Trading Notes for Today, January 27th

NOTES TO NOTE:

No big changes for the broad indexes after bouncing back from some early selling on the Greece election results. The indexes still show some signs of wanting to move higher, but there are too many other worries hanging around. Earnings are not impressive, economic data is slower to sad, global markets are focused on stimulus and the overall picture remains cloudy. The key is patience to let it all unfold and not fight it or force trades currently.

FOMC meeting begins today and Fed is determined not to be swayed on hiking interest rates. Consumer confidence report is out as well today, housing sector gets new home sales data, and durable goods numbers are released… busy day for data and it will be watched in light of the weakness in the December numbers.

Futures are pointing lower to start the trading day. Microsoft gave plenty to think about in the their earnings report warning in just about every area of sales. The key support at $45 is being challenged by the data. Trading lower by 4% on the news… it will impact technology, software and the NASDAQ indexes. Oil is flat and gold is flat currently. The dollar is down against the yen, Europe opened lower, Asia was mixed with Japan up 1.7% overnight. Looking for some decision on the direction, but this may not happen today. Be patient as this unfolds today.

MAJOR INDEXES:

The ten-year bond moved lower after a failed attempt to move back toward the 2% level closing at 1.82%. I expect the volatility in the bond sector continue to be high moving forward as investor fight between safety and Federal Reserve wanting to hike yields later this year.¬†If the rally in stocks takes root I would expect rates to rise in conjunction with the move short term. FOMC meeting starts tomorrow… what if anything will the Fed offer in terms of guidance?

The NASDAQ closed at 4771 up 13 points for the week. A consolidation pattern or trading range for the index remains in place with the bounce off the bottom of the range or support at 4555. The bounce pushed through the 4750 resistance point and now has the December high in sight. Trading range still in play.

The S&P 500 index closed at 2057 or up 5 points. Held above the 50 DMA, but failed to break above the 2063 resistance. Energy, Consumer Discretionary and Healthcare were the leading sectors for the day. Technology and Utilities closed in the red on Monday.

The Russell 2000 index gained 11 point closing at 1200 and above the 1190 resistance on the day. The 1% gain to start the week was helped by the rise in the Midcap index as well gaining 1.1%. Leadership from these two sectors would help the outlook near term for the larger indexes.

The Volatility index closed lower on at 15.5 as the S&P index made gains on the day. Hit the entry point on SVXY last week and added to the gain on the day. Watch to see how this unfolds with 14.5 the next level to move towards.

The Dollar (UUP) gained ground on the euro losses closing at $25.17 (UUP). The dollar index (DXY) has moved above the long term resistance and progresses higher closing at 94.97. The stronger dollar remains in play. Talk of stimulus from the ECB put selling 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 had been attempting to build a base near the low, but is now treatening to drop lower on the supply data.¬†¬†The inventory data on Wednesday will add more insight.¬†Too much pressure on the downside to rally and the trading range is threatening to move lower is oil moves below $45… closed at $45.15¬†Monday.

News, events, earnings and central banks are causing more¬†speculation in the markets than clarity. Investors struggle with uncertainty¬†and that is keeping the current trading range in play. If the market can find a catalyst that is sustainable on the upside…. a break above the December high is completely a possibility…. however, if one does not materialize in short order, the downside is likely to return.¬†If Energy is the leading sector on the week… we don’t have leadership on the market currently, we have speculation.¬†This remains a high risk environment¬†and one to managed diligently.

@ RISK this week…

Commodities… 1) Copper (JJC) – broke to lows not seen since 2009. Long term downtrend is confirmed with $29.60 support. Watching for bottom to be established or opportunity to add new short position. Bounced to Start the week and could settle into base to set up the trade. 2) Crude Oil (SCO) – ¬†hitting 2009 levels as well on the downside. Supply data brought the downside back into play after attempting to build a base. Short side is in play short term and short trade is trade again if we break below the two week base. 3) Natural Gas (KOLD) – Testing the 2012 lows and not looking promising relative to the upside. Short trade if we break support at $14.50 on UNG. ¬†4) Gold (GLD) – made an attempt to move back above the $1300 mark, but failed to hold it. Watching for short test and move higher. If it fails the short side trade will get attention from traders and speculators. Watching the pennant pattern. Silver (SLV) – Ran to the 200 DMA and is testing the resistance. Upside continuation we can add to the position; downside look for short trade. $16.50 is level to test for now. 5) Agriculture (DBA) dumped Friday breaking the January 2014 low and is looking at 2009 levels. Shorts are in and the downside is ready to accelerate based on charts. MOO continues bounce off the low? That is the opposite of what the commodities, and it is worth breaking down the ETF to find the leaders. The sector is in a two year trading range.

Utilities (XLU) – warnings from everywhere about the overbought technical condition of the sector. There are also warnings about valuations. Fundamentally the P/E ratios are elevated, but if the commodities that run the electric facilities are getting cheaper wouldn’t it follow that profits would rise? This is a sector to watch, but the upside may still be in play for awhile. Manage your risk accordingly, but let your profits run in the stocks. MONDAY: Doji on the close and looking for decision in direction.

Euro Currency (EUO) – the euro continued lower this week on the ECB stimulus plans falling 3.1%. The short trade in currency in in play and likely to be the best trade based on the current willingness of the ECB to provide stimulus for growth. Good luck with that approach.

Financial Sector? (FAZ) – The downside in financials is in place micro-term. Earning started the reversal and speculation keeps the trend in motion. The question: will banks find a way to overcome the expense of regulations and return to profits? Head & shoulder pattern broke lower, tested the 200 DMA, and tested again to close the week (XLF). Banks (KBE) are the driver on the downside and I would look for the short side trade if this bounce doesn’t hold.

Sector Trends to Trade:

China (FXI) – breaking higher on improved, albeit slower, economic data. Government stimulus is in motion as well. Traders are hopping it all works and willing to put money at risk on the belief. The upside trend off the October low remains in play and the break above the September high was confirmation of the upside move.

Emerging Markets (EEM) – Free money for everyone! The global stimulus is favoring the emerging markets… at least in theory. The break above the $39.50 resistance was the follow through to the bottom reversal started in December. This is all positive short term and offers upside opportunities worth trading from a short term perspective. Risk management is vital to any trades in this sector short term.

Europe (IEV) – ECB stimulus talk reversed the downtrend and put some upside hope into the sector. Proof is in to pudding as they say and we will look for some upside follow through this week. $42.50 entry level is in play and looking for move through the $43.50 mark an then to target at $45.25 near term.

Treasury Bonds (TMF) – yields continued lower as money flow continues to rise into the bond. Rotation from the action globally and the US investor is adding to avoid risk. Some topping in the bond this week, but the outlook isn’t changing based on the actions taken globally. Look for more rotation and steady as it goes.

Strategies Watch List:

  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 settled, but the rumblings of uncertainty are still in the background. The slight optimism voiced on the ECB is still a question mark on sustainability to stocks momentum. Manage risk with your stops and see how far it will take us.
  2. SIRI – entry $3.70. Weekly chart break through resistance in consolidation pattern. This is the third attempt to break through this level since September. $3.90 Target and $3.55 stop.

Pattern Trade Tracking:

  1. VMW – entry $83. Bottom reversal and trend break. Attempted the move higher on Friday and tested. Looking for upside to follow through with technology leading. Stop $80.
  2. INFI – entry $15.65. micro-downtrend break. biotech remains a leader and setup is good. Stop $14.90.
  3. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  4. VIPS – entry $23. Flag. Break above short term resistance and trade to $24.75. Stop $22.
  5. FEYE – entry $34.50 test of move Friday. Trading range breakout $34.20. Watch the confirmation of the move with max entry at $35. Stop $33.
  6. 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 $10.85.
  7. 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. Stop $135.
  8. SPXL – entry $85.50. trendline break and bottom reversal swing trade. Stocks trying to move higher again after test of support again. Stop $83.75.
  9. 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. Stop $39.90.
  10. 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. Stop $$58
  11. 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 $100
  12. GILD – entry $104. bottom reversal and trendline break. Fundamental news driving the upside reversal. Trendline break entry point. Stop $102.40.
  13. TSEM – entry $13.45. descending triangle. Confirmation break on the upside from consolidation and uptrend resumption. Stop $13
  14. 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).
  15. 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: 
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:¬† 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. Looking to buy shares on break above $39.20. (Added 500 shares at $39.20¬†on¬†1/9.) TODAY:¬†Resistance at the $39.50 mark broke again and watching for follow through on upside.¬†Watching for trading opportunity on the position on the break higher.¬†
  • 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:¬†¬†Hit the resistance at $16.20 and struggling to find any upside momentum.
  • 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 and moved up to maintain the uptrend.