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Sunday, July 26, 2015

Bears let me save you money on LNKD Earnings

LinkedIn's Earnings is this week on the 30th after market and it looks very interesting from the technical perspective just because its sooo f'ed up!  But I like this because there's so many opportunities from an option perspective if you pick the right one.  However I don't play earnings, and I don't know enough about options.  So I'll leave it to you to decide.

Here's the possible scenarios I see.

Going over some of the current earnings results show they are mixed because its all about expectations (GOOGL AMZN vs AAPL).  Sure the company had a great quarter, one of the best, but it either guided down (BIIB) or it just wasn't impressive enough (AAPL).  Fact of the matter is you don't know who will or will not meet expectations.

I have no idea what LNKD's numbers well be or whether or not they'll meet expectations.  But I do have a pretty good idea what people will be paying if they do beat and what they'll do if they miss.

I'm guessing a 25pt move in either direction (spread:50).  Based on Fridays 225 close we can either gap up to 250 creating another nasty gap up or we can gap down to 200 where we've seen support in May and Oct/Nov 2014.  I find it really hard to believe LNKD can pull a GOOGL AMZN and go beyond 25pts (10%) especially after their last ER performance. (GOOGL AMZN both gapped up 15%+.)  Also its July5 (weeklys) pricing in about 28pt move with 129% IV.

So if we do beat it creates another short term gap up and you'll probably run into resistance around 250-270 area and you'll lose a lot of money.



If we gap down, sure you lost that 25pt move but it creates a better Risk/Reward versus an earnings GAMBLE.  We'd create head and shoulders on the weekly and there's a good chance it will bounce around 200 before it rolls over some more w/ possible 150-40 downside.




Anything is possible right now, there's opportunity for the bulls but I think the bears have the most options.  For me I will be waiting for AFTER earnings although I've very tempted to sell 225 straddles ;)

Saturday, June 27, 2015

This time is different and....

This time in the stock market is different and it can end in a very good or very bad way.  First off, I say this because I've noticed something in this rally that hasn't been seen in any past major rally in the last 40 years....See if you can spot it?





If you haven't noticed the difference I'll give you a hint, it has nothing to do with prices or all time highs.  I has to do with trading volume.  FYI, this is the best data I could get so the accuracy of these charts can be questionable.

There's a lot of reasons why trading volumes could be so low.  You'll hear institutions are using more derivatives (options/futures).  It could be that investors are still scared and have their cash on the side lines. Maybe it's just the new norm...

But considering we've had the largest share buyback in history you would think these big players would be pushing up stock volumes (http://www.businessinsider.com/sp-500-corporate-cash-use-since1999-2015-6). So what gives? I really don't know.  Maybe they're arranging deals with large institutions who want to get rid of shares so it's not done in the open market.  But something is definitely off.

There is one more thing to consider as well.  We've never experienced a fiscal stimulus to this extreme.  The trillions of dollars the FED has spent on QE.  The massive debt the US has on their books.  We've never had interest rates this low for so long. TYX, TNX, FVX all show this

While the SPX has done this...it's not a coincidence

You know how people say that they don't like shorting stocks because there's limited profitability.  Well with rates we've hit the bottom.  And sure some will say that's not true, rates can go to negative.  Well guys, the only countries that have negative rates are in Europe and we know how well that is going.....Why do you think trading volumes are so low?

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

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php

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 https://www.youtube.com/watch?v=KYRcAKYYEG4).  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 (http://www.nonstop-games.com/2014/08/nonstop-games-joins-king).  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 (http://www.businessinsider.com/king-digital-tanking-after-earnings-2014-8).  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 (http://www.cnbc.com/id/101645678)

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 http://www.businessinsider.com/next-crash-likely-to-look-like-1987-2014-8

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)

YHOO
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.