Advice For Young Traders

Advice for young traders is popular hashtag right now on twitter (financial), I think it should be "Advice For All Traders".  Regardless of how long you been in the business of trading you will run into many of the same problems that a young trader will.  You will have stretches when you are not in tune with the market, you will suffer periods of draw-downs that can last days to months, your strategy might stop working and because of that you will be filled with doubt, etc... How you deal with these issues is more than likely what separates a young trader from a more experience trader. Young traders should think about these soft facts;

--"90% of traders fail" is a stat that gets thrown around quite often, more than likely its a made up stat. But if it is true, then these traders are failing in a market that has a tendency to go up.  Since 1988 the SP500 has been up 22 out of 27 years, 81% of the time.  Think long and hard as to why traders are failing in such a good environment, and remember that your biggest challenge in this arena is YOU.  With these 2 stats in mind the next two points should hit home.

--There is something smart about doing nothing (when it comes to the indices).

--If you favor the short side, love shorting, wake up in the morning looking for next big short, etc..then I believe you have not found yourself as trader yet.

--Don't get caught up on; technical analysis is voodoo, fundamental analysis is guess work at best, etc...spend your time knowing what works within your trading time-frame.  What moves stocks within 30 days is a lot different from what moves them for 2 years.

--Mentors are great, they allow you to reduce your learning curve.  But, they also come along with personal baggage from endless battles with the market that you may not be aware of (I'm a little bit older and a little less bolder).  If you learn one thing, just one thing from someone then its a win. However, remember that you must find what works for you in the market based on your beliefs and personality not someone else's.  No different than finding your shooting stroke at the foul line.

--Get yourself a corporate job, take advantage of your 401k, Roth IRA, etc...Take advantage of time which is your biggest advantage in the market.  Follow Cramer's advice, put your first monies into index funds and then tackle trading.

Photo; Roger Branch

This Airline Stock Is Ready To Land

Ever since American Airlines came out of bankruptcy and started to trade publicly again hedgefunds jumped all over it.  Effectively the stock became a hedgefund hotel, ever since the 4th quarter of 2013 a large amount of hedgefunds held the stock as you can see from the chart below.  Hedgefunds held steady for 5 quarters and enjoyed healthy gains.

Fast forward to today, American Airlines was under distribution in the first quarter of this year, the stock traded between $45-$55 and became volatile as oppose to the steady rise it had the previous quarter.  The funds owning the stocks decreased from 24% to 14% and some of its largest holders to profits on the stock.

The concern here is that many hedgefunds tend to check in and check out of stocks together, and with American Airlines now under its 50 and 200 day moving averages one can assume that the selling will continue.  Any rallies to the underside of those averages should be consider as an opportunity to sell for traders.

Source; Hedgemind.com

The Breadth Deterioration Is Real

By just looking at the indices $SPX, $COMPQ, $RUT, $DJ30, you really can't say anything negative about them, they are all trading near all time highs.  However, the breadth deterioration underneath the surface is real, not only have many stocks stop going up but we are now seeing an uptick in stocks going down.  The charts below tell you the whole story.

The question is; is this information actionable right now?  The answer is no, at least for me its no. Breadth divergences have been going on for a while, it was the most popular topic for financial bloggers in 2013.  And every time the market looked and felt like it was going to crack it bounced, and it bounced hard.  Rotation has been the key, they take one group to the woodshed and then normally the most recent weakest group bounces.

I have no interest in shorting individual common stocks even though the breadth says that it's wise to do so.  My fear of waking up one morning to a buyout is greater than my greed to make a few dollars on a short.  As far as shorting the indices, the price action is not confirming what is happening with stocks.  I need to see a pattern of lower highs and lower lows to take a short strictly on the breadth numbers.  For now this something that's in the back of mind and either stocks will catch to the indices or the indices will catch to the stocks.

p.s. I use the Russell 2000 instead of the SP500 because I believe its fairer comparison since the Russell has almost 2000 stocks and the breadth numbers include a majority of trade-able stocks.

Pre-Market Prep With Benzinga

Friday May 22nd I sat down with Benzinga and discussed lightly Deere corp, Twitter, Airline stocks, miners, and how i run my book, etc...Take a listen.

Does The Recent UVXY Spell Mean Trouble For The Market

UVXY seeks the daily investment results that corresponds to two times daily performance of the SP500 VIX short term futures.  This is a horrible investment vehicle and only a good trading one once in a blue moon.  Recently, on 5/20/15 UVXY did a 1 for 5 reverse split.  The recent splits have come after months and months of UVXY being in a downtrend while the SP500 inversely in an uptrend. Splits on the UVXY are sort of like a throw in the towel situation which in the past has not bode well the SP500 in the short term.  There's only been 4 reverse splits in the UVXY since 2012 (not including the most recent one), however 4 out the 4 have led to a short term decline in the SP500 as you can see in the chart below.

What Should You Do With The Current Divergence That's In Place

As the SP500 trades at all time highs many stocks underneath the surface are not participating, in fact the amount of stock up 25% for the quarter has been down-trending while stocks down 25% in the quarter have been ticking up as you can see on the chart below.

Now, its not fair to take the breadth of pretty much the entire universe of stocks and compare it to the SP500 which only tracks 500 stocks, a comparison the Russell 2000 is more of a fair comparison. With the Russell 2000 we see the same thing.

Divergences have been in place for a while.  Breadth Divergences in 2013 was the most popular topic in the financial blog-sphere.  I'm of the opinion that 99% of "bearish" divergences should be ignored in a bull market until they become so blatant that it forces you to take action and or price action confirms the divergence.  The way I view this current divergence; go with the Index ETF'S over stocks at this very moment.

Stats via StockBee

Winners Average Down

Some traders live by rules or sayings that they've read in books without really knowing if the person actually follows the rules they preach.  Or if it was something that was said years ago that may no longer apply today due to a different market environment, a change of strategy etc...  One saying that gets thrown around a lot by traders is "losers average losers", this is a rule that legendary trader Paul Tudor Jones preached many years ago.

If you fast forward to today and take a look at his holdings via the great site hedgemind.com you can clearly see that Paul averages down quite often.  Maybe now he believes in the strategy, maybe due to the amount of money he manages he has no choice, or maybe the market has changed from when he first said the quote that averaging down maybe is now a prudent strategy for him, who knows.  What I do know is; as traders/investors we must find ourselves based on what we believe in not on what some "guru" says. There's a millions ways to make money in the market, there is no one set way. Read books, get a solid foundation, but then figure out on your own what works and what doesn't for YOU, based on your personality and beliefs.

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Swing Set Ups

Today's long swing set ups; $SEAS $ERX $HLX $KEG $CXDC $HOS $WFT $NXPI $BITA $GWPH.

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually its no more than 50 names.  My process is based on market structure not on beliefs or myths of what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure, these behavioral patterns are recognizable, observable, and quantifiable.  On daily basis we have 3,000 stocks that we filter based on certain market structures that gives us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names the market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc, in the short term none of that matters.

How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.

Put these names on your trading platform, set the alerts at yesterday’s high for each name, once the alert goes off take a look at the chart, decided within 3 seconds whether or not you are going to buy it, decide how much you want to risk on the trade and your stop loss, hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.

A few things that you should know about this swing strategy;

•  Its main goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets, it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling 5 day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action, we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for 10 days but who is to say that it won’t coil for another 5 days.  If you anticipate the range expansion you might buy something that is not ready to go and it will only frustrate you and lower your odds of a winning trade.
• For me this list is a one way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automated it with buy orders after 9:45am.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Short Squeeze Brewing

There is no doubt that my favorite set up is a stock that has been trading in a range for a long time, have written numerous blog posts about this type of set up.  In my experience they tend to lead to big moves once they come out of the range.

Carbo Ceramics ($CRR) is an oil and gas equipment company that has been trading in a range for 6 months between roughly $31.50-$43.00.   I'm always intrigued by bases because a prolong period of contraction normally leads to a prolonged period of expansion, and the longer the base the better it is.  What happens in the base is that the buyers and sellers find equilibrium, the sellers for the most part are done selling and or the buyers are taking in all the supply.  These new stockholders obviously believe that greener pastures await the stock.  More importantly, what you see right before the stock exits its base to the upside is a series of higher lows and or the stock will trade and stay at the upper end of its range, which is exactly what CRR has done.

On 4/30/15 Carbo Ceramics reported their earnings, regardless of what they look like on the surface the stock reaction tells you that it caught the street by surprise, CRR closed up 19% that day.  Since then the stock has done nothing but move sideways for 11 days in a very tight range.  The high on 4/30/15 (eps date) is $44.85, a move above that level will probably lead to a prolonged move higher for the shares, with 41% of the float short expect volatility to be on the high end.

The Homework Pays Off

If you are in the stock picking business it pays to continuously do your homework.  From the way I view things we went from not having any quality swing set ups to having quite a few.  The media tends to over hype the moves of the SP500 when the action underneath the surface tells you a lot more and what is really happening.

$AMCX $AGU $QEPM $ABC $GTI $GTN $CCIH $NXPI $BAS $WFT $CRR are the stocks on my watchlist today for long swing trades.

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually its no more than 50 names.  My process is based on market structure not on beliefs or myths of what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure, these behavioral patterns are recognizable, observable, and quantifiable.  On daily basis we have 3,000 stocks that we filter based on certain market structures that gives us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names the market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc, in the short term none of that matters.

How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.

Put these names on your trading platform, set the alerts at yesterday’s high for each name, once the alert goes off take a look at the chart, decided within 3 seconds whether or not you are going to buy it, decide how much you want to risk on the trade and your stop loss, hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.

A few things that you should know about this swing strategy;

•  Its main goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets, it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling 5 day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action, we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for 10 days but who is to say that it won’t coil for another 5 days.  If you anticipate the range expansion you might buy something that is not ready to go and it will only frustrate you and lower your odds of a winning trade.
• For me this list is a one way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automated it with buy orders after 9:45am.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

The Sauce Is Ready

Papa Johns (PZZA) has been trading in a range for 5 months between $60-$65.  On the back of its earnings report (5/5/15) the stock is now exiting the top end of the base, this is now a fresh breakout. PAPA Johns reported first quarter earnings of $.55 cents compared to $.45 cents in 2014 an increase of 22.2%. First quarter revenues were $432.3 million, a 7.7% increase from the first quarter of 2014.  They also increased their earnings per share guidance for 2015.

From a technical perspective the measure move of the base is $5, this gives us an initial target of $70, a move below $65 will put this breakout on hold and move down to $63.26 negates the breakout.

2 Stocks Ready For a Prolonged Move Higher

DirecTv (DTV) and Solar City (SCTY) are two stocks that have been basing for a long time.  DTV traded between roughly between $83-$88 for 1 year, SCTY traded between $47.75-$57.50 for 7 months.  Both stocks are trading above their respective bases.

I'm always intrigued by bases because a prolong period of contraction normally leads to a prolonged period of expansion, and the longer the base the better it is.  What happens in the base is that the buyers and sellers find equilibrium, the sellers for the most part are done selling and or the buyers are taking in all the supply.  These new stockholders obviously believe that greener pastures await the stock.  More importantly, what you see right before the stock exits its base to the upside is a series of higher lows. Which is exactly what we have seen with both stocks.

DTV ($88.33) and SCTY ($60.13) are both trading just above the upper of their base, as a speculator a buy and hold of these two stocks is in order as long as they stay above their bases. Due to how close they are to the upper end of the range they both are providing a decent risk reward trade. The measure move for DTV is $93 and for SCTY $67, you get the measure move by taking the difference of the upper end of the range minus the lower end plus the upper end ($88-$83=$5+$88=$93).

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

3 Post Earnings Drift Buy Candidates

$AMZN $DNKN $GPRO all reacted extremely well after they reported their most recent earnings. By well I mean that they were up 4% or more after the report on volume 3 times their 50 day volume average. Amazon was up 14% after their earnings release, Dunkin +7.9%, GoPro +12.6%., all 3 companies reported in the Middle of April.

Since their earnings release these stocks have all digested the initial earnings pop by pulling back, this when the opportunity lies.  When a stock makes a significant move on relatively heavy volume after their earnings report one can assume that the street was caught by surprise and stock will probably experience a post earnings drift until the following quarter.  As a speculator we want to jump aboard the surprise when the stock offers a good risk reward opportunity.  With the recent pullback not only in these 3 stocks but also in the Russell 2000 and Nasdaq these stocks are now offering decent risk reward trades.

Generally speaking when the market is pulling back and you are looking for buy candidates, the stocks that reacted extremely well to their earnings report is a great place to start.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Swing Long Ideas

$MBLY $JCP $SPLK $EJ $SFY $APA $ERX $SN $TUBE $OAS $VNET $SFXE $GS $DATA $NMBL are today's swing ideas.

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually its no more than 50 names.  My process is based on market structure not on beliefs or myths of what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure, these behavioral patterns are recognizable, observable, and quantifiable.  On daily basis we have 3,000 stocks that we filter based on certain market structures that gives us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names the market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc, in the short term none of that matters.

How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.

Put these names on your trading platform, set the alerts at yesterday’s high for each name, once the alert goes off take a look at the chart, decided within 3 seconds whether or not you are going to buy it, decide how much you want to risk on the trade and your stop loss, hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.

A few things that you should know about this swing strategy;

•  Its main goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets, it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling 5 day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action, we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for 10 days but who is to say that it won’t coil for another 5 days.  If you anticipate the range expansion you might buy something that is not ready to go and it will only frustrate you and lower your odds of a winning trade.
• For me this list is a one way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automated it with buy orders after 9:45am.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.