Trading Notes for Today, January 29th

Jim’s Market Notes:

Not a good day for the broad indexes as investors give up early gains¬†on the worries again relative to earnings, economic data, and global issues both economic and geopolitical challenges. Then came the end of the FOMC meeting and the statement from the Fed Chair Yellen being optimistic about the US economy and the economy¬†being ready to hike interest rates this¬†summer. That was enough to spark selling as¬†the NASDAQ 100 index opened higher 1.5%, but managed to close down 0.6% following the FOMC meeting. The S&P 500 index opened up 0.6% and closed down 1.3%. Bottom line… not pretty at all and the move lower brings the previous support lines back into play and all the speculation and uncertainty that accompanies this move.¬†The VIX index jumped back to 20.2 after the FOMC meeting as well showing the increased emotions from investors. The initial reaction was¬†to sell and run, but we still have to determine what the outcome will be short term. The six week trading range remains in play with the new sentiment in direction to test the support of the current trading range.

SPY broke the $202.50¬†support and the¬†move lower¬†could¬†test the $198.50 mark (1992 index). This week has taken on the selling bias and that is primarily due to earnings… my opinion.

QQQ broke¬†the 101.40 support and the next level is the previous low $99.60. Remains in the down trending channel and the large cap selling¬†continued on Wednesday. Earnings have produced the biggest pressure this week, but the Fed didn’t help yesterday. After-hours¬†Facebook showed solid earnings, but the stock traded lower on the rise in expenses. Qualcomm is adding to downside as well and this will put additional pressure on the technology sector. XLK is nearing support at the $39.85 mark of which a break could serve as the catalyst to the downside extending.

XLF blew through the $23.50 support again and back to the 200 DMA. This another key sector moving forward. The downside move could trigger short activity and accelerate.

Futures are flat heading into the early morning, earnings are still not helping after-hours and the sentiment shift favors the negative as investor nerves are frayed. I feel like we are watching a horror moving and waiting for the killer to jump out of the dark. Be patient as this unfolds today and keep your stops in place.

Sector Trends to Trade:

Crude Oil added to the downside on supply data. This puts the short trade in UCO back in play. Break of support is a negative and looking for oil to potentially test the $40 mark on the data.

Semiconductors are setting up the short side of the trade with a break of support from the range. SOXS is the leveraged short trade and my choice as the downside will accelerate if we break support.

Moving to the next level of support puts us in watch and see mode. Do the sellers gain control and push the indexes through support and down to test the previous lows? The emotions are high and the selling in response to the FOMC may be a catalyst for such actions. Willing to watch and see today.

Money Management Strategies Links:

  1. S&P 500 Strategy РAdded Watch List & Stops
  2. Sector Rotation Strategy– Stops
  3. ONLY ETF Strategy– Added Watch List & Stops
  4. ONE EGG Strategy – Too Much Chop
  5. Pattern Trading Strategy – Below
  6. Long Term Strategy – Below

Pattern Trade Setups:

  1. Volatility is back as concerns over earnings and data continue plague the outlook. Emotions stirred again and sold lower on Wednesday FOMC meeting. Manage risk with your stops and see how far it will take us.
  2. Short side setting up for trades, but risk remains an issue without confirmation.

Pattern Trade Tracking:

  1. INFI – entry $15.65. micro-downtrend break. biotech remains a leader and setup is good. Stop $14.90.
  2. SKUL – entry $10.40. Ascending triangle. $10.25 breakout on Friday and follow through for entry. Stop $10.
  3. VIPS – entry $23. Flag. Break above short term resistance and trade to $24.75. Stop $22.
  4. 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.
  5. 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.
  6. 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 – HIT STOP
  7. GILD – entry $104. bottom reversal and trendline break. Fundamental news driving the upside reversal. Trendline break entry point. Stop $104 – HIT 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: 
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.
  • 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:¬†Sold lower with the rest of the large caps… watching how this unfolds near term.
  • 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 lower again and headed to support?
  • 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.¬†Watch and see how broad indexes move and impact going forward.