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I wanted to take some time to talk about one of the most power components of Rob Smith’s In the Black strategy that I used to capture a whopping $41 profit in Pharmacyclics yesterday. Let me preface this by saying that I had no idea the firm would explore a sale, but using this strategy got me into the stock and allowed me to hold on until the news broke and capture a large move.
An inside day occurs when a stock’s trading range stays entirely within the previous day’s trading range, which is a simple enough explanation from a chartist’s perspective. But let’s think about what an inside day means from an economic perspective. An inside day means that buyers nor sellers could establish an edge in the marketplace. The demand side of the asset could not establish a higher market value, while the supply side could not establish a lower market value. In other words, buyers and sellers have created an equilibrium in that asset, which means that when an inside day’s high or low price is breached, an entire participation group from the inside day is on the right side of the trade. For example is Stock ABC has an inside day with a high of X and a low of Y, and the following day ABC moves higher than X, every buyer of ABC from the previous day is on the right side of the trade, while every seller is on the wrong side. It’s a simple enough explanation, but many market participants seem to forget the supply and demand aspects of trading, since a stock is an asset that is no different than any other, in the simplest of terms.
So let’s look at PCYC. On 2/24, PCYC put in an inside day with a high of 188.70 and a low of 183.42. PCYC is above the monthly and weekly opening prices, meaning buyers are active in the stock, so there’s reason to believe that stock will move higher if 188.70 is breached. When PCYC opened on 2/25, it pierced through 188.70, and I began buying around 189. Within the first hour of the day, PCYC ripped to 198, and I was able to take some profit along the way. The stock pulled back as low as about 192.40, but I had taken profits on the initial up move and was comfortable holding. Later that day, news broke that PCYC may be exploring a sale, catapulting the stock and triggering a halt. I quickly pulled up my monthly chart to evaluate PCYC’s broadening formation.
If you click the chart, you’ll see that PCYC has two key triangle resistance levels on its monthly chart – with the first being around 188-189. Having broken through this level, I turned to the next highest point for a feasible exit once the halt was lifted, which looked to be around 230. Within minutes, PCYC had re-opened, and the stock moved as high as 231.09, with my sell order being filled at 230. In strat-talk, we call this price movement “to the tick-tock-ticky” on the broadening formation, as you can see the up move in PCYC came almost exactly to the top of the triangle. While there was no way I could have predicted the completion of this move in one day, the In The Black strategy enabled me to identify a buy point on PCYC, as well as identify an exit strategy when news broke. As they say, chance tends to favor the prepared.
The other big mover from the day was Lumber Liquidators LL. This stock had earnings and gapped down in the morning before rallying to new highs. News broke that LL was to be the subject of a negative 60 Minutes report and a potential investigation into the firm’s business practices, and quickly was swept from nearly $70 to $52 in less than an hour. Unfortunately, I did not catch any of this initial down move, but I began to watch LL as it built inside bars on the 30 and 60 minute charts. LL put in three consecutive inside bars on the 30 minute chart, representing consolidation and the building of an equilibrium. The third inside bar was breached to the upside, but knowing that the stock was red on the month, the week and the day, my bias remained to the downside. After briefly breaching the inside bar to the upside, LL turned lower, setting up a reversal bar. A reversal bar occurs whenever an inside bar is breached to one direction, fails, and closes back within the range of the inside bar. In this case, the inside bar was breached to the upside, failed, and closed inside the range of the previous bar, so I looked for an entry to the downside. I got in early at 57.30, and the reversal strategy kicked in when LL took out 56.36, the bottom of the reversal candle on the 30 minute chart (see below).
From here, I was able to take some profits on the way down while trading around the position (adding and subtracting) using subsequent inside bars on the 5 minute chart. Looking at the daily chart, I identified potential downside as low as $50 (or thereabouts – see below). Though I continually walked my stop down as LL moved lower, I placed a bid to cover my short at $50.30. LL moved steadily lower throughout the afternoon, breaching below $50 by the end of the day, filling my order at $50.30 and netting $7 from my original entry (with several additional shorts and covers along the way).
This blog was started with the best of intentions – like many ideas in this world – but life has a way of taking over. In the last 18 months, life has changed dramatically. I’ve taken on much more responsibility at my day job, rented an apartment with my girlfriend, bought a dog, and (most importantly) proposed to my girlfriend and am in the midst of wedding planning.
However, this space was meant as one to examine, critique and discuss the markets, investment strategies and trading methodologies, and that’s exactly what I intend to do with this re-launch. My day-to-day approach to the markets has changed dramatically over the past several months, adopting a new strategy that I’ve been learning and tweaking for several months. It’s far from perfect, but I wanted to share its basic principles.
Since May 2014, I’ve been learning a strategy developed by veteran market technician (and fellow Chicagoan) Rob Smith, who operates a trading room at T3 Live. The foundation of Rob’s strategy is simple: eliminate market noise, and focus on aspects that we can define, quantify, analyze and execute on. The pillars of Rob’s strategy are simple:
1) Time Frame Continuity
2) Broadening Formations
3) Inside Bars
These principles are not in order of importance – each principle has equal value within Rob’s strategy. In order to identify high probability, low risk/high reward trade set-ups, it is imperative that we evaluate a stock (or any security, for that matter) in the context of these three principles. I will touch on each concept briefly, but the goal of this blog is to expand on this strategy gradually, and perhaps convince you to check out Rob’s room and join the community of “In The Blackers” that he has fostered. Finally, in today’s entry, I’ll examine these three concepts in the context of a trade I executed today.
Time Frame Continuity
When we discuss time frame continuity, we want to evaluate a stock in terms of the four major time frames: month, week, day and hour. Identifying how a stock has performed on a monthly, weekly, daily and hourly basis allows us to identify whether buyers or sellers are a) active on a given time frame and b) firmly in control of that stock’s particular movement. Ideally, we want to identify stocks that are moving in the same direction on all four of these time frames. In other words, the best opportunities tend to lie in stocks that are trading above the opening price registered on the current monthly, weekly, daily and 60 minute candlestick. If a stock is above all of these opening prices, we consider this stock to be in full time frame continuity to the upside. Buyers are firmly in control of this stock, and we should look for opportunities to enter this stock long. The converse can be said for the downside: when a stock is trading below the opening price of the current monthly, weekly, daily and 60 minute bar, we consider the stock to be in full time frame continuity to the downside.
While many traders will talk about stocks making higher lows and lower highs, one thing that Rob has identified in his years of studying charts every night is that securities will always trade in a series of higher highs and lower lows. Even if a stock is in a steady uptrend from, say, $80 to $100, somewhere along the way that stock will make a series of higher highs and lower lows on some time frame. While this may seem irrational, it helps to analyze this statement from the perspective of supply and demand. When a stock reaches a new high, it means that a new group of buyers have been identified above the previous high. Eventually, that buying pressure exhausts, and the stock retreats. This new group of buyers becomes trapped, and this will create pressure to the downside, either on a short-term time frame or a long-term time frame. Inevitably, the stock will eventually get pushed towards a previous low, whether it’s a recent low on a 5 minute chart or a major inflection point on a monthly chart. As the stock pushes towards this low, those buyers at highs will succumb to the selling pressure, drive the stock to a new that is bought up, and the stock will resume higher until it reaches the next new high. This series repeats itself, which creates a formation that can be fit into a triangle.
The first two principles are crucial in terms of understanding whether we should be looking for long or short opportunities. When a stock is near the bottom of a broadening formation and above the opening prices on the major time frames, we know that there is a possibility that all sellers who wish to sell have executed their orders, and the stock could resume upwards. In order to initiate a position in a stock, we look for inside bars. The inside bar is simple – the previous bar’s high and low prices are completely with the range of the bar that was printed just before it. These bars represent an equilibrium in trading: neither buyers nor sellers are in control of the stock, but a resolution is coming. We can look to initiate a position when that equilibrium breaks. In other words, when the high of an inside bar is breached, we can look to buy, and vice-versa on the downside. When game planning for a particular day, I tend to start by looking at stocks that have put in inside days – meaning the day’s high and low price are entirely within the previous day’s trading range.
The Strategy in Action
Today, one of the stocks I planned to focus on was Zillow Z. Zillow, an internet stock that will occasionally trade sympathetically with housing stocks (given the nature of Zillow’s business as a real estate search engine), put in an inside day yesterday (2/10), meaning an equilibrium had formed. Let’s look at $Z on the monthly and weekly time frames.
Looking at the monthly and weekly charts, I can see that $Z is at the bottom of a broadening formation on both time frames. $Z is building an inside month, which isn’t ideal, but it is above the opening price on both the monthly and weekly time frames. Based on this information, my bias today was on the long side, so I began to look for entries as soon as the market opened. Opportunities (inside bars) can be found on any time frame, but the idea is to align as many signals as possible to increase your probability of success. Let’s open a zoomed in, 1-minute chart.
When $Z opened, it put in a 1-minute hammer, followed by a 1-minute, inside bar. 1-minute bars are not ideal entries, but if a stock is volatile enough, they can be used as entry signals. My initial entry was small, and I got long at $103, when the inside 1-minute bar broke to the upside. At this point, $Z had still not broken the inside day high of 103.28. Once the stock broke that level, I added more long at 103.40, and the stock began to work higher towards $104. For me, I like to lock in some profit as quickly as possible, then look to re-add or place a stop either at break even or at some lower level of profit. Now, let’s look at the 30 minute, 60 minute and daily charts to identify where $Z could potentially go.
You can see on the 30, 60 and daily charts that $Z was trading roughly in the middle of its broadening formation in the beginning of the day. Knowing this, I took partial profits at $104.25. However, the stock began to consolidate around the $104 level, and began building more inside bars on the 5 minute chart. $Z built inside 5-minute bars at 8:55 CST and 9:05 CST that I was able to make two additional buys on. From there, the stock ran towards my “triangle resistance” in the 30 minute broadening formation of roughly $106, and I scaled out at $105.50. $Z ended up building another 5-minute inside bar at 9:15 CST, and I was able to get back in the stock and ride it through $107. At this point, the stock had run as far as my 30 and 60 minute charts had suggested, and I was satisfied to take roughly 3 points out of $Z in the first hour or so of the day. $Z actually rallied close to a second triangle resistance on the daily chart before retracing much of the move in the afternoon. Using the strategy, there were also opportunities to execute on the short side, but I’ll spare you further reading.
In the future, I hope to highlight trades like this in the realm of Rob’s strategy, and will likely provide a market commentary post or two along the way. Your feedback is always welcome, either in the comments section or at email@example.com. It’s great to be back, and thanks for reading!
The Summers Rally has come and gone. Given the events of today’s session, it’s difficult to know where we are headed. It was not difficult to fade this rally as the market’s reaction to the news that the hawkish Summers was out of the race for the Fed chairmanship was completely overdone, particularly given what we believe are misconstrued differences between Summers and the de facto front runner Janet Yellen. We made some money playing today’s bounce both ways, and it certainly feels like this market is teetering a little bit after we had virtually no conviction in this morning’s rally.
Before we continue with the post game, we’d like to extend our most heartfelt condolences to those affected by the tragedy at the Navy Yard in our nation’s capital today. There is a time and place to debate how and why tragedies such as these continue to plague both America and the entire world, but for now let us simply honor the fallen and give thanks for all we have been blessed with in this life.
Today’s aptly titled post game simply must lead off with a discussion of Apple, whose blunders in the last week have cost the one-time Wall Street darling roughly $60 per share in market value. Many were caught up in today’s onslaught trying to shoot the falling apple (William Tell puns), only to be washed out during the session’s prolonged selloff. Today we were able to capitalize on the mid-day lull in the stock that allowed us to scalp some gains in weekly call options. We were also able to capitalize on the late day sell off by utilizing weekly put options as $AAPL slid below $450. While there are those that felt the move to the $470 level was overdone, the downward momentum has shown no signs of abating, and the company continues to bewilder the Street with the seemingly misplaced iPhone 5C and no data regarding iPhone preorders. Our bull case for Apple was shot once we saw the pricing of the 5C, which essentially eliminated the possibility of a China Mobile deal anytime soon. We have no choice but to seriously question whether Apple’s growth days are over, as the smartphone market’s consolidation has been incredibly quick. For those of you that look to play Apple on an intraday or swing basis, you have to lean short here until the stock shows a serious change in its course of action. We engaged a few members on StockTwits tonight about whether we would lean long or short overnight. However, with the market in the position its in and the aggressive selloff in Apple, you simply cannot let a long or short bias get in the way of making money. While we think there is more downside in Apple to come, you need to let the trend dictate your behavior when your timeframe is short. Countertrend trading is virtually impossible to execute on a consistent, profitable basis, so if you’re playing Apple long in this downtrend, be nimble, use stops and TAKE PROFITS.
$AAPL is in a world of hurt and is perched on its 100-day moving average. It barely held that level today and an open below that level tomorrow could trigger a major flush to the gap area around $434-$435. Again, this looks like an incredibly compelling short candidate in the short term, as investors will likely race to the exits as momentum picks up to the downside (much like we saw today). If Apple can somehow consolidate at this level and form a base, perhaps the story changes. With that said, it’s hard to have much conviction to the upside, if any.
As we stated before, US equities are in a precarious position, particularly given the slow grind down we saw today that literally spanned the entire session. $SPY posted what many call a black candle, as the market essentially opened on the highs and never advanced beyond that mark. If the bulls want to stay in control of this market, they need to see some consolidation at this level before taking out today’s highs. An open below today’s close could lead to increased selling pressure and a fill of today’s gap up, which could invigorate the bears who will undoubtedly be calling today’s market action an “island reversal.”
We have just three positions on heading into tomorrow’s pivotal session and the next iteration of “The Most Important Fed Meeting Ever.” We think there are certainly going to be setups that look good in both directions for stocks, but we continue to preach selectivity and profit taking as the market definitely feels like it is in no man’s land. Keep an eye on the tech names for a possible correction, as they have lagged the market the last few days and several names showed weakness today including $TSLA, $NFLX, $LNKD, $GOOG and $FB. Most of these names are in no man’s land and don’t represent convincing buying or short selling opportunities based on where they closed today. Watch for names like these to either hold or break through key levels before initiating positions in either direction, particularly when we have a number of headlines coming our way in the next few days that could alter the market landscape.
Hope everyone is having a good day thus far with the S&P breaking the 1700 level once again. We’ve seen a lot of action in some of the most prominent stocks of this rally, so let’s dive right in and talk about what’s moving, what we’ve traded, and where we’re headed.
We took off a lot of positions on the open as this stealth rally became not so stealth with today’s gap up following the Larry Summers news. We took profits in $NFLX and took off our $GOOG calls at a small loss (which would’ve turned into a big loss had we held them through the day). We’ve seen a lot of whippy action in several of the technology bellwethers that have participated in what has largely been a year long rally. Faceboook $FB, Google $GOOG, LinkedIn $LNKD and Netflix $NFLX all opened the day solidly in the green, but each name has given back those early gains and are now red, though the broader market S&P has held up well. Tech has really lagged today’s rally and this morning’s up move on the open didn’t have a terribly convincing feel, particularly now that we have seen a number of names sell off.
We traded Tesla $TSLA a couple of times and probably over traded the name a little bit. We made took some profits on the open as the stock traded higher to $170, booking roughly $1.50 per share. However, we gave back some of those profits when we tried a cute short and got stopped out for a loss of $.60 cents per share. We made a nice intraday bottom play in $AAPL by getting long the $460 strike weekly calls for $2.95 and exiting at $3.18, good for 7.8% profits. We also shorted IBM at $194 versus the highs of the day. IBM has proceeded to fade today’s gap up and is putting up an ugly bear pin bar on the daily chart as we speak.
The banks have been remarkably strong today, with Citigroup $C, Goldman Sachs $GS and $MS all up over 1.5%. The casinos are also acting well with names such as $WYNN, $LVS and $MGM holding some gains today after an extended run.
3D printing has been a very mixed bag today. $XONE is taking a whack following the expiration of its lockup period, while $DDD is more or less flat on the day. $SSYS is the industry leader as it has gained more than 3% today, though it is well off the highs.
We looked at shorting $LEN around the the $36 level but opted against it as the market was still holding up fairly well. If any of you took that trade, solid work on your part as the stock has sold off for much of the day.
We think today’s rally will provide an opportunity for some shorts, but we continue to advise prudence as we remain in an extremely strong market environment. However, this week’s events are likely to provide some volatility that could trigger a sell off both in specific names that could be affected by rising interest rates as well as in the broader market. A key level in $SPY is $170.90, the previous all-time high in the index. We failed to sustain a breakout above that level and could serve as a reversal if we fail to break above with conviction in the next session or two. It’s definitely more difficult to initiate longs today than it was on Friday, but that doesn’t mean this market is an easy short. Stay tactical, keep moving and take profits.
Good morning y’all. Well, not much has changed overnight as S&P futures continued to hover near the 1700 level. The buzz around a Janet Yellen appointment as Federal Reserve Chairman continues to grow, and some talking heads are speculating that we’ll get some direction from the White House in the next 72 hours as to who the next Chairman will be.
Interest rates will obviously be in focus quite a bit this week with discussions about not only the Fed Chairmanship, but also the September Fed meeting where the T-word will undoubtedly be uttered quite a bit. We’ve seen the 10-year knock on the door of 3% in the last two weeks before retreating in recent sessions to roughly 2.8%. Yields could take another hit today as the presumed hawkish candidate Larry Summers withdrew his name from the Chairmanship race yesterday, though we believe the market is overselling just how dovish Janet Yellen is (and, for that matter, just how hawkish Summers is).
On to the markets: There will be green. Just about everything that has traded at least one share this morning is in the green, and our longs are no exception. We peeled off our $DDD long last Friday for a nice one-day gain, but that 3-D printer is poised to move higher this morning. Our current longs $GOOG, $NFLX, and $FCEL all appear poised for a higher open. $NFLX has held up particularly well all year, and could be poised to break out this week above this year’s (and last week’s) high of roughly $315. The stock had a nice reversal off of the 8-day EMA on Thursday that could’ve provided entries and bounced again off of that level on Friday and sustained its gains.
Google looks strong this morning as well with the stock tagging $897. While the chart isn’t as strong as $NFLX, the stock provided another potential entry on Friday as it reversed off of the 8-day EMA as well. Look for a move over $898-$900 to send the stock to the $909-$913 level. If the stock can get through there, look for it to make a run at all-time highs once again.
Keep an eye on $TSLA, as the stock held up above its 20-day moving average despite being under some pressure last week from the shorts. The stock is moving higher this morning (duh) and could take another run at all-time highs if it gets continuation. The bulls have been calling the last few days a consolidation, while the bears are saying the stock is out of gas. Let the market decide for you, then act. Don’t let your opinion get in the way of momentum.
Watch out for the broader market to hold or begin to cede its gains in early trading. If stocks hold up, we could see a continuation move higher throughout the session and into tomorrow. However, with all of the economic news on deck this week, it may be prudent to take some profits to avoid any negative reaction coming out of the Fed meeting or rumblings of an appointment of a new Fed Chairman. Still, Monday appears to be a profitable day for those of you who leaned long today.
Happy Sunday y’all. Hopefully everyone’s rooting interest in the NFL is coming up aces today, and a special shout out to all the Chicago Bears fans out there today. Jay Cutler continues to be the most mercurial quarterback in the NFL, but Martellus Bennett managed to bail him out with two more touchdowns to lead the Bears to a 31-30 victory over the hapless Christian Ponder and the largely ineffective Adrian Peterson. In all honesty, the Bears should’ve won that game by double digits, but Bad Jay and poor special teams on the opening kickoff essentially spotted Minnesota 21 points. I digress…
It seems we can’t go one weekend this month without some sort of major economic or geopolitical news item that will impact the market. This was already shaping up to be a monumental week with the Fed meeting and the potential of a reduction in monthly asset purchases, but Larry Summers decided to throw us a curveball and withdrew from the race for the Fed Chairman appointment once Ben Bernanke takes his leave. Many have speculated that Summers’ confirmation would be an arduous process as many see him as an abrasive individual, with his detractors citing his tarnished tenure as president of Harvard University – specifically, his treatment of women. Janet Yellen, believed to be a far more dovish candidate than Summers, becomes the de facto leader in the clubhouse. Donald Kohn, a former Fed vice chairman, and former Secretary of the Treasury Timothy Geithner remain popular candidates among others.
The impact of Summers decision was fairly easy to predict before futures even opened. Given his aversion to continued quantitative easing and a more hawkish stance overall, stocks would be poised to rise should Summers not receive the nomination. However, given the fact that Summers is pulling out this early, S&P futures surged on the open this evening to the all-time highs, and the bulls appear to be in full control once again. While it is not a foregone conclusion that Yellen will be appointed (and some close to the Obama camp have stated the President would prefer to go elsewhere now that Summers, an Obama favorite, has withdrawn), we would expect even interest rate sensitive stocks to rise tomorrow as well, which does not bode well for our $HD and $T positions. Still, we should note that there is plenty of time for our theses on those names to play out. On the plus side, our long positions in $NFLX, $FCEL and $GOOG should get a nice lift. Obviously, we wish we were leaning a little longer, but we should see some nice gains Monday regardless.
Tomorrow should provide some opportunities for intraday trades at the bell. With so many events that could shake markets this week, it may be prudent to take some profits on long positions at tomorrow’s open should we sustain this rally overnight (and there is little reason to believe that we won’t). Still, it is easier to have conviction to the long side as the market has pulled off something of a stealth rally in the past week or two. We’ll be back in the morning to assess what is moving, but until then, enjoy the rest of your NFL Sundays!
Good morning y’all. Pretty quiet morning for equities markets as perhaps it’s finally time for a rest after a 7 day winning streak. Goldman Sachs reiterated a call for another leg of this bull market. Asian and European markets are mixed while the Nikkei is down roughly .25% and the CAC and FTSE are up small, and the 10-year yield is trading around 2.89%. Vladimir Putin is in the news once again after writing an piece in the New York Times outlining a plea from the Russian government for caution regarding the Syrian situation.
Lululemon $LULU is getting smoked today after poor earnings results. The company has been in a lull since Sheergate, and the street is not responding well to its guidance revisions. Men’s Warehouse $MW is also taking a beating this morning on weak earnings.
Not a ton of movers this morning with the markets so flat. Facebook $FB continues to rage higher after breaching the $45 level late in yesterday’s session, and the stock has become Wall Street’s newest darling. We saw some interesting tweets this morning reminding us that even if you bought Facebook the morning after the earnings gap, you’d still be up 40%! Incredible strength from Facebook.
Apple $AAPL is getting a small bid this morning after getting obliterated yesterday. We are flat $AAPL and we’re going to need to see some definitive action from the stock before jumping back in. There will probably be some tactical opportunities in the name, but that’s it for now.
Netflix $NFLX is pulling back this morning after an incredible run on Tuesday to over $310 per share. Look for a potential bounce at the $297-$299 level, but a breach of that could lead to further selling pressure.
Our $T and $HD positions have been working against us the last couple of days as the broader market has sustained this rally, but our thesis for these positions remains intact. Keep an eye on $AGO for further selling pressure after huge put buyers stepped in late in yesterday’s session, and we’ll keep an eye on the action in $GOOG to see if it can get some continuation today.
Long and strong! It’s good to be back writing for VT after a 24 hours hiatus thanks to some unexpected life events. But all is well, and hopefully y’all have had a profitable period as this market just will not fade. Let’s dive in to the recent action.
We tweeted out this morning that we sold our position in Apple $AAPL. The events from the last 24 hours were nothing short of dreadful. We were actually moderately impressed with the 5S and 5C, but GOOD LORD Tim Cook is not doing himself any favors. He continues to drop the ball in China as the company has effectively priced itself out of the middle market with the 5C. The phone looks totally puzzling now as we have a hard time believing it will find enough traction in the North American market. We peeled our long stock position off at $475 pre-market and we aren’t too eager to get back in. We scalped a few bucks on an option trade after the stock rallied off the lows, but that rally was faded over the course of the session.
We also let go a couple of losers in $TSLA and $TAP. We actually recouped some of our lost premium on our $TSLA calls, but we lost half of a small position in $TAP puts. Timing is everything in trading, and size does matter here, too.
Our book is very lean now and we have plenty of flexibility. We picked up $GOOG calls for next week at $495. It looks like $AAPL capital (rhyme! sort of) was being rolled up into Google and Facebook today, and we actually like both names, but we chose to put some capital into Google as Facebook passed its all-time high today. The chart looks pretty strong and the 890 straddle is implying at $19 move by the end of next week, which could make for some nice gains. Google closed on the dead highs today just above a key resistance level. Look for continuation to $900-$905 in the coming sessions, followed by potential continuation to the all time highs.
Another stock we initiated a position in is Biogen $BIIB. This stock has been in a bit of a holding pattern over the last 3 months, but it has been building a nice rounded bottom and broke out today in the last hour of trading. We initiated a long at $232.39 and are looking for continuation in the coming sessions. The stock made its way into the gap above $234.70 and has room to run to the $240 level where the YTD highs sit.
We didn’t get a chance to write about it yesterday, but we hope some of you caught our note in yesterday’s morning post about Netflix $NFLX. We signaled that $NFLX could surge if it sustained the morning gap up and made it to $299, and that’s exactly what it did as it move straight up throughout the session yesterday. If you were long, hopefully you were prudent and took profits yesterday, though the stock did put a decent tail on today’s bar.
We initiated two put positions on unusual option activity in Assured Guaranty Municipal Holdings $AGO. For those of you that are unfamiliar with $AGO, the company is a municipal bond insurer and has been getting whacked since earnings and the Detroit bankruptcy announcement. The bears stepped in big time in the latter half of the session, buying up puts with both October and April expiration hand over fist. The stock got thumped in the latter part of the session and volatility spiked, creating some nice value in our puts.
Lastly, we also shorted $BEN via short stock as it tested the bottom of the Ichimoku cloud and could not break through. The stock rallied into the bell, which we obviously don’t like, but we’ll keep an eye on it. Our stop is tight just above the lower portion of the stock’s gap at $48.50.
The market has been on an incredible run as the S&P has rallied 7 consecutive sessions, making it a bit of a precarious spot for shorter term traders. It’s still hard to get aggressively short and we’ve seen high short interest names like $TSLA shake off the bears. Keep your eyes peeled for short candidates, but don’t lean too hard that way until the market stops raging higher.
We’ll be out of the office on Friday, but we should be back to our usual pattern of three posts a day tomorrow and next week. Feel free to shoot us questions on Twitter @vikingtrader14 or via e-mail at firstname.lastname@example.org.
Good morning y’all. All is right with the world this morning as the Chargers blew a 21-point lead against the Texans and S&P futures are ripping on news that Syria has agreed to a Russian initiative calling for the country to turn over its weapons stockpile. Futures have traded in a wide 10 point range but are sitting on the highs this morning near 1680 as it looks like we are heading for another big green day. Just about every name on our watch list is in the green this morning with the exception of Gold $GLD and Blackberry $BBRY. Blackberry likely needs a breather after a big rally yesterday and fear is dissipating from this market as the Syrian situation appears to be dwindling.
The teen retailer Five Below $FIVE blew away earnings and is trading roughly 13% higher this morning. Teen retailers have had an absolutely abysmal summer including Abercrombie and Fitch $ANF, Aeropostale $ARO and American Eagle Outfitters $AEO, but I guess teens have to buy their clothes somewhere. As we mentioned yesterday, Apple $AAPL will obviously be in the spotlight today as it kicks off the first of two major events that will likely define the company’s near-term success.
Our momentum long in $JASO could be poised for a breakout today after news came out this morning that the company is delivering 96 MW of solar power technology to China. Again, $9.50 is the level to watch there, and then watch for a move over $9.75 that could send $JASO to $10 and beyond to the year to date highs over $11.
Keep an eye on $NFLX today early in the session. If the stock can get over $299 with volume it should challenge the $300 level and beyond.
We’ll probably take another hit to our positions in $HD and $T today as the broader market continues to rally hard, but the thesis for those positions remains intact. Tapering is a matter of when, not if, and those names will certainly be impacted by those effects. The September Fed meeting should provide some answers there. We’ll watch the levels closely in case either name can reverse course with some commitment, but for now we aren’t too worried about a two day rally. Risk happens fast, and we’re more concerned about making money than being right, so if these positions turn on us we won’t be ashamed to cut our losses. Trade the market you’re given.
Don’t rush into any positions today to the long side unless the market can hold this gap up for the first 30-60 minutes of the session. There will likely be opportunities to take both tactical longs and shorts in a number of names, but the key is to be tactical. It looks like we may have cleared the Syria headwind, but President Obama is still set to speak tonight at 8 PM CST on the situation. Obama hinted that he is supportive of the Russian-Syrian initiative, but he remained skeptical of Syria commitment. Still, this mornings headlines appear to jive with the notion that Syria is willing to cooperate to avoid military action from the United States.