Trading Notes for Today, January 30th

Jim’s Market Notes:

The month of January comes to and end today and it has not been pretty. The S&P 500 index is now down 1.8% for the month, but remember is rallied 1% yesterday! Depending on how this unfolds today it is likely to end in the negative column. Amazon, Google and Visa did their part to help by pushing through earnings higher last night. The VIX index made move down to 18.7, Gold fell 2.1% and oil managed to gain 0.2%. Not exactly the picture of health for investors. But, it could be worse! The good news in all the uncertainty and bad news the indexes have managed to remain in a trading range as investors still show signs of hope/optimism about the outlook. Bull markets die hard… even when the facts are staring people in the face. There is always the hope it will turn around soon. As we say goodbye to January the hope of a better February is already in the headlines.

AMZN – beat estimates and traded up 2.5% on the day, but is up 14% after-hours on earnings that surprised all. The are still spending heavy, but the sales data was impressive despite revenue coming shy of expectations. The bottom line improvement in earnings was the focus versus the spending. Like NFLX, there could still be upside despite the big jump on the news. Watching. This is a good sign for the retail side as well with XRT and XLY benefiting.

GOOG – missed the earnings number and revenue. The remaining challenge is the main advertising search model is weakening faster than new models are growing the outlook remains in question for the stock. It did manage to go from a 3% loss to 2% gain after-hours, but there is still plenty of work for the company on the horizon. Watching to see if it can hold the upside in today’s trading.

XLF – Bounced off the 200 DMA to hold support, but the sector remains under pressure following earnings, and down 5.4% in January. Maybe Visa beating earnings will help the sector today. Watch SKF, short financials ETF for a possible break above $55.30 if the sector continues to weaken.

XLK – Technology is under pressure from the large cap stocks on earnings and the outlook for the economy. Warnings aplenty about the weakening outlook and the strong dollar hitting margins. $39.85 support held on Thursday. The BRCM earnings beat after-hours could lend a hand to the sector near term. Break is bad for markets, bounce would help the bulls.

SPY – The index did bounce off support and post a positive gain on the day. However, the downside threat is still present. I am posting SDS as a possible trade today if the negative sentiment returns with a purpose.

QQQ – The index tested lower despite positive earnings from biggest of stocks. However, there is the internals that continue to show negative sentiment building. I am posting QID as possible trade today as well should the sellers return and want to take their shot at the index short term.

Earnings have been one big disappointment thus far as an overall impact. New revisions to the first quarter estimates are now pointing to zero… yes, zero growth in the first quarter for corporate earnings estimates. This is an issue we have discussed for the last four quarters. Growth has been declining each of the last three quarters and the fourth quarter isn’t looking good. With this estimate now in place the question is how will it impact the Fed’s view of the economy, how will investors treat the current valuations going forward? This remains an issue to track and understand the potential impact to stocks on a broad basis.

Futures are pointing lower and we could test support again if the unfolds today. Stops are essential going forward to protect against a shift in thinking by investors. Trading range develop for a reason… the catalyst that determines the direction up or down is clear after the fact, but so are the clues leading up to the catalyst. Weaker data is all over the spreadsheets and it is getting weaker in areas that matter… earnings and revenue. Set your stops manage your risk.

Be patient as this unfolds today and keep your stops in place and look for possible downside opportunities.

Money Management Strategies Links:

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

Pattern Trade Setups:

  1. Volatility is back as concerns over earnings and data continue plague the outlook. Bounced on Thursday, but challenges facing investors looking forward remain. It is Friday and we will watch how this unfolds going forward.  Manage risk with your stops and see where we go today.
  2. SDS – entry $22.90. Made move toward the break higher and retreated. Looking for that to happen again today. Patience as this is a hedge against our positions on the downside.
  3. QID – entry $40.70. Made move towards the resistance and retreated as well. Could happen again today despite earnings positives. This is hedge as well against positions and looking for the short term risk protection.

Pattern Trade Tracking:

  1. INFI – entry $15.65. micro-downtrend break. biotech remains a leader and setup is good. Stop $14.30.
  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. HIT STOP.
  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. TSEM – entry $13.45. descending triangle. Confirmation break on the upside from consolidation and uptrend resumption. Stop $15
  7. 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.
  8. 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. Rallied back Thursday… watching for the move higher.
  • 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 large cap worries… 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 support again and¬†investor resolve.
  • 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.