Trading Notes for Today, February 6th

Jim’s Market Notes:

Yo-yo – can be spun alternately downward and upward by its weight and momentum as the string unwinds and rewinds. That is the partial definition according to Webster dictionary and it explains perfectly the last eight weeks of the markets movement. We have spent this week justifying why a bounce in oil prices warrants a rise in stock prices? I am still looking for a good answer, but I also understand that attempting to apply logic to an emotional environment makes virtually zero sense. I live in a house with four daughters, wife and female dog. If I don’t understand… it is explained to me very clearly, but even then I don’t understand logically. Bottom line… the belief¬†is¬†that oil prices will continue to move higher going forward which is enough for the global economies to right themselves, and growth will return to both revenue and earnings of companies worldwide. Logical? NO, the current belief? YES. Enough said.

The S&P 500 index closed at 2062 resistance after some modest selling on Wednesday to test the upside move off the 1992 support level. A 70 point move in the index as oil moves ¬†up 12% off the lows is a perfectly logical explanation. Regardless the index is in position to test the previous highs and reestablish the uptrend for the broad index. ¬†The consolidation wedge pattern remains¬†in play and within the range news is driving activity and investors crazy. If you like 1-5 day holding periods this cycle of trading is for you. If you like longer term views take some Dramamine. The shift in direction this week has no guarantees, but we did validate the confidence/belief in oil having bottomed… for now.

Today we have the infamous jobs report and expectations are for 230,000 jobs added in January. It is not the jobs it is the quality that continues to be the topic of discussion. The data to this point for January has not been flattering and we could do with a bit of positive news to help the upside continue.

Earnings continue to be of interest with Twitter beating expectations and jumping after-hours on Thursday. Expedia disappointed, but LinkedIn beat and jumps higher as well after-hours. The outlook today will reflect the moves from companies, but the bigger picture will be the belief all is good and better days ahead. Look for the move above resistance into the close today as a sign that investors believe in the current sentiment being created by oil.

Understanding the environment you are trading in is the first key to not losing your money without a fighting chance. The market is a battleground and you have to be well trained to fight

Action Taken: “Vision without action is a daydream… Action w/0 vision is a nightmare.” Japanese Proverb.

Added the small and midcap sectors on Thursday as they moved through the entry points, but more importantly continue to exhibit leadership for the broader markets. I like both sectors looking forward as they have exhibited the best showed strength even during the selling days.

Added SPY for the S&P 500 index on Thursday as well.

Outlook for Today:

S&P 500 index (SPY) broke through resistance at the 2020 mark on Tuesday. Tested on Wednesday, moved to the 2062 resistance Thursday and is looking at 2092 the previous high now. Hope springs eternal. Remain disciplined and keep your stops in place.

NASDAQ 100 index (QQQ) rose back above the $102.25 resistance level. The downtrend line is now in play off the November high. The large cap stocks remain the weaker link as seen in trading Wednesday and Thursday, but the upside is tradable if the move follows through.

Small and Midcaps are where the action is from my view. The upside is back, but the strength and leadership technically are in these sectors on this move. IWM cleared $118.25 and $119.50 and is eyeing the previous high. MDY cleared $263.60 and hit a new high. Both are added to the Sector Rotation Strategy.

The volatility index (VIX) stalled as stocks rallied this week. It continued lower Thursday at 16.8. The move lower is in response to the buyers stepping back in to the market and creating short term confidence that things are looking better. I am of the opinion/belief this will test the previous lows near the 15.5 level. That would set up a trade in SVXY to short the VIX on the move lower. $54.70 is the level to watch on the upside move for trade if the positive sentiment continues. It is note worthy that the VIX didn’t correlate to the move higher in the index from my view. Watch how this unfolds to end the week.

Be patient as the week progresses and keep your stops in place, and let the speculation unfold.

Money Management Strategies Links:

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

Pattern Trade Setups:

  1. Jobs Report is news of the day. Earnings overnight were on the positive side. Belief is positive on oil prices. All is well and baring any surprises the indexes should continue the week long journey back to the previous highs and top of the range. Trading what I¬†see and silencing the doubt in brain… keeping my stop near by.
  2. FCX – entry $19.60. bottom reversal. Copper moving with commodities in general. This is a trade on bounce to the $21 mark.
  3. VIMC – entry $9.13. trading range. Semiconductor sector in position to move higher again with broader indexes.
  4. GDX – entry $22.70. consolidation wedge. miners are still in uptrend and break from the consolidation is continuation of the trend.

Pattern Trade Tracking:

  1. 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.
  2. 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.
  3. 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.
  4. FSLR Рentry $45.50. Bottom range breakout. Alternative energy sector bouncing with oil. Look for trade to $52 if momentum follows through. Stop $44.
  5. 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 $54.
  6. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  7. VIPS – entry $23. Flag. Break above short term resistance and trade to $24.75. Stop $22.
  8. 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 $12.25.
  9. GDX – entry $19. Break from consolidation bottom. Look for trade on the upside move in gold miners short term. $20.50 short term trade target. Stop $21.75
  10. 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 $51.50
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.¬†Bounced off support and looking to gain some upside faith… patience.
  • 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 after-hours! Watch how it does today and we will look to lock in the gains on short term traded shares by managing the stop. $42.25 was the target on those shares and we will put the stop at that mark.
  • 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.¬†Still no momentum in the financials, but watching how this bounce unfolds short term. 200 DMA is the next hurdle.
  • 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.¬†Small range as market keeps stock in check. TODAY:¬†¬†Holding up well and still letting this unfold short term. Continuation on the upside could offer a trading opportunity for short term trade on break higher. $53.80 is level to watch.