Trading Notes for Today, January 23rd

Notes to Note: 

ECB to the rescue with more stimulus! Of course, you are in¬†debt¬†with other stimulus… why not dig a deeper hole! And we wonder why bankruptcy is so popular an alternative to debt. We can print money and raise taxes… perfect. Beside the reality, the market/investors used the news as a catalyst to buy stocks as the markets rallied to the next resistance point across the major indexes. This put the press back on the markets to follow through. That is the next course of action we will watch.

On the concern side we have crude oil again. The supply data in the US showed the highest build up or reserves in 80 years. That sent a ripple through the equity market that was ignored, but oil fell more than 2%. Futures are pointing higher currently, but it is something to watch. If crude drifts back below the ‘comfort’ zone it will have an impact on sentiment. The death yesterday of Saudi Arabia’s King Abdullah raises questions as well going forward.

Earnings remain a challenge with the results unimpressive for where I sit. We continue to get mixed reports that lack growth in the top line revenue… still. This brings into view all the topics we have discussed over the last year on the growth topic. If the stock buybacks and mergers slow that will expose further the lack of growth in revenue. I am keeping an eye of this¬†as we go forward.

Same worries face investors as we conclude the week. I don’t expect much movement on either side and favor a slight gain to confirm the upside move from Thursday. Keep your stops in place and manage your risk with discipline.

MAJOR INDEXES:

The ten-year bond yields hit the 1.89% mark up 4 basis points. Bottom has been established in the yields and thus a top in the bonds. Watching for some downside short term if stocks are to rally further. The near term volatility in the bond sector remains for now. This is a good time to protect profits and manage the risk of any positions. Shorting the rallies or hedging on the rally to manage the risk would be prudent. Money flow will shift if the stock market rallies and the global markets find some calm.

The NASDAQ closed at 4750¬†up 1.8% on¬†Thursday. The index has gained 115¬†points for¬†the week. A consolidation¬†pattern or trading¬†range for the index remains in place¬†and we bounced off the bottom of the range¬†support at 4555 last¬†week. The bounce Friday was the third test of support with the second test and bounce creating a lower high and we closed at the same level as the previous bounce? Today is decision day, higher or retest the low of the range? Respect the uncertainty and don’t force trades.¬†Added QLD trade on move higher.

The S&P 500 index closed at 2063 or up 1.5% on Thursday. The index has gained 43 points this week. Moved abov the 50 DMA and confirmed bounced off the 1992 support level again for the third time. Closed at the high of the second test making today a decision day. If we push back above the January 8th high we retool our approach. Added SPY or SPXL trades today.

The Russell 2000 index gained 23 point on Thursday or 2% to close back near the resistance of 1190. It is still within the trading range and back above the 50 DMA. Watching how this unfolds near term. Not showing much in terms of momentum short term despite the big move on Thurday.

The Volatility index closed lower on Thursday at 16.5 as we suggested yesterday. Hit the entry point on SVXY as the downside has given way to the buyers yet again. Watch to see how this unfolds today with 14.5 the next level to move towards.

The Dollar (UUP) gained ground on the euro losses closing at $25 (UUP). The dollar index (DXY) has moved above the long term resistance and progresses higher closing at 94.25. The stronger dollar remains in play. Talk of stimulus from the ECB is put pressure on the euro and benefited the dollar. The weakness and uncertainty globally is one key reason for the rally and unless that shifts near term the dollar my remain strong for the foreseeable future.

Crude Oil jumped Wednesday more than 5%… fell on Thursday 5%… Friday up 5.8%… Tuesday down 5.2%… Wednesday up 2.4%… Thursday down 2.3% . Bottoming process in play? Must be as all this volatility has led to $46.70 price level and building a base. The inventory data for the US showed the highest levels in eighty-years. I thought the¬†ECB outlook along with more stimulus globally could spark a speculation rally in crude, but the inventory data took the wind out of that sail.

There is plenty of speculation in the markets currently as investors struggle with uncertainty about both the US and Global economic picture. The upside is attempting to take the leadership role back, but as we all know that can change quickly based on the news the last five weeks. Watching for a follow through on the buying this week. If the global markets find belief in the ECB the upside may return short term on the hype. This remains a high risk environment and one to managed diligently.

Moves that matter…¬†

Utilities were the only sector to close in negative territory for the S&P 500 index down 0.5% and XLU tested the highs again $47.75 is exit point or level to watch short term.

Banks (KBE) produced earnings result that plainly stunk! The reasons for the missed numbers were as diverse as the number of companies announcing. Regulation expense, less mortgages, slower bond trading, slower stock trading, slower IPO business, and plenty of other reasons were behind the missed earnings and decline in stock prices. The downside is in play, but the contrarian outlook is to let the news settle and look for the upside trades off the lows. THURSDAY: the index did bounce better than 4% to recover nearly half of the downside losses. How it responds from here is yet to be seen. KBE needs to hold above the $31.40 mark for my liking.

VIX index fell to 16.5 on Thursday retracing as calm takes over on the buying. The confidence factor is returning as more money supply from the ECB will be in the equation. Speculation at it’s best… SVXY hit entry point Thursday as well.

Europe (IEV) rallied light of the ECB move today gaining 0.3%, but it did manage to break the micro downtrend line off the November high showing one positive. The next hurdle is the 50 DMA and then $45.25 would be the target short term.

Treasury bond yields are finally make a move off the lows from last week and that has put some downside pressure on bonds. Hedge or protect your profits moving forward it the rally in stocks finds momentum.

Sectors of Interest for Trading:

I still don’t trust¬†this environment or the¬†¬†lack of conviction in either direction. The speculation on what each news event means or will do is frustrating to the longer term outlook, but short term trades are looking better as the news is more tradable than the last five weeks. Thursday provided a push on the upside to help the move back towards the top end of the current range. Patience is still needed and any trades are swing trades on the move. Needless to say,¬†news is driving the day-to-day volatility and trading. Throw in some¬†good old fashion research for good measure.

Gold Miners (GDX) The sector has benefited from the bounce in gold. Thursday lost 0.5% as the worries over ECB actions are seen to be negative to gold? The reality is more of the move is getting closer to the target/resistance on gold at $1340. Some profit taking is in motion, but the outlook technically is still upside. Set your stops accordingly and see how this plays out near term.

REITs (IYR) flight to quality is the story. Money is moving were it treated the best with the least volatility. Some testing of the move last week near the highs. Steady as the defensive money continues to flow in to the sector. Slightly overbought, but that can continue as relative strength is high. Hold and watch for the opportunities as this moves forward. THURSDAY: gained 1.9% to move to $82.50 after the small test this week. Watching the money flow in sectors short term could turn on news.

China (FXI) uptrend remains, albeit volatile, off the October low. Technically the upside is in favor and worth trading as we moved through resistance and added 1.8% on Thursday. FRIDAY:  Got the move higher as suggested and continues to see solid money flow from investors. Set stop and let it run.

Watch List Opportunities:

  1. S&P 500 Strategy¬†–¬†updated
  2. Sector Rotation Strategy- updated
  3. ONLY ETF Strategy- updated
  4. Pattern Trade Strategy Рupdated
  5. ONE EGG Strategy – updated

Pattern Trade Setups:

  1. Volatility has receeded the last two days with the buyers willing to put money to work in the broad markets.¬†We added positions on the move and we will manage the risk accordingly.¬†Manage your stops along with the current volatility intraday.¬†It’s Friday and we will act according to the plan.
  2. EWG – entry $28. Break micro downtrend. Looking for Germany to provide the upside leadership if Europe rallies on the stimulus from the ECB.
  3. 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.

Pattern Trade Tracking:

  1. QLD – entry $135. break downtrend line and reversal off support. NASDAQ has been leading on the bounce off support the last three trading days. Swing trade on the move higher.
  2. SPXL – entry $85.50. trendline break and bottom reversal swing trade. Stocks trying to move higher again after test of support again.
  3. TBT Р entry $41.60. base and bottom reversal. If stocks rally looking for bonds to fall modestly enough for trade opportunity on the breakout.
  4. SVXY – entry $56.90. bottom reversal. VIX index receding as the fear subsides, but uncertainty still in play. Watch for swing trade on the reversal.
  5. BABA – entry $100.40 (15 cents above posted entry). Resistance and trend reversal. Bounce off support and break of resistance would be entry. Trendline break at 105.25 would be point to add to position. Stop $99.90
  6. GILD – entry $104. bottom reversal and trendline break. Fundamental news driving the upside reversal. Trendline break entry point. Stop $102.40.
  7. VXX – entry $33.60. Resistance breakout. Volatility is picking up short term and looking for the follow through on the upside move as uncertainty rises. $33.60 (raised stop). Volatility starting to drop…. honor the stop.
  8. TSEM – entry $13.45. descending triangle. Confirmation break on the upside from consolidation and uptrend resumption. Stop $13
  9. GDX Рentry $19. Break from consolidation bottom. Look for trade on the upside move in gold miners short term. $20.50 short term trade target. NUGT gives you the leverage. Stop $21.50 (target price + profit).
  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 $46.90
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: 
Nice bounce back from the selling and now attempting to make a push on the upside. We have to be patient with these and use different approach as they are long term holdings.
  • 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. Testing the bottom of the current range and bounced … bounce (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).¬†TODAY:¬† Bounce produced some gains, broke¬†the downtrend from the December high and¬†looking for the follow through on the move back above the $78.50 mark.
  • 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. (hit stops on our put contracts on the reversal last week.)¬†Bounced back to resistance and sold the puts… Looking to buy shares on break above $39.20. (Added 500 shares at $39.20 Friday.) TODAY:¬†3% bounce Thursday and watching how this unfold in respect to the broader indexes.¬†
  • Bank of America (BAC) We own the Jan 2016 $17 Calls at $1.85/200 contracts (added 100 contracts on pullback). 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. (ADDED 2500 shares at $17.15 and target is $18 on the move short term as trade in¬†the position.) (50 Feb 17¬†puts @ 60 cents. ADDED) &¬†¬†(ADDED 250 June 17 put contracts @ 0.95 cents 1/14)¬†TODAY:¬†¬†Held support near the $15 mark…. we will see how this unfolds here.¬†Sold 300 PUT contracts early at $1.05.
  • 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:¬†¬†Cleared the $52¬†resistance of late and move up to maintain the uptrend.¬†I like what we are seeing and may look to add to our position on confirmation of the move.