Trying to catch a stock when it changes trend is a tough game to play, but if you are able to time it just right, that can be when you get the biggest move.
Way back in October of last year I noted that the $FXI looked like it had bottomed and was getting ready to break out. Since then it has gone up roughly 20% and shows no signs of slowing down.
When you get a macro move like this, one that you think will last for a long time, the first thing you want to do from a trader’s perspective is look for stocks that might benefit from that move. Sometimes you will find stocks that are first movers, going lock step up with the macro move. But you also want to look at stocks that may be changing their trend in relation to that macro move and haven’t broken out yet, but are setting up nicely.
That is where I think $BIDU is right now.
$BIDU has been in a large down channel for almost a year; however it is now consolidating in the upper range of that channel just below the trendline which corresponds to the 200 day moving average (ma).
Moves that correspond with a breakout above more than one resistance factor, in this case the downtrend line and 200ma, are often more explosive and last longer than other moves.
On a breakout with good volume above the $113.50 you would look to get long BIDU with your first target level being around $134.50, which corresponds to the previous channel high. If you put a stop in at $107.50 you are setting up a 1:3.5 risk to reward trade; or even better if you choose a tighter stop.
It’s not nice to steal. Unless you are a poet, an artist, a musician, an architect, a writer, or you do anything that requires even a modest amount of creativity. Then it’s not IF you steal, but HOW you steal, that makes all the difference in the world.
That is the basic thesis of the fantastic book by Austin Kleon, Steal Like an Artist: 10 Things Nobody Told You About Being Creative.
Kleon argues that almost nothing in this world is “original” and that generation after generation of artists have built upon what has come before them, adding their own unique flavor and signature along the way, which can produce something that is both derivative, yet interestingly unique.
One of the most obvious areas where this exists is in popular music, which is littered with examples of artists who have “borrowed” from past influences.
Take almost any British band from 1962 to 1969 and you will find that they drew heavily on the chords and structures of the American blues artists. And even the least bluesy of the British Invasion bands did their share of “appropriating.” It’s said of The Beatles that if you took the vocals off of their first three albums you would swear you were listening to Buddy Holly.
However, the thing that kept most of these bands from being blatant rip-off artists was their sense of honor and homage to their musical forbearers and the ability to add something original in the process. That Kleon asserts is the right way to “steal.”
“The only art I’ll ever study is stuff that I can steal from.” —David Bowie
When I first started blogging, my biggest fear was that I would create content that was un-original. I went go out of my way to NOT read other blogs, or books, or anything else for fear that subconsciously I would repeat what others had already written in my posts. However early on I came across this blogging “secret” from Josh Brown;
Excerpting: Blogging is essentially a derivative form. From a foundational standpoint, it makes use of article excerpts the way early Hip Hop was built on soul music samples and rock song break beats. Most financial blogging is predicated on the blogger being able to tease truth and meaning out of traditional articles and reporting. At its core, financial blogging is taking third-party market data and journalism, often from mainstream outlets, and using it as the basis for further comment, disagreement, or elucidation. There is plenty of room for your original writing but if you’re not building around the constant news flow then you’ll quickly find yourself running out of things to blog about. You will also become irrelevant as the reader is looking for news reaction and analysis, not just the cloistered remarks of a disconnected Man Apart.
…and BOOM (which in itself is derivative), it hit me. The way to create an interesting blog was not to starve yourself and then hope for diving inspiration from your reclusive (and probably drunk) muse, but to consume as much as you can and then write about it in your own unique voice, adding original content where needed.
Kleon’s book just reinforces that idea in a way that is very simple yet powerful.
Hat tip to the wonderfully eclectic site Brain Pickings for bringing this book to my attention.
Yesterday I did my regular Monday “hit” with Marc Mandel of “Business for Breakfast.” We talked about the current state of the market, why you can’t anticipate moves, and how the retail investor can come back into the markets with an edge.
Good setups have been pretty easy to come by lately. From last week’s post we had CF up 5%, SCHW up 3%, APC up 5%, and the big winner was KBH up 14%.
Of course most of this is due to the overall market just grinding higher.
A nice proxy for the overall market, $FDX is moving into 5-years highs which signals that the economy is getting back on track.
I actually was thinking to myself that we are now in a swing trade type of market, and that thought, plus the ease of gains lately tells me we are probably in for a pullback soon. But as always, price action is what we follow.
I have been asked what the best way to use this weekly list is, and here are my suggestions.
First you can use it for a day trade or very short-term trade template (2-4 days). Each week there are usually a couple of candidate that make a nice quick move. However, the other way you can use it is for a longer term template. I tend to be “early” on some picks, so if you can get a nice entry you might be able to hold them a few weeks. Here are some examples from recent posts.
I highlighted a buy area in $GS back in late December, indicated by the green arrow. You could have bought it there and pretty much held it since for about a 17% gain.
$ADM recently recaptured its 200ma and is basing below a resistance level.
$ADP is getting ready to breakout into 12-year highs. The script here would be anticipation of the jobs market coming back. Needs a few days of sideways work first.
$BIDU is a holdover from last week. This very tight flag just below the top of a large down channel could be the launching pad for a move and a change of trend.
If you look at the bottoming pattern in the oval area, there is something of an inverse H&S pattern. The consolidation afterwards along the 200ma makes me think $BTU is getting ready to move.
If the economy is really on a comeback, this shipper should be near a bottom. The tight flag gives you a good risk/reward setup to get long on a breakout in $EGLE.
Financials have been hot lately, and this tight flag on $FITB after breaking into 5-year highs is a great setup to get long.
Arf, arf. Yes, $GRPN has been a dog, BUT……!!! If it can break this resistance level at $5.50, it has a good chance to get to at least the 200ma around $6.90 or even the gap fill at $7.40 setting anywhere from a 1:3 to 1:8 risk/reward ration depending on how tight you set the stop.
After putting in a double bottom, $HAR is consolidating in a tight range at the top of a very large “W” pattern.
I highlighted $IBB, a biotech ETF, back in mid-November, noting that it made a “double tap” off its 200ma. Since then it has set up nice, consolidating right below it’s all-time high.
$KEYW is a holdover from last week. I just like this pattern.
Keeping in the biotech mode, $LLY is consolidating nicely under 5-year highs.
Last week I noted that well run casino companies were on my radar to be the big winners this year. $MGM is providing another chance to get long on a break out here if you missed the first one.
$OXY looks like it may have bottomed here. Nice consolidation and now is breaking past the 200ma.
My traditional “I don’t know what they do stock,” but this consolidation zone after breaking out, right under all-time highs looks nice.
I hate trading $WLT and in fact is was on my post, “The 5 Hardest Stocks To Trade….Ever!” Having said that, the stock is getting to a point where resistance and the 200ma are converging. A break of that area could finally send this perpetual buyout stock flying.
Let’s be honest, you could pretty much throw a dart any day of the week at the StockTwits Blog Network, and end up hitting a post that is better than 99% of the other stuff out there that passes as financial blogging. So to say these are “The Best of….” is a little disingenuous; let’s just say these are some of the posts from the last week that caught my attention and I think will interest you.
I’m not much of a movie guy, but I dig James Bond. I’ve dug James Bond since back when it was still cool to use the terms “dig” and “dug” to show how much you liked something.
So earlier this month when the Academy of Motion Picture Arts and Sciences announced that there would be a segment honoring 50 years of Bond films, well my mind began to race. Wouldn’t it be cool if they could get all six of the actors who played James Bond on the stage together for the first time ever? However, accomplishing this feat isn’t exactly as easy as one might think.
Sean Connery, for one, long ago retired from making movies and even retired from making public appearances in 2011, so getting him to appear seems like a stretch. And let’s face it, without the original Bond showing up, well, what would be the point? Add into the mix the unlikely chance that George Lazenby’s boss at the fish & chips shop where he works would allow him a full weekend off, and the odds of making this gathering a reality seem slim.
But that is exactly what The Academy is trying to make happen.
From Vanity Fair:
A day after it was announced that Adele would perform her Oscar-nominated James Bond theme song, “Skyfall,” for the first time live at next month’s Academy Awards, a rumor is circulating the Interweb that the Academy will further pad the James Bond portion of the February 24 program. Producers have already revealed that the show, hosted by Seth MacFarlane, will feature a 50th-anniversary tribute to the iconic British spy, most likely a montage celebrating the franchise’s 23 films. A new report, however, speculates that all six of the actors who have played Bond over the years—Sean Connery, George Lazenby, Roger Moore, Timothy Dalton, Pierce Brosnan, and Daniel Craig—will unite for the first time ever at the Oscars as further tribute to the Ian Fleming character. While producers have confirmed both the Adele and anniversary-tribute aspects of the program, there’s been no word on a possible reunion—not exactly a surprise, since, as Entertainment Weekly notes, Academy Awards tributes are usually kept under wraps until the show.
If, in the tradition of improbable Bond endings, they actually do manage to pull this off, it will surely rank up there as one of the most iconic moments in Oscar history. Stay tuned!
UPDATE: We have a winner, well actually two as their answers and timestamps were the same. The answer was “David Niven.” Although a “gray area” answer, I would have also accepted “Peter Sellers.” And remember, I did say “in films” so all those who portrayed Bond on TV, radio, or stage don’t count.
Have you ever had one of those moments where you were at a function or an event with a group of fantastically talented people and you said to yourself, “how in the hell did I get here?” Well that’s pretty much how I feel about my inclusion in the new book Traders at Work: How The World’s Most Successful Traders Make Their Living in the Markets.
In fact I think that one the seven signs of the apocalypse is having my name mentioned in relation to trading on the same pages as a Market Wizard, in this case Linda Raschke.
Seriously though, I am very honored to have been asked to be a part of this book alongside such other well-known traders as Peter Brandt, Anne-Marie Baiynd, and Todd Gordon, and I hope you find something useful from my chapter. And if you do, please feel free to drop me a line and let me know at bclundblog @ gmail dot com.
“Get my stuff and get the car right now,” my wife yelled at me, “I’m going into labor.”
“Oh, come on now honey, are you sure?” I replied.
“What do you mean ‘am I sure?’ My water just broke.”
“But are you sure? Maybe you just spilled something on yourself?”
I actually said that. To my nine month pregnant, hormonally super-charged wife.
Technically I should not be alive. Fortunately I know how to duck and the can of hair spray she hucked at me missed by a mile.
My first child was within hours of arriving but I was not ready for it. I had no idea what to expect. And even if I thought I had an idea of what to expect, there was no way that I could really be sure how I would react when the reality of the situation hit.
APPLE AND NETFLIX
Yesterday was a tale of two different stocks and two different expectations.
On one hand was $AAPL, which had an 18% increase in revenue to a record $54.5 billion. Profit also set an all-time high coming in at $13.08 billion.
On the other hand was $NFLX, which had $945 million in revenue with a profit of $8 million.
In after hours trading $AAPL dropped 10% loping off $50 billion in market value, while $NFLX stock surged 30% adding $1.6 billion in value.
And if you contrast the fact that $AAPL is a technological juggernaut, that not only owns, but created most of the high end gadget market, while $NFLX is transitioning out of a dying business model into an ultra-competitive one, it makes the price action in these stocks even more baffling.
But the key to unravel this mystery is expectations. It’s all about expectations and the reality of how earnings come in relative to those expectations. It’s why gaming earnings is one of the most subjective things you can do in the markets and one with almost unlimited risk.
As we proceed through this earnings season it’s good to remember the examples of $AAPL and $NFLX in order to decide if you really want to hold stocks going into their announcements on what is basically a coin flip.
And if you absolutely have to trade earnings, make sure you hedge your position risk with options, or better yet, use lower risk strategies like spreads as a proxy instead.
Yesterday the big story in the markets, well besides $AAPL dropping about $50 billion in market cap, was the phoenix like resurrection of $NFLX. But somewhat overlooked was the fact that the 43% jump in stock price brought activist investor Carl Icahn’s profit on his position to roughly $750 million.
I’ve always liked Icahn because he speaks his mind and is a no bullshit guy. And I love the fact that at the age of seventy-six he is at the top of his game, not just content to sit on his $14.8 billion in personal wealth, but jumping into some of the most beaten down stocks like $NFLX, $HLF, and (rumored) $RIMM, and slugging it out with incompetent management.
Icahn’s life and the history of his transactions are just begging to be tackled by a serious writer in the same style as was done with KKR in The New Financial Capitalists. Until then check out one of the few true biographical pieces on him done by 60 Minutes. Although shot in 2008, it is still a fascinating look into this financial giant’s world. (My favorite part is his description of the typical CEO that he is up against at the 5:40 mark).
I’ve been beating up on the $AAPL perma-bulls pretty bad over the last few months and in all honesty, it hasn’t been a fair fight. Its felt more like fishing with dynamite. But that’s the way it always is with extremists.
Those who choose to only look at one side of an issue, an idea, or a theory make themselves easily vulnerable to the slings and arrow of reason, common sense, and experience.
History is littered with the failed remnants of ideologies and dogmas once promoted by political, religious, and secular extremists. But I am well versed in how to deal with extremists, as one lives under my own roof; my seven-year old daughter.
Although slowly becoming more moderate, there have been times in the past where she has shown herself to be narrow-minded, hyper-focused, and relentlessly dogmatic in her pursuit of the only thing that matters to her…….
How bad has it gotten?
Once when she was just four years old, the mailman brought a birthday package from her grandmother; a heart-shaped box of chocolate. It arrived in the morning and of course she set in right away to try and get what she wanted.
“Daddy, can I have a piece of that chocolate, please,” she said.
“Sweetie, it’s only ten in the morning. You have to wait til after you eat dinner tonight to have some,” I replied.
“Oooooohhhh, but pleeeeeeease daddy. Can’t I just have one, tiny, little piece of the chocolate? It looks soooooooo good.”
“Now honey I already told you, you don’t eat chocolate in the morning, it’s not good for you. I’ll put it on the counter and you can have a piece tonight.”
“But all I want is just one piece. I love chocolate so much daddy, can’t I just have one piece. One……little……piece……pleeeeeeeease…..????”
“No,” I said. “You are pushing your luck here. If you want a piece at all tonight you better stop asking. You are not going to get any chocolate right now, understand?”
And with that she looked up at me with those patented puppy dog eyes, nodded her head, then paused for a moment, and finally said…..
“Can I just smell it?”
$AAPL perma-bulls are extremists not only in their one-sided view of the company and the stock, but in the way they think you are supposed to operate in the markets, which I can tell by the questions they ask me.
One of the (weak) retorts that I get from them on a regular basis is, “Well if you’re so smart, how should I trade $AAPL?” or the variant “If you were so sure $AAPL was going down, how come you didn’t make a ton of money shorting it?”
These questions presuppose that there is just a binary choice when it comes to trading $AAPL, go long or go short. And by extension, if you are not getting long, then you MUST be getting short. This is a naive assumption.
It’s not a binary choice, but a “trinary” one. Go long, go short, or step aside.
The (relatively) easy money going long $AAPL was from $400 to $630 and then again from $610 to $700, which I pointed out in this post. The (relatively) easy money going short $AAPL was really only from $700 to $530.
I really only ratcheted up my pestering of the perma-bulls after the easy money trends were obviously broken. That didn’t mean that you couldn’t make money on the long side in bits and pieces, but rather that the “buy and hope” philosophy of the $AAPL extremists could lead them to serious losses.
Simply put, it meant that you had to be a very, very skilled trader to pull money out of $AAPL on the long side OR the short side. I have watched certain people like Ron Roll and Angela Zhou trade $AAPL profitably for years. They are part of an elite group that can trade $AAPL in all sorts of conditions, including the one it’s currently in.
But in my opinion, the best way for most traders or investors to play $AAPL right now is to be neither long or nor short, but out.