How Carl Turned $321 Million Into $2 Billion

There are a million ways to make money in the market, at the end of the day there is no right or wrong way.  Today, Carl Ichan showed the world how he made over $2.1 billion dollars on a $321 million dollar investment.   Carl bought $NFLX in late 2012 when the stock was in a downtrend, near its 52 week low, he sold it today as it traded at all time highs.  Buying stocks near lows and in downtrends goes against what every trading book and trading guru advises you to do.  Carl made over 1000% doing the exact opposite.

Next time you read or hear one of these preachers preaching to only buy near highs, not to look for stocks near lows, only losers average down losers, don't sell a stock going up, etc....Tune them out and remember Uncle Carl and his $NFLX trade.

What you have to figure out is what works for you, that might be buying highs, buying lows, breakouts, breakdowns, etc...

Getting Started Is Easy

Everyone Is Prepared For The Correciton

Here are some of the headlines, surveys, stats, etc..that have been going around the stocktwitter sphere over the last couple of days;

1.  Number of fund managers that have taken out protection against a market slump hit a record high.

2.  The National Association Of Active Investment Managers Exposure Index (NAAIM) shows a similar story.  Active managers have the least amount of equity exposure since the October swoon, all this while the indices are near all time highs.  Investors Intelligence survey and the American Association are showing the same lack of enthusiasm for the market.

3.  We also have a record amount of hedging along with the largest percentage of shares short in the SPY at 8.5%.  Large speculators held about 12,000 more short positions in S&P 500 futures than long ones through June 9, according to data compiled by Bloomberg and the U.S. Commodity Futures Trading Commission. That’s the highest amount of bearish bets relative to bullish ones since the five days ending Oct. 24.

4.  We are also aware of how the last 2 weeks of June are historically not so bullish.

Bottom line; Either a whole bunch of market participants will be right about a possible correction or a bunch of market participants will eventually have to chase price if the market continues to climb the wall of worry.

Getting Started Is Easy

Sources; Bloomberg, NAAIM, Ryan Detrick, CS

Your Money Speaks Louder Than Your Opinion

Investors intelligence numbers come out every week, very simply they ask a few people if they are bullish, bearish, or neutral on the market for the next 6 months.  A big deal is made out of this every week by a few people.  I'm not so sure how important or even useful this data may be due to; the amount of people surveyed and the fact that it's an opinion.  The opinion might be one that is weakly held, or one that is not actionable.  On the second chart you see what investors are actually doing with their money, which I believe is more important than ones opinion.

Via; SentimenTrader

What you see is that only 20% of those surveyed are bullish on the market over the next 6 months, while on the second chart you see that equities as a percent of total assets is showing a high reading/participation by retail investors.  I think the Cavaliers have a shot of winning but my money is on the Warriors.

Rolling The Dice At Home

Every time people talk about casinos for the most part they mention WYNN and Las Vegas Sands. Those 2 stocks have fallen on hard times partly due to their overseas business (MACAU) which was a tremendous windfall when they first enter that market.  Boyd Gaming (BYD) and Penn National (PENN) 2 companies that decided to stay at home saw their stock suffered at the beginning but now are benefiting from the lack of overseas exposure.

Technically speaking BYD and PENN are very close to breaking out and as the street starts to realize their recent outperformance which should see sort of an ambulance chase to get on board.

 

Photo; Scitable

Breadth Narrower Than A Toothpick

The market continues to shrug along all time high levels while underneath the surface the breadth is telling us that its walking on a tight rope.  Based on the stats that I follow the market’s breadth is extremely narrow with a couple of sectors leading the way, specifically Biotechnology/healthcare.  So far every single bearish divergence over the last few years have resolved themselves to the upside with stocks catching up to the indices.  Many years ago the type of divergence we are seeing now for the most part led to some form of correction in the indices, a normal correction, nowadays sector rotation takes care of all the divergences.

I’m a believer that 99% of negative divergences should be ignored in a bull market. However, in this current situation when I put all the pieces together that show me all the divergences there is one stat that made me put on a short trade to take advantage of a possible pullback in the short term.  

Below are the charts that show all the divergences that should be ignored 99% of the time, the last one is the game changer.

Game changer in the short term; currently we have 25 stocks up 50% or more in the last month.  13 of those 25 stocks are in the biotechnology/healthcare sector. When we get over 20 stocks up 50% or more in a month its usually in a time when things are clicking and the market is somewhat overheated.  Clearly based on the stats above and the fact that the SP500 is barely up for the year we all know that the market surely is not overheated.  This latest stat (stocks +50% for the month)  versus the stats above really shows you how narrow breadth has become.

I recently took a short position on the SP500 via long SPXU (3X inverse etf) based on the stats above coupled with the game changer stat. 

I sold 20% of my entire position, I plan to sell more into strength or if it falls back to break-even, which ever comes first.

The stats above are courtesy of StockBEE