Trading Notes for Today, February 26th

Jim’s Market Notes:

Seven days and counting that we have essentially traded in place.¬†The major indexes have drifted higher¬†overall and the selling days haven’t amounted to much, but trading and investing has not been very appealing, it is like watching the Manatees at Sea World, you think something is going to happen, but it never does. ¬†Outside of that, the markets continue to plod along and we continue manage our risk taking what it gives for now.

NOTES OF INTEREST:

Yellen’s second day of comments was more boring than the first.¬†The market responded the same with a move higher followed by a move lower, closing essentially flat on the day. Today we get economic data to chew on that¬†will shed more light on the current conditions.¬†There is still little in terms of conviction about the current market environment and thus we proceed with caution, but respect the trend.

Bonds continued to rally on the Fed Chair’s comments. Interesting response to someone stating they were going to raise interest rates. The ten-year bond held¬†below the 2% mark. This development will be of interest moving forward… in fact, this bounce has me interested in TBT as it unfolds… that is the short bond fund. If the bounce fails we look for rates to rise and bonds to sell.

Crude oil bounced despite¬†the worries about supply, seven weeks in a row with rising demand. Gasoline and heating oil get the blame for the move. UGA was up 5.3% on refinery stories, UHN was up 2.5% on the demand story from cold in northeast. Yesterday I posted the commodities support points and resistance… that gave you an entry on both commodities today on the move if you were willing to accept the volatility of the trade.

The pullback in crude prices ended at $49.03 as it bounced back to $51.11 Wednesday. XLE is hovering around the $80.50 mark, IEZ is testing the 50 DMA, XOP is consolidating withing the uptrend, FCG is testing the $11.35 support level and refineries have hit new highs. Watching to see how this unfold looking forward and what opportunities arise next.

Yields on the ten and thirty-year bonds have been¬†in position to continue higher. That shifted on Tuesday with the yields climbing and the long bond bounced higher in response. Does this make sense in light of Yellen’s comments? It does in that she was accommodating¬†in¬†being vocal about not acting too soon. Watch how this unfolds… yields higher or continue the downside… I am watching for a bounce and then a continuation of the yields higher in light of her testimony.

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 NKE position to the pattern trading strategy below.

Sectors-to-Watch:

Three days of slow grinding activity… patience is the name of the game for now.

Energy (XLE) Held near the $80.50 mark and watching how it responds to crude oil prices. Inventory data is due out tomorrow and it will have an impact if supply is again higher than expected.

Europe (IEV) moved higher and $45.35 is level to add to positions if you are willing to accept the risk. EWG cleared $29.25 entry point. EWK cleared the $17.10 entry point. EIRL is moving vertical. EWH in position to break above the $22 mark. EEM near $41 entry mark and EFA hit the $64.60 entry.

Greece (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.

Russia (RBL) testing the move higher as rumors swirl around the Ukraine lack of peace agreement. The downgrade to debt by Moody’s and speculation overall is challenging the move higher watch how it unfolds.

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.¬†I like the parts and the whole as they were outlined on Monday’s blog post.

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. SVXY has played out well and I would raise stop to protect the nice gains. As we approach the 13 mark or lower on the index we have to be cautious about stocks. No fear or caution is a worry unto itself.

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. The bounce in yields on Tuesday are on my watch list for today to see how that plays out.

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 with a gradual drift higher. 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. EDC – entry $25.40. break from consolidation range. picking ups some momentum in the sector and we will have to manage the risk of the trade. Stop 24.10. Target $28.
  3. FB – entry $80.25. pennant break upside. in mid consolidation phase. looking for upside trade on move. Stop $77.
  4. RUSL – entry $25.25. test of trading range breakout. $22.75 break from bottom range was tested the last week and held. Now looking for continuation of the move higher. Stop $22.70. Target $37.50. RBL if you don’t want the upside leverage.

Pattern Trade Tracking:

  1. NKE – entry $95.50. trendline break upside. Retail remains a leader and the resumption in momentum for Nike is a trade. Stop $94.25. Target 99.40.
  2. SUNE – entry $22.55. triangle on weekly chart. Resumption of the longer term uptrend potential. Stop $21.40. Target $25. ADDED to TRADE Below.
  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. FAS – entry $126.70. resistance break. continuation of the double bottom reversal following test. if upside continues financials join the party. Stop $124. Target $133.
  5. 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.
  6. UNG – entry $14.40. bottom reversal. energy sector gaining some momentum. Weather related move for this trade. Stop $14.
  7. CIEN – entry $20.25. consolidation range. biotech making move higher to resume uptrend. Leading sector again? Stop $19.60
  8. INFI – entry $15.15. wedge consolidation breakout. biotech has been struggling of late, but looking for upside to resume. Stop $14.75
  9. SUNE – entry $21.20. trading range breakout. Semi’s are moving higher and regaining leadership role. Target $23. Stop $20.70.
  10. 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.) 
  11. 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. HIT STOP
  12. 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 $61.20 – raised stop and managing the risk, hit the target.
  13. C Рentry $49.80. break from double bottom base. Upside momentum in the sector short term. $52.50 target on move. Stop $49.15
  14. BAC – entry $16.50. test of double bottom breakout. banks getting momentum from the potential rate hikes. $17.50 target on move. Stop $16
  15. 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.
  16. 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
  17. 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
  18. 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.
  19. NFLX – entry $460. trading range or flag breakout. Confirmation of the upside move from earnings in the consolidation. $485 target short term. Stop $460.
  20. IJH – entry $147.25. Breakout from range. The move would put the sector at a new high and the leadership role. Stop $147.25
  21. 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
  22. SPY – entry $204.80. Range trade. Looking for move back to the previous highs on the positive sentiment. Stop $206.50
  23. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $52. Gapped higher and adjusting the stops.
  24. 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< ¬†TODAY:¬†¬†Holding above support and finally made move on the upside last week and tested Monday to start on negative foot, but holding for now with $80.50 next level to break. 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.