Tuesday, January 27, 2015

The Big Picture Doesn't look as Bright

One thing I've notice with people in my generation, "millennials", is that we get tunnel vision and want instant gratification.  And many times we lose sight of the bigger picture because it is hard switching gears and changing your play book that's working.  For the past several years buying the dip has paid off, but like all good things they come to an end.  (For the bulls, I'm not calling the top right now).

I'm a day/swing trader but I always find that it helps to understand the environment that we're in and when things can change instantly.  For instance, I haven't paid this much attention to oil until I realized it was in the 70s!  At that point you're thinking no way can it go lower, but look at it now in the 40s.  In hindsight we'll find out if oil was in a bubble.  But when you see this unusual movement it makes me wonder what other things have I missed.  And it looks like I've missed a lot!

Margin Balance hasn't made a new high in almost a year

Equity Markets usually lag but see no sight of slowing down besides NYA and IWM having a volatile few months

IBB is the most speculative sector out there and these parabolic movement always come to a fast and crashing end.  But no signs of a slow down yet.

With all this chop in the market the beginning of this year I would NOT be surprised to see much more volatility, buying the dips failing, and nothing like the "easy money" environment (take it with a grain of salt) we've seen the past 3 years. 

Monday, August 25, 2014

Fundamental Trade: Short Tiffany & Co. (TIF)

NOTE:  My trading strategy is based on risk management and technical analysis.  I will rarely trade earnings unless I have a strong fundamental "belief" that my idea will play out.  I will use options to limit my downside risk with the understanding that it takes time for these ideas to play out.  When I try to time the market with a fundamental idea it's a coin flip but it can pay off like my King Entertainment (KING) trade.

Disclaimer:  I'm not an advisor or certified in anyway.  These are my thoughts and opinion so make sure you do your homework and trade accordingly.

So why short Tiffany & Co (TIF) while it's clearly in a bull trend?

I have no experience buying jewelry and by looking at my calendar this past year I've had over 8 weddings.  These are signs to be bullish on jewelry, especially with all the new money from IPOs and all time highs in the stock market.  They also increased their dividend by 12% which also helps with the appreciation.  However there is an overall theme going on during this earnings season.  High end luxury retail has been getting crushed.  Take a look at some names: JWM, BID, COH, KATE, KORS, RL. Granted most of the products these stores sell don't compare to a diamond ring but it does show a good picture of the overall sentiment.  Also take a look at the S&P Global Luxury Index.  As S&P500 makes new highs this index looks like it could roll over.

But the main catalyst I have to short TIF is CHINA.  For the past year China has been cracking down on corruption, money laundering, miss use of government funds that even the cognac makers are feeling the pinch!  If you've ever done business in China you know nothing will slow them down from drinking!

Another segment in the luxury space that has benefited from China are the casinos: LVS, WYNN, MPEL, MGM.  However since the beginning of the year they have been huge under performers compared to the overall market.  And why is that?  Because of reforms in China.  People are pulling money out of China as fast as possible buying up properties in the US and Canada.

If you look at TIF's last earnings the majority of the growth came from Asia.  Now, the only fundamental risk I can think of to send TIF sales to the upside is if these people in China are buying jewelry as a way to move their money out of the country.  It is a possibility, but I don't know the rules or what type of loop holes they can get around it, its only a theory.

Overall Sentiment?
Wall Street sentiment as always is bullish.  There is only one analyst that has given any warning and that is Christian Buss from Credit Suisse.  With the markets euphoric state, any miss in the top/bottom line or guidance will send this stock crashing.

My Targets:
A slight miss I'm targeting 95-96.  A big miss I expect a gap fill around 90-92 creating an island pattern.  The risk to the upside is around 103-105.  I will likely buy JAN15 95 or 97.5 PUTs today or tomorrow before earnings.  I'm buying JAN15 because if it does become a miss trade, I can sell some puts to see if the trade will work out later this year.

(Disclaimer: I am currently short LVS and KATE)

Monday, August 18, 2014

Fundamental Trade - Short King Entertainment (KING)

NOTE:  My trading strategy is based on risk management and technical analysis.  I will rarely trade earnings unless I have a strong fundamental "belief" that my idea will play out.  I will use options to limit my downside risk with the understanding that it takes time for these ideas to play out.  When I try to time the market with a fundamental idea it's a coin flip but it can pay off.

Here's an example.

I traded King Digital Entertainment (KING) prior to earnings with the understanding that they had low expectations and that any beat would have killed my option contracts.

1. I know, as a Candy Crush player, that the game is fading in popularity.  I've beat all the levels (yes, I have a problem), my friends don't play it as much and it's starting to get boring very fast.  I don't know anyone that's ever paid for Candy Crush but obviously there are some degenerates out there (this is a good laugh  Bottom line is their number one game is dying and all their other games haven't gotten nearly the same traction as Candy Crush.

2.  Who does this remind you of?  Zynga Inc, which reported earnings the week prior to KING.  After that earnings call they made a 52 week low.  However, since then the shares have rallied, probably from a short squeeze as the overall market rallied.  Their earning miss gave me even more confidence that King would miss.

3.  KING is expanding through acquisitions.  Once again who does this remind you of?  Yes, Zynga.  Remember when ZNGA paid $180 million for Draw Something?  Everything went down hill from there.  KING recently partnered with Non Stop Games (  I have no idea who they are so I won't comment on how this will effect both companies business.  But its worth noting that KING is having a difficult time growing organically.

The Chart

1.  From observing the last earnings there was going to be a ton of volatility to the up/downside.  I thought a good probability if they missed that it would revisit the lows of the last earnings around 17.
2. Prior to earnings the stock looked technically weak below the 50 day moving average.

I am not an options guru by an means so I know I could have structured this trade differently possibly with a vertical spread to protect my downside risk or use a straddle but I wanted to keep it simple.  I managed my risk through the size of my position.

What now....I think KING will likely fall to the low single digits with time.  It will have its pops and drops but a few more earnings I think we'll be much lower.  I currently still have my option position open but will close it if it gets above 14.  I'm even considering rolling my contracts to November.  KING announced a special dividend payable September 30th.  Which is likely a ploy to keep investors from selling their share prior to the lock up period on September 22nd.  Pretty convenient timing (  When have you seen a fresh IPO pay out a dividend 6 months into an IPO?  They're likely scared from what happened with Twitter (

I have many of these ideas and sometimes I'm right and sometimes I'm wrong.  The only thinking I know is how much I'll lose if I am wrong.  My next idea will be Tiffany & Co. (TIF)

Here was my trade

Chart Setups 8.8.2014

Haven't done these chart set ups in a while but thought I'd put some ideas out there.

Please note I'm not a registered advisor or certified in any way.  These are my ideas that I'm potentially trading on. Do your homework and if you want to chat about these ideas feel free to reach out.  I trade based on technical analysis. So watch your risk and time frame because it will likely be very different than mine.

As QQQ makes all time highs SPY IWM DJIA IBB are lagging.  Shouldn't be a huge surprised but this divergence should close as all divergences usually do.  TLT has been a beast as people expect higher yields, just expect more of a squeeze.   What does it all mean I really don't know.  Most likely we go higher as I see bears pounding the table.  But they will have their day because I do believe this is a more likely situation that John Burbank points out

Have fun trading guys!

Bull Charts

 I got long GWPH today

 I am long RGLD

 I am long SOHU as of today

Bear Charts

 I am shorting DATA

I am shorting LVS

Sunday, April 27, 2014

The Big Picture: Leading Stocks Turn before the Indices

"History doesn't repeat itself but it often rhymes"

We're just a couple months past the 5 year bull rally and it looks like we're getting exhausted.  Maybe we're taking a break before the next move up but no one knows.  What I do know is what has happened in the past.  Take a look at the Nasdaq composite.  This isn't a coincidence.  Resistance to higher levels at this point should be expected.  What concerns me here are a couple of things
1. The last 2 rallies ended almost exactly 5 years (this is likely a coincidence) but for it to happen a third time wouldn't surprise me.
2.  Look at the volume the past 2 months.  Huge selling versus the last couple of years.  This is not good!

The tapering also isn't helping.  And the Fed will continue to taper

For those waiting for SPX and Dow Jones to show further weakness could be a mistake.  Leading stocks always break down before the general market.  This is due to rotations of funds from speculative stocks to less speculative (CAT MSFT MMM PG XOM, pretty much anything in the DJ30 and large cap SPX stocks).  Utilities have be performing great due to low interest rates (look at how well TLT has performed) and its a defensive play.

Here are some examples of what I mean.  During the tech bubble some of the hottest companies during that time ran up substantially.  They also fell faster and harder too.

The Nasdaq Composite peaked out in March 2000, Q1 (it could be another coincidence we're peaking out Q1 2014)

Peaked out January 2000

PCLN - Peaked out from the get go.  Hot IPO that didn't have any legs and just continued to fall.  Sound familiar (KING COUP GRUB etc)

AMZN - Peaked out December 1999

MSFT - Peaked out December 1999

PLUG -Peaked January 2000

I was in high school at the time and I even knew at the time these stocks were some of the hottest tech stocks out there.  Also don't forget about the stocks that didn't survive the bubble.  There were many.

Now take a look at the new leading momo stocks: FEYE, SPLK, DATA, GOOGL, PCLN, WDAY, COUP, TWTR, NOW, YELP, IRBT, QIHU, BLOX, MKTO, NFLX, AMZN.......the list goes on and on because I haven't even mentioned biotech names.

Yes this is tech/biotech sector specific but what leads a market up will probably lead it down.  I don't think we'll get a crash yet but definitely a correction, a bounce here and there, but ultimately a crash is unavoidable.  The market always crashes, it's the nature of investing.  We hit euphoria and ultimately get the worst hangover ever.  Mean reversion.

OR maybe we do continue to fly higher and higher and never come back down.  But if you believe that lets be honest you shouldn't be investing.  Play some defense.  Take some profits from the 5 year bull and see how things play out.  Also note my time frame may be different than yours.  Trade according to your plan.

Good luck and trade em well!  Let me know if you have any questions or comments.

Monday, March 31, 2014

LETHAL: To Family, Friends, Followers

To Family, Friends, and Followers

I don't normally like to give stock tips or advice, but I feel compelled to keep you aware of possible scenarios that could happen.  When I see ads for pulling equity out of your homes to put in the market, house flipping tips, or jumping into the new IPOs (KING, BOX, etc) it raises some red flags.  Not saying it will happen soon but something you should definite think about or ask your financial advisor.

I jumped into trading because it can be very lucrative, but more so because of my fears.  I fear that I would one day be blindsided when I'm close to retirement and my 401k or IRA "investment"  loses 40-50%.  People say it will never happen to them until it does.  You can ask the millions in 1987, 2001, 2007 and many more before that.  For me I like to have a plan and not be caught off guard.  Being mentally stuck and hoping/wishing my stock will come back is a horrible horrible feeling.  We've all said this "when it gets back up to X I will sell or if it drops to Y I will sell", but never do.  Have a plan!   2013 was an amazing year for all 401k holders.  This is not a normal year!  The music will eventually stop.

I'm not saying the market is going to crash, I'm just saying have a plan and play defensively.  Here is a simple way of how you can protect yourself.  Plot a moving average on a long term chart either on a weekly or monthly basis.  Depending on your risk tolerance you can use a shorter intervals if you are risk adverse or those that can withstand bigger drawdown use something longer.  You can use intervals that may "fit" the chart better such as on this monthly chart I used 24 (2 year average).  As you can see it's not a perfect but its a simple plan and you can manage it once a month.  The moving average is the average price of the stock for X number of intervals (20 is 20 day average) and plotted as each day passes using the new closing price and replacing the old.  These charting tools are available through Yahoo Finance! and Google Finance.

Imagine if you exited the stock market when the S&P500 crossed below the blue line.  I would have saved many people thousands, even millions and a lot of heart ache.  All you have to do is adjust your exits once a month as the blue line changes.  Human emotions are always a factor.  So I suggest using STOPs on all your stocks and mutual funds (if you have mutual funds you should probably exit those because the fees are ridiculous anyways.  We can talk about it another time).  Stops are automatic entries that will exit your stock when it hits the price point.  With Charles Schwab they have a feature called Good till Cancel (GTC, typically last 60 days).  Example below.  This will ensure that you exit the stock.


1. Long Term Investor.  Being a long term investor is just a definition of time/horizon.  People make money by trading day by day and there are people making money trading year by year.  My generation is considered the lost decade.  If you started investing in your 401K in 2000 you would have a gain of 0% as of April 2013!  I started investing in my retirement fund in 2005 when I started working and it just started appreciating in 2013.  I was lucky enough to pay more attention to it and doing much better.

2. Excuses.  Excuses are the reason why we say I wish I did this, I wish I did that.  Ifs are the same thing.  How many times did you say it in 2000 and 2007?  The next crash will be the same. And yes, shoulda woulda coulda

3. Taxes.  These are retirement funds buying and selling in and out of stocks shouldn't be a concern.  It's better to have to owe than have carryover losses.  Owing means you've made money. Just don't withdraw until your age limit.  And many of you make much more than I do so I would consult a tax advisor.

4.  Hope. Hoping a stock will come back up is not a strategy/plan.  Hope will eat you alive.

Here is a story by a trader named William O'Neil.
It's the story of an old man and his turkey trap. There was an old man with a turkey trap that consisted of a box held up by a prop. Wild turkeys would follow a trail of corn under the box. When enough turkeys were inside, the old man would pull a string attached to the prop, thereby dropping the box over the turkeys inside. The goal was to trap as many turkeys as possible. One day he had 12 turkeys in the box. One wandered out, leaving 11 behind. "Gosh, I wish I had pulled the string when all twelve were there," said the old man. "I'll waft a minute and may be the other one will come back." But while he waited for the 12th turkey to return, two more walked out "I should have been satisfied with eleven," the old man said. As soon as I get one more back I'll pull the string." But the turkeys kept wandering out the old man couldn't give up the idea that some of the original number would return. With a single turkey left the old man said, "I'll waft until he walks out or another goes in, then I'll quit" The last turkey joined the others and the old man returned empty-handed

5. Act and be Accountable.  Any action you take you should be accountable.  Can't blame others for your actions.  Whether I'm right or wrong I'm making the decision.

6.  Laziness.  Don't get lazy.  This is a 10 minute task to do once a month!  And after the market does crash the music will eventually play again.  Don't be lazy, find new investments in the recovery.

Here is some additional reading that I think is worth noting.

Hopefully this helps.


Tuesday, March 18, 2014

New to shorting? Here's a trick to pick your short trades

Shorting is considered much harder to trade than going long.  But ultimately you use the same techniques as going long.  You look for support and resistance, patterns and always always obey your stops.  Especially since going short your losses are unlimited if the trade goes against you.

There's also psychological aspects of going short.  Maybe people think its unamerican but personally if you can go long and short in this business you're risking some great opportunities.

I like to have some short stocks on hand as a hedge even if the market is going up.  I've made the mistake of fighting the trend many of times, you just have to learn and fix.

Here are 3 great examples of how I look for shorts.

I look for charts like TWTR for example and I'll invert it (usually in my head).  Here is an example

If this inverted view looks BULLISH, then it would present a good short opportunity.  See how its found support at 58-60 (which is really resistance) and its creating this "bullish" saucer.  I do this because we're so accustom to looking at charts on a Long basis.  This method just presents a different perspective.

Here is another pattern I look for.  Charts stuck in a channel pattern, such as LNKD.  This is great for short term traders using the channel as "bands" to trade long and short.

AAPL has also shown a pattern of resistance.  As long as it can't get above the resistance line there's no point to holding this stock long.  But it's definitely tradeable.  If anything this chart has a higher possibility of trading lower if it were to break 520.  Invert the chart and you'll see it.

AAPL Normal

AAPL Inverted

Hope this helps! Let me know what you think!