Liam McMahons Stock Newsletter

Sponsored by Wright Time Capital Group

Volume 1 Issue 2 January 15, 2014

WRIGHT TIME CAPITAL GROUP January 15, 2014 Authored by: Liam McMahon

Liam McMahons Stock Newsletter

Sponsored by Wright Time Capital Group

Introduction
Welcome to my stock newsletter. For those of you that dont know me, my name is Liam McMahon and I am a strategist at GlobalFxClub.com, a subsidiary of Wright Time Capital Group. While my work over at GlobalFxClub.com is mostly dedicated to forex, I have been trading stocks since 2008 and though I share a lot of my stock setups on twitter (@Duke0777), Ive decided to formalize the process in an effort to provide more in-depth fundamental and technical analysis. I will be focusing primarily on US equities, though I will also discuss some foreign indexes, especially the major European markets and the Japanese Nikkei. The goal of this newsletter is to provide in-depth analysis and point out both longer and shorter term trading and investing opportunities in the US stock market. I will be rating stocks as buy, hold, or sell and I will provide possible targets for the setups that I see. I will also be providing time frames to consider on all the stocks I analyze. The newsletter will focus on the clearest opportunities out there, not necessarily the most popular stocks. If I dont see a clean setup on Apple, I wont be talking about Apple, regardless of how many people love talking about it. I will be releasing the newsletter twice a week, on the Sunday before the trading week starts and then on Wednesday morning before the US session begins. Thanks for joining me on this exciting new venture; I look forward to communicating with you throughout the coming weeks, months and years. You can contact me on twitter (@Duke0777) or at LMcMahon@wrightinv.com

Liam McMahons Stock Newsletter | 1/15/2014

Disclaimer
Liam McMahon and Wright Time Capital Group LLC are not paid to promote these stocks. Investing in the stock market is a challenging venture and entails a substantial amount of financial risk. Investing in stocks may cause you to lose some or all of your investment and should only be done with risk capital. Always trade on your analysis and within your own risk parameters. Wright Time Capital Group and Liam McMahon are not responsible for any loss you sustain based on any advice distributed through this newsletter or through any of our various social media outlets, email, and any other type of communication, electronic or otherwise. All analysis and recommendations are solely the opinion of Liam McMahon and Wright Time Capital Group team, we can be wrong like anyone else. Please understand and accept the risk involved when investing. These recommendations are intended for educational purposes, to help you understand different types of technical and fundamental analysis. Only trade with money you can afford to lose.

Liam McMahons Stock Newsletter | 1/15/2014

Weekly Recap
Monday Markets opened lower on Monday after the Japanese Yen strengthened overnight, dragging down Nikkei futures and bringing the S&P 500 with it. European markets finished green which helped US markets to briefly turn green before a midmorning sell-off drove stocks lower. By the end of the day the S&P 500 had tumbled 1.27% while the NASDAQ lost 1.48%. Financials traded lower ahead of their key earnings report, with XLF shedding 1.5%. Transports dropped 1.4% and retailers were also hard hit, XRT losing nearly 3% on the day on strong volume. Both S&P and Dow futures broke minor support levels, but follow through will be key tomorrow with earnings season getting into full swing. Tuesday Tuesday was a big day for some key names in the financial sector, especially J.P. Morgan (JPM) and Wells Fargo (WFC) both of whom reported earnings before the bell. J.P. Morgan saw their fourth quarter earnings drop 7.3%, but the report still topped analysts expectations. Some of the drop came from onetime expenses, namely legal fees and penalties paid to settle the myriad of lawsuits that had been plaguing the bank for the past few years. Adjusted earnings were $1.40 per share on $24.11 billion in revenue, higher than the $1.35 on $23.67 billion expected. Investors rewarded J.P. Morgan and the stock opened about 1.25% higher. Despite the higher numbers, I still have some significant concerns regarding the health of J.P. Morgan and the other banks. Morgan saw its mortgage loan origination fall 54% from the year prior and 42% from the third quarter as higher rates continue to hurt the mortgage business. While this weakness was offset by stronger consumer and commercial banking business, such a significant drop in mortgage profits may bode ill for the housing sector going into 2014. Wells Fargo saw their stock drop about 1% near the open despite a higher than anticipated EPS thanks to the same drop in mortgage activity. Wells Fargo is the leader in the mortgage sphere, and the bank saw their applications for mortgages fall to $65 billion from $152 billion a year prior, which dropped their quarterly revenue down to $20.7 billion from $21.9 billion a year ago. Investors have viewed this decrease in mortgage activity as a possible trouble spot for Wells Fargo, a smaller bank with less diversification, and have sold off some shares accordingly. The sell-off didnt last however, and Wells Fargo managed to push into the green before the end of the day.

Liam McMahons Stock Newsletter | 1/15/2014

The Indexes
S&P 500 futures bounced solidly off of the 200 period EMA on the four hour chart and recovered a good deal of the losses sustained since the 1846.5 high, 1840 through 1847 is the next resistance range, but right now the index looks relatively constructive. Only a decisive break of 1800 really threatens the bull market.

S&P 500 Futures (4 hour chart) NASDAQ futures also found support at the 200 period EMA on the 4 hour chart, and managed to push back into the ascending channel that dates back to early November, suggesting the potential for a run at the channel top, which sits around 3650. Only a move below 3500 seriously threatens the bullish trend.

NASDAQ Futures (4 hour chart) Dow Futures managed to bounce just ahead of their 200 period EMA on the 4 hour chart, and pushed higher, breaking back into the bullish pennant pattern. Of the three major indexes, the Dow looks the least bullish (emphasized to demonstrate the difference between this and outright bearish), and a move up to 16.4k
should be met with decent selling pressure. A break higher from this level would, however, create a very strong bullish signal.

Liam McMahons Stock Newsletter | 1/15/2014

Dow Futures (4 Hour Chart) The only fly in the ointment right now for me is the Japanese Nikkei. I tend to pay more attention to the Nikkei than I do to any other foreign market because of the effect it can have on US futures. The Nikkei broke some key levels two nights ago, and while it has managed to push higher since then, it hasnt quite manage to reclaim 16k which is my bull / bear line in the sad. Major resistance on the Nikkei comes in at 15.8k 16k, while the swing low just south of 15.5k stands as support.

Liam McMahons Stock Newsletter | 1/15/2014

Nikkei Futures (4 hour chart)

Trade Idea Update

XRT broke its support level during Mondays sell-off and has not yet managed to reclaim its key level, so right now this stock is more of a short than a long. EQT also broke below its triangle support on Monday before rallying back above it on Tuesday. If you were taken out of the trade after Monday, reentering here is plausible, with a stop below the lows, still targeting a move on those 94.42 highs. SO continues to consolidate below the key breakout level the long setup mentioned last issue has yet to trigger, but I remain very interested in this stock going forward. See previous issue for more. GE broke down nicely on Monday, and while it recovered some of its losses on Tuesday (up 0.9%) it remains below that key wedge support. The cloud is currently keeping GE bid, but 27.30 remains a good level to sell against. The short setup in the previous issue is in play and valid. M continues to consolidate nicely after that large gap up the original setup mentioned last issue remains valid, but more aggressive traders may look to find a breakout higher before the gap fill if something compelling comes up, Ill mention it in a future issue.

Automotive
The Detroit Auto Show is in full swing, which means auto names are a bit more active than they otherwise would be. The best setup I see in this realm right now is Tesla (TSLA) which jumped 15.75% today on the news that fourth quarter sales were the highest in company history, as Tesla delivered nearly 7000 vehicles in quarter 4, beating their guidance by 20%. While Im usually fairly reluctant to chase a 15% move, I see a very solid technical setup in TSLA that is definitely worth watching. The rally today was launched by the bottom of the cloud, and todays bullish engulfing candle pushed price above a key descending trend-line and above the cloud top. This type of move usually generates follow through, so ideally well see a small retracement this morning to buy into.

Liam McMahons Stock Newsletter | 1/15/2014

TSLA CALL: BUY ENTRY: BETWEEN 161.27-150.00 (DEPENDING IN RISK TOLERANCE) TARGET 1: 180.00 TARGET 2: 200.00 TIME FRAME: 3-5 WEEKS INVALIDATION: DAILY CLOSE BELOW 148.00

Liam McMahons Stock Newsletter | 1/15/2014

Ford Motor Company (F) pushed higher on Tuesday by 1.8%, continuing its recovery after the major gap lower on 12/18/13. Price is now pushing into a major resistance zone, however, and should be on the list of short sellers. The open gap coincides nicely with the 61.8% fib of the decline from 18.02 to the recent low of 15.1 and the bottom of the cloud. These three areas provide a very solid confluence for possible shorts.

F CALL: SELL ENTRY: BETWEEN 16.56 16.91 (DEPENDING IN RISK TOLERANCE) TARGET 1: 15.50

TARGET 2: 14.50 TIME FRAME: 3-5 WEEKS INVALIDATION: DAILY CLOSE ABOVE 17.20

UPS
A quick look at a major market bellwether gives some cause for concern. UPS can be a very good indication of the health of the global economy as fewer packages shipped means less business being done (thats an oversimplification, but you get the point). Fortunately for the market, UPS stock price isnt necessary a bellwether for the rest of the markets, because right now the stock looks to be in trouble. After making a high at 105.37 back on 12/30/13, the stock has headed south, touching a low of 99.63 yesterday, before managing a decent bounce, closing higher by 0.7%. Price is now encountering some major resistance however as the top of the cloud coincides nicely with a retest of the broken head and shoulders neckline. Should this head and shoulders pattern mark a true top in UPS, then the downside targets are significant. Look for early selling pressure (preferably with volume) early in the session.

UPS CALL: SELL ENTRY: 101.93 101.4 TARGET 1: 95.00 TARGET 2: 92.00 TIME FRAME: 2 WEEKS TO 3 MONTHS INVALIDATION: DAILY CLOSE ABOVE 102.40

Financials
It has been a busy week for some key banks with JPM, WFC and BAC all reporting earnings. You can check out Tuesdays summary, above, for JP Morgan and Wells Fargo. Bank of America also reported solid earnings, beating analysts expectations. BAC reported an EPS of 29c a share on revenue of $21.7 billion, against expectations of 26c per share on $21.24 billion. Bank of America reported a drop in their mortgage business, as was expected, especially considering the similar drop reported by JP Morgan and Wells Fargo. Despite this, BAC looks good going forward and has been trading up around 2% ahead of the market open.

Liam McMahons Stock Newsletter | 1/15/2014

One of the clean financial setups out there right now is in WFC which managed to erase a 60 cent loss and close Tuesday in the green. While I remain concerned about the future revenue of Wells Fargo thanks to the significant decline in mortgage applications, the fact remains that they had an extraordinary year, and they may be well poised to outperform much of their competition in 2014. Higher rates, though they may hurt mortgages, will still make it easier for banks to be profitable going forward. From a technical perspective, WFC bounced off a major ascending trend-line dating back to early October and that trendline hold, combined with the strong bounce we saw late in the session yesterday sets up an attractive medium term long opportunity.

WFC CALL: BUY ENTRY: MARKET 45.21 TARGET 1: 47.00 TARGET 2: OPEN (TRAIL STOPS HIGHER) TIME FRAME: 2 WEEKS TO ? (STAY LONG SO LONG AS TREND-LINE HOLDS) INVALIDATION: DAILY CLOSE BELOW 44.85
Liam McMahons Stock Newsletter | 1/15/2014

Conclusion
Markets continue to prove their resilience this year as they shrugged off what was a very messy Monday with a pretty terrific Tuesday. The major indexes held support levels and (other than the Dow) look very well set to rally up to new highs. The weakness in the Japanese Nikkei is concerning, and bears watching, but so far US markets continue to march to their own beat. There are good opportunities out there, to the long and short side, and keeping yourself well hedged is never a bad idea. Keep an eye out for quicker, smaller trades the rest of this week as markets have been a bit unsettled lately. So long as SPY remains above the low it set yesterday (181.34) there will be strong pressure to try and squeeze markets to a new record high. If youre going to be short, pick underperforming stocks, and stock with clear bearish setups with clear stops, then make sure you use your stops. Dont be afraid to take shots to the short side, but dont get stubborn, were still in a major bull market.