.40. bottom reversal. energy sector gaining some momentum. Weather related move for this trade. Stop $14.
  3. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $19.60
  4. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $14.35
  5. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $20.70.
  6. TRLA Рentry $46.80. bottom reversal consolidation break. Target is $52 short term. Sector has been active with M&A. Stop $45.75 (This was merged with Zillow on 2/18 and we get shares in exchange on the transaction. Z is symbol.) 
  7. Z Рentry on conversion $109.07 (0.444 shares per 1 share of TRLA). Broke higher and testing the 200 DMA. Stop $118.70. Nice pop on the deal and raised stop as this attempts to test the move higher.
  8. 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 $59 – raised stop and managing the risk
  9. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move. Stop $49.15
  10. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move. Stop $16
  11. 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 $67.50. Manage the stop and let this unfold on direction.
  12. 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
  13. 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
  14. 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.
  15. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $460.
  16. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $147.25
  17. 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
  18. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $206.50
  19. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $46.
  20. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10. HIT STOP
  21. 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 and finally made move on the upside last week and tested Monday to start on negative foot. 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.