Trade Ideas, Focus On What You Can Control

Focus on what you can control.  Once you put your buy order in and it's executed, how much or how little you watch the screen is not going to make a difference, you cannot will a stock to go higher or lower.

RATE, GIMO, GWR, NBL, DANG, AUDC, LNKD, FB, UTX, MITL, WSTC, BKD, are the names on my swing trading watchlist today.

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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.

1. 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.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. All this can be done pre-market.

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

•  Its primary 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 five-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 ten days but who is to say that it won’t coil for another five 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 automate it with buy orders after 9:45 am.

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How To Save A Ton Money Swing Trading

I get a lot of calls from my broker friends asking my opinion on different stocks. Usually, they ask me after they buy the stock, I always tell them that if they wanted to know my opinion then they should've asked me before they bought it, there is a whole psychological reason behind this that I won't get into. They also tend to ask me about stocks that are already up 4-5 days in a row, usually this is when the story gets around the office, and they start to believe that the stock will never go down.  I also see many on Twitter touting breakouts on stocks that are up 4-5 days in a row.  If your time frame is 0-20 days then buying a stock up 4-5 days in a row is a poor decision in my opinion.  When I say time frame, I mean the actual time frame of your trades, not your mental time frame, or the time frame that you wish you had the ability to hold through.  Many traders want to be long term holders until the stock closes down .10 cents, just like many investors who say that they are in it for the long term until the first 5% correction hits them. There is a difference between buying a stock at $15.43 after its up five days in a row and buying that same stock at $15.43 after ten days of sideways action.  Very simply the latter offers a better risk reward ratio, not only monetarily but also mentally.  If you want to save a lot of money and frustration, don't chase stocks up 4,5,6 days in a row.

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Trade Ideas, Adapt

We need to stop quoting old sayings by Wall Street "gurus", things change, what might have worked 20 years ago might not work now.  When it comes to trading we hear a lot about discipline, not enough is said about ADAPTING.  Remember when taking a three-pointer on a fast break was a sin?

CEVA, SOHU, GWR, DGX, ABC, M, FEYE, RGLS, DATA, SQM, SGMO, SGYP, XBI, NK, MITK, are the names on my swing trading watchlist today.

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 it's no more than 50 names.  My process is based on market structure, not on beliefs or myths about 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 a daily basis, we have 3,000 stocks that we filter based on certain market structures that give us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names, he 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.

1. 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.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. This all can be done pre-market.

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

•  Its primary 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 five-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 ten days but who is to say that it won’t coil for another five 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 automate it with buy orders after 9:45 am.

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Biggest News Of The Day

The one piece of news that shook Wall Street this morning and put everyone on notice was, Turkey gunning down a Russian jet.  Futures immediately took a nose dive, but by 11:00 am the market made a comeback and closed positive.

Energy names led the way; Energy was the best performing sector today with XES up 4.69%, OIH +3.26%, XLE +2.17%, USO +2.23%.  Gold and the gold miners also had a slight uptick, probably related to the Russian/Turkey news.

Absent from today's brief turnaround was AMZN, FB, GOOGL. LNKD, these have been stellar performers lately, but they did not go green as the market did after midday.

The focus now is on a possible retaliation by Putin; that's probably the reason why we saw significant moves from the oil names and the gold miners.  "Putin calls jet's downing 'stab in the back,' but Turkey says warning ignored."

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Trade Ideas

Trading is 90% mental, if you look in the mirror, you will be staring at your biggest challenge.  Conquer your emotions and you might have a shot in trading successfully.

$NPTN, GIMO, TEO, NLS, TYPE, MXWL, NPO, EXPO, VNET, BCEI, RXN, OSK, MTN, TKR, BDC, WUBA, YGE, AMOT, WSTC, NK, are the names on my swing trading watchlist today.

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 it's no more than 50 names.  My process is based on market structure, not on beliefs or myths about 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 a daily basis, we have 3,000 stocks that we filter based on certain market structures that give us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names,he 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.

1. 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.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. This all can be done pre-market.

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

•  Its primary 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 five-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 ten days but who is to say that it won’t coil for another five 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 automate it with buy orders after 9:45 am.

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Bringing Back The Smart Money Index

We have been hearing a lot of complaints about how weak breadth has been, how only a few stocks are pulling the indices higher.  Whether bad breadth will ultimately be a problem or not remains to be seen. You have to keep an open mind that maybe more stocks will start to participate in the future, it doesn't always end badly.

The image below tells you the whole story.  The mega-cap names that have a larger effect on the SP500 have outperformed their little brothers on a 1, 3, 6, and 12-month basis. The lower cap names are all lower in every time-frame.

According to Finviz, there's 21 mega-cap names, 571 large caps, 1041 Mid caps, 1621 Small caps, 1229 micro caps, and 599 nano caps.  When you take the breadth of the entire market and plotted against the SP500 you more than likely will see divergences. It's not fair to compare 4,490 stocks not in the SP500 to the SP500.

Maybe it's not too late get reacquainted with the smart money index of the 90's, $OEX. The index is composed of the largest U.S. companies in the world.

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Checking In On The Robo Advisors

We all know how miserable it's been recently for some hedge funds, now it's time to look at some Robo Advisors.  These portfolios vary depending on the needs and risk tolerance of the investor, but you can get a feel for what the returns might look like for a conservative or moderate investor. I'm using the allocation of a recent Wall Street Journal article.

Schwab Intelligent Portfolios, 30% U.S. stocks, 30% International stocks, 12% U.S. bonds, 9.49% International bonds, and 18.51% other; U.S. reit, EX-U.S. reit, IAU, 8.51% cash, this particular mix is down 5.16%.

Betterment's mix is 33.5% U.S. Stocks, 36.4% International Stocks, 15.6% U.S. bonds, and 14.5% International bonds, this mix is down 3.66%.

Wealthfront has 41% in U.S. Stocks, 31% International stocks, 23% U.S. bonds, and 5% other (DJP), this particular mix is down 5.15% year to date.

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Point Of Reference

The terrorist attacks in Paris it's a horrible situation.  The last thing most people are thinking of right now is the market. However, it will be in the forefront come Sunday night for those who make a living from the market. As a possible point of reference below we have the SP500 and VIX charts from the 9/11 incident and the Boston marathon bombing in 2013.

9/11/2001 terrorist attacks

Boston bombing 4/15/2013

Gold 9/11

 GLD Boston Marathon

We have no idea how the Paris attacks play out for the market next week, these are just possible road maps.

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Window Shopping

The SP500 has pulled back 3.6% from its recent high; it was just a few days ago that the financial twitter stream was telling us that we were going to go straight up until year end.  Many reasons were given, no rate cut, money on the sidelines, managers underperforming that need to catch up, high short interest, seasonality etc...Now after this pullback it seems like everyone forgot all the positives that they were mentioning just a few days ago, they are still there.

What we want to do now is perhaps take advantage of this natural retracement after the big move in October, to look for stocks that reacted well to their earnings report that have now pulled back because of the market.  By well I mean a stock that gapped up over 4% due to their report.  $VG, $MDR, $BLX, are some on my radar.

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The Market Will End The Year At This Level

The SP500 started the year at 2,058.90, for the first eight months the market traded sideways, rocking everyone to sleep until late August when it decided to pull the rug on us.  If you remember those first eight months, the market went up, went down, making everything look rosy, but in actuality individual stocks were deteriorating underneath.  However, every time the market started to find its footing it was pulled back right to its year to date breakeven level, that level was protected until it finally gave way on 8/20/2015.  Very simply, that level has been a magnet.  In the last two weeks, we have tested that level three times, each time on an intraday level the market has bounced off it, letting us know that this is a very significant level, one that can cause short term pain if we break below it decisively.

In my opinion, there is a high probability we will end the year flat, and the summer mini crash will seem like a blur.  It might best to pay extra attention to individual stocks until year end.

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Quant Idea, Betting On Gold

Currently $GLD has an RSI(14) below 20, this has happened 23 times in the last 4 years, and it has produced a perfect track record, 23 out of 23 if you exited the position 20 trading days later.--PastStat

Seasonally speaking, over the last 15 years GOLD has done well during the period of November 18 until about December 3rd. ---AlmanacTrader

You combine these two studies together and you have a slight edge over a random outcome.

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Rain With A Chance Of Thunderstorms

The current market trajectory continues to move along in a similar fashion to the correction of 2011.  As you can see on the chart below, in October of 2011 the market had a decent rally similar to the one we just had that took the SP500 slightly above year to date break even and above the 200 day moving average.  After some back and forth action, the SP500 pulled back roughly 9% inside of 2 weeks.  If we continue to follow in the steps of 2011, the pullback should start accelerating now.  I don't know if we are going to get a 9% pullback or 5% pullback or any at all; I view this as a low probability event that has 10-15% chance of happening.

More importantly, we are entering the best 6 months of the year, November to April.  This period has produced an average gain of 7.5% since 1950 compared to an average gain of 0.4% during May to October, this is the period to look forward to after the possible storm. --AlmanacTrader

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Betting On The Oil Services Group

$OIH long trade with 29/29 wins, average gain of +1.23%, signal NR7 LINK

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Source; PastStat

All Out Of Google

One of the most interesting things we will probably hear about over the next few days is the fact that FMR LLC (Fidelity) sold 17,385,009 shares of $GOOGL and 19,333,678 shares of $GOOG, their entire stake.  I find it amazing that they sold their entire stake, GOOGLE is a big cap name that just recently hit an all-time high, an SP500 component, liquid growth name that allows big institutions to park big money.  Do they know something?

via Hedgemind

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There's Not A Person In The World That Does Not Know This

After 3 phone calls from brokers, a text from a friend, and seeing it numerous times on twitter, there's not a person in the world that does not know that the SP500 after 5 down days in a row is due for a bounce.

Here are a couple of studies;

SPX setting up for a bounce

What happens after 4 down days

There's so much information now freely available that it doesn't matter who gets it, its who can execute them that matters.

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Quant Trade Ideas

$SSO long set up, with 33/34 wins, average win 2.14%  LINK

$XLV long set up, with 37/38 wins, average win .87%  LINK

$SPY long set up, down 4 days in a row, 32/33 wins in last 4 years, average gain .96%  LINK

Quant Ideas PastStat

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Lessons From Legendary Investor Carl Icahn

Dealbook put on a great conference last week with some great speakers, one of them being Carl Icahn.  I'm not a big fan of discussing what stocks or assets they like or dislike because if they change their mind about the investment above, and we probably won't know about it.  More importantly just like everyone else Carl is going to be wrong half the time, we are all aware how his "DANGER AHEAD" call is working out.  However, you can always pick up some investment principles of what makes him successful; those are a lot easier to replicate than his investments.

Carl in bold;

"You gotta buy them when nobody wants them, really, I mean that is the real secret, it is very simple but very hard to do when everyone hates them you buy them."  Carl is right, it's not easy to do, Carl tends to buy out of favor stocks and holds them for many years. The average investor will not be able to replicate that, to buy something for the long term that is out of favor you would have to have real conviction.  Imagine if you bought $CHK, $RIG, right alongside Carl, right around now you would think the guys is an idiot and without doing the type of homework he does you won't be able to hold those stocks through draw-downs.  Real conviction comes when you do the proper, necessary homework and can really dig into what the company does; investors don't have the resources to do that. Carl told a story how he paid $250,000 to a consulting company for a three week period to find out what the company does.  We can follow Carl's advice when it comes to the indices, buy them when there is blood, when fear is high, at least we know that the market (SP500) has a tendency to go up over time.

"You are going to have cycles." Every investor goes through a rough period, at times you are in the zone and other times you are going through a rough patch.  Unfortunately, a majority of investors, from retail to institutions chase performance, they tend to want to go with what was just really hot and dump what has not been performing.  This is probably the biggest mistake that investors consistently make.

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Picture

4 Lessons From Legendary Investor Stanley Druckenmiller

The investment community was blessed this week with the opportunity to hear legendary investor Stanley Druckenmiller share some of his thoughts about investing.  Stanley is mostly known for the $1 billion dollars he made for George Soros betting against the British Pound in 1992.  From 1986 to about 2007 his fund had averaged 30 percent annually.  In 2010, he decided to give back outside money due to his frustration to produce the returns he was accustomed to. He was managing too much money, and that made it extremely hard to produce significant returns.

Stanley sat down for an interview with Andrew Sorkin at the DealBook conference on November 3rd, 2015.  I won't get into what he is buying or selling because like everyone else he is going to be wrong half the time and if he changes his mind about something he mentioned we probably won't know about it. However, there were some important investing lessons we can all learn from.

Stanley in bold;

"Everybody is managing for the short term". This is true, corporations want to make sure they beat the earnings guidance every quarter, investors/traders want to beat the SP500 every day, money managers want to beat it every month.  This thinking at times makes people do things they shouldn't. Time is the most valuable tool an investor has.

"A lot of things work in the classroom that don't work in the real world". This statement is a universal statement; there is nothing like hands-on experience.  There might be some benefit to paper trading; however it misses one of the biggest components of investing which is emotions.

"I'm very open minded, and I can change my mind very quickly".  This is crucial, there's saying on Wall Street; "you want to be right or do you want to make money." Being wrong in the stock market is not an option, staying wrong is.

"It's very hard to short stocks, it sounds great in theory, it's very difficult because basically you are playing against the house, the government, the security industry, everyone."  Shorting is tough, you have many things going against you, all you have to do is look at the stats, in the last 35 years the average intra-year decline has been 14% on the SP500 and yet the market managed to close higher for the year 28 out those 35 years.

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Full Interview

Picture;/Insider Monkey

The Huge Difference Between 2011 and 2015

There as been a lot of comparison of the recent market trajectory to the one of 2011.  I have made that comparison numerous times here in these pages.  As a matter of fact, the correlation of the 2011 sell off, and the current one stood at 90% on September 22 and it is still very high today, you can see that in the chart below.

While on the surface they look similar, acted almost exactly the same, at times to the day, underneath the surface they couldn't have been any different.  In 2011 when the market rallied in October the rally was broad, the rising tide literally lifted all boats.  This October the rising tide lifted a few boats, notably a few of the large ones; $AMZN $GOOGL $FB.

Here are some of some of the differences;

In 2011 when the SP500 rallied 13% that October stocks up 25% or more in the previous 65 days jumped from a low of 103 on 10/3/2011 to a high of 2,078 by 10/27/2011 a net figure of +1,975.  Our current rally of 10% started with 248 stocks up 25% or more in the last 65 days, and that figure at its peak jumped to 729 a net figure of +481, an enormous difference.

In 2011, we had very high readings of stocks up 50% or more in one month showing how broad and powerful the rally was for individual stocks.  Readings above 20 don't happen very often, in 2011 that reading hit a high of 80 stocks. Our highest reading in the current rally was 23 two days ago.

The McClellan Oscillator on October 2011 registered some very high reading that are rarely seen.  High readings show the strength of the rally, reading above +200 don't happen often. Back then we saw two readings of above +300, and the McClellan Oscillator stayed overbought for days. 

This year we got two overbought readings, showing you the lack of UMPH,

You can view this information as positive or as negative.  Negative breadth divergences are not always a negative; you have to keep an open mind that individual stocks can catch up to the indices and broaden out the rally.  On the flip side, acting on negative breadth divergences does not work as well or as timely as positive breadth divergences.  Indicators work very differently from the bull and the bear side.

If you are scratching your head why the recent rally did not make it to your portfolio, now you know why. The good news is that it might still make it to your destination.

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STATS COURTESY OF STOCKBEE