Some stocks with great setups I’m watching:-
Not the usual full blown review for a holiday-shortened week while I’ve been on vacation but just a few comments on some of our positions at interesting junctures. First off, here’s the updated stocks summary:- SUMMARY AS OF 4/17/14 OPEN POSITIONS:- Total 13: 10 winners, 3 losers. Average win +11.7%, average loss -1.9%. CLOSED POSITIONS:- Total 123: 61 winners, 62 losers. Average …View full post
McDonald’s ($MCD) $MCD has been on the radar since the major advance on 3/11 first indicated the downtrend from the April 2013 high may be over, and after a quick retracement an equally swift resumption of the intermediate uptrend followed. Last week saw an attempt to take out the November and August 2013 highs, and …View full post
There’s a tendency for people to only believe something they see with their own eyes. Traders are no different. When they see things gap or trading at vastly different levels from where they last surveyed it, they might be inclined to fade it or treat it with disbelief as if it wasn’t real. A decade …View full post
I normally separate the futures and stocks reviews, but given we’re down to the lowest number of stock positions since building up a complete portfolio around this time last year, I figured I’d take a look at everything together for a complete overview. That, and I’m on vacation, so I’m in reflective mood. We trend-followers …View full post
Not the usual full blown review for a holiday-shortened week while I’ve been on vacation but just a few comments on some of our positions at interesting junctures.
First off, here’s the updated stocks summary:-
SUMMARY AS OF 4/17/14
OPEN POSITIONS:- Total 13: 10 winners, 3 losers. Average win +11.7%, average loss -1.9%.
CLOSED POSITIONS:- Total 123: 61 winners, 62 losers. Average win +19.2%, average loss -6.9%.
ALL POSITIONS SINCE INCEPTION (1/27/13):-
Total 136: 71 winners, 65 losers (52% win). The average win is +18.1%, the average loss -6.6%.
Not much change there. We have the lowest number of positions since first constructing a portfolio over a year ago, and for the first time don’t have a single name in the IBD 50. What does that mean? IBD hasn’t changed their methods, and we haven’t changed ours. But where there was once a big overlap (typically 25-33% of our names) there is now none. It just means the names providing momentum and quality setups for us have changed. We go where momentum is, with what’s trending, we don’t limit ourselves to a select group of names. There’s no right or wrong in either, it’s just what works for us, and in this recent market environment that has protected us very well.
Let’s take a closer look at some of our names:-
Long $PKG 3/25/13 +63.8% (incl 6/11 div $0.40, 9/10 div $0.40, 12/18 div $0.40, 3/12 div $0.40)
I haven’t usually shown the 100-day with this but surprise surprise look where it is, lined up along with our price stop and the ATR trail, as if we didn’t already know the significance of this level, it just got further underlined for us. It will be a shame to see the last remaining position from last year go, but a clean break of 66.20 will be enough.
Long $NVR 1/30 +0.4%
$NVR had been treading water but started to weaken again this week. It’s now on the verge of going back into negative territory, sitting just above its stop.
Long $RAD 2/14 +19.7%
$RAD did a great job holding on to the previous week’s pop to fresh highs. It’s still too early to move our stop up any closer but another week or so like this last one could see us go to around the $6.80 level where the 20 and 50-day MA’s are rapidly approaching.
Long $MOS 3/6 -2.8%
A good recovery this week in what had been our only loser, $MOS reclaimed its 20 and 50-day MA’s, potentially leaving another higher low in place.
Long $IBM 3/26 -2.6%
It was interesting to see the reaction to poor earnings again from $IBM. On the surface and from gauging analyst sentiment and news coverage you’d think they were going out of business, but although the fundamentals aren’t my area of expertise I really think if you’re basing your negative rationale on that alone you are fighting last year’s battle. $IBM sat out most of last year’s market rally, and only in the last quarter has it started to recover, now they come out with a fifth straight disappointment and people pile on the negativity. Look at price. It was already in an intermediate uptrend and despite Thursday’s gap down we still closed above the previous breakout level as well as rebounding intraday from that descending trendline and the 50-day. I think this is a case where the fundamentals are already very well known but price is telling a different story. Either way, we’re far enough away to make sure we’re wrong if our stop is triggered, but also close enough to make it tolerable.
Long $AA 3/28 +6.9%
A solid performance from $AA. The recent breakout level and previous base from 2 weeks ago are now obvious next levels for a trailing stop.
Long $XCO 4/3 +5.9%
Energy continues to be one of the strongest areas of the market and our representative $XCO did a fine job recovering from some early weakness testing its 20EMA and breakout level before rebounding to end the week at 6-month highs.
$MCD has been on the radar since the major advance on 3/11 first indicated the downtrend from the April 2013 high may be over, and after a quick retracement an equally swift resumption of the intermediate uptrend followed. Last week saw an attempt to take out the November and August 2013 highs, and today’s move delivered the final confirmation we needed to enter. For longer-term players the $93 level would be a generous stop. For my own purposes I’m happy to use a close below $95.84, as not only would it create a new lower low, but it would also require a break of the 20, 50, and 200-day MA’s as well as a return below the descending trendline that first acted as a confirmation for this move, signaling a more complex long-term correction may be underway.
There’s a tendency for people to only believe something they see with their own eyes. Traders are no different. When they see things gap or trading at vastly different levels from where they last surveyed it, they might be inclined to fade it or treat it with disbelief as if it wasn’t real.
A decade or so ago when I was living in the UK, I had not long been a broker at Lehman in London and the market was yet to feel the effects of the dotcom bubble bursting. My wife and I would often host dinner parties with local friends, all 30 something’s. Life was good.
We lived on a small private road where there wasn’t much room for visitors to park so when we had guests over we’d typically have one car other than our own on our driveway and another in front of the house. On one such occasion as we enjoyed an evening of good food and conversation unbeknownst to us something extraordinary was taking place outside.
When it was time for our guests to leave, one of them, Martin, looked out in the dimly lit street to find his car had vanished. We rushed outside and tried to work out what could have happened or if/when we should call the police. Then, across the street, we could just make out what we thought was his car on our neighbors drive. We walked down the hill towards it, and sure enough it was. There it was over 60 feet away from where he’d left it.
Our relief at finding the car quickly turned into bewilderment as to how it could possibly have got there. We started to imagine all kinds of bizarre scenarios, how someone could have needed to move it, but then how did they move it without the keys, why didn’t they come and get us? Nothing made any sense. We unintentionally had used the old Arthur Conan-Doyle ‘Sherlock Holmes’ maxim of ‘once you have eliminated the impossible, whatever remains, however improbable, is the truth’ – It must have rolled there by itself. It was the only explanation.
We’d been reluctant to accept it initially because it was just so precisely parked on the driveway. Had the car been half way across their front garden in the flower bed it would have been obvious. It had been parked on a hill, the handbrake probably wasn’t pulled on hard enough, and over the course of several hours it had inch by inch slowly made its way down the hill in a diagonal direction, and somehow then turned at precisely the right time so as to perfectly meet the neighbors drive head on, deftly negotiating the two plant pots either side, and steadily come to a complete halt a few feet from the neighbors garage door, some 60ft from it’s starting point. Remarkable.
There is a scene in one of my favorite movies “All The Presidents Men” where Woodward and Bernstein are discussing whether or not they have the story even though they don’t have confirmation; “If there’s no snow on the ground when you go to bed and you wake up and there is snow on the ground, you can assume it snowed while you were sleeping, even though you didn’t see it happen, right?”
That snow didn’t just magically appear, just like Martin’s car wasn’t picked up by a crane and placed perfectly on the neighbors drive. It got there by the same laws of mechanics and physics, and it’s journey there was every bit as real, as if he had driven it himself.
It’s the same with the market. When you wake up in the morning, are handed the keys to the market, see the S&P futures some 60 feet from where you left them and have no idea how they got there, don’t immediately think it can’t be real or assume you should fade it because there’s no story and it doesn’t make sense to you. Just respect how it got there as if you had traded that session yourself tick by tick watching it methodically and naturally arrive at its destination. It may not have had as much volume or news driving it, but how it got there was real. Respect it.
I normally separate the futures and stocks reviews, but given we’re down to the lowest number of stock positions since building up a complete portfolio around this time last year, I figured I’d take a look at everything together for a complete overview. That, and I’m on vacation, so I’m in reflective mood.
We trend-followers normally get teased about some of our entries at highs, or exits at points where the trend could potentially resume in our favor, but some of them have been made to look very good all of a sudden. Especially in equities. Our exit in the NASDAQ long from 2 1/2 weeks ago is a prime example:-
A big decline in high-growth momentum stocks that hurts the index, you say? No problem. If it breaches our stop we’ll exit. It doesn’t matter whether it gets there on good news, bad news, or no news. If it goes, we go. By the time the serious damage was done we were long gone. Imagine what this could turn into. Our exit is already a distant memory. What incredible foresight did this timely exit require? None whatsoever. Just a process with some rules. It’s early days, but we may have just seen something similar in the S&P this week and it feels good to be out:-
These kind of exits really seem to upset our detractors. Michael Samhan picked up on this and wrote a great piece on the subject hitting the nail on the head. As we honor our stops the perma-bears or top pickers pipe up “Wait, I thought you were bullish, are you bearish now?” They want to see that we are enduring pain on the way down to make them feel better about the suffering they endured waiting for the market to turn. Our response only frustrates them further; “Well, I was long if that’s what you mean, but my trailing stop got hit so now I’m out.”
And if we get a new buy signal we’ll go long again. If the sell-off turns into a prolonged decline and gives us a short signal we’ll enter short. See the difference? We’re not bullish, we’re not bearish, we don’t have a view. We are mercenaries that join whichever side is winning. Our loyalty is to neither side, only to our process.
We currently have four remaining futures positions:- LONG 30yr, Gold, Corn, Live Cattle.
Long 30yr ($ZB_F) 2/3 +$2,406.25 per contract
I’ve been mercilessly teasing the ‘rising rate environment’ meme but there’s no question this will go down as oone of those classic cases where the overwhelming consensus thought only one scenario was possible only to see the opposite occur against all supposed logic and reasoning. Rates are not going up. For more research on this subject see Japan. For the less adventurous just continue to follow price, it will tell you what’s really happening better than any afraid-of-being-different-and-wrong-wall-street-consensus-narrative will.
Long Gold ($GC_F) 3/13 -$4,940.00 per contract
I wouldn’t want to be accused of only showing my winners so here’s a big fat loser for you, although as I’ve pointed out before, this is perfectly in line with our typical performance on gold since the blog started over a year ago given we’ve had 5 signals prior to this (2 wins, 3 losses), with an average win of $12,155 per contract, and an average loss of $5,730 per contract. Although the numbers may appear big, bear in mind also we are showing the big contract here, not the minis. After an initial follow-through higher after our entry, gold came reeling back and got very close to taking out our initial stop before bouncing back and reclaiming its MA’s this week.
Long Corn ($ZC_F) 3/5 +$737.50 per contract
Corn was unchanged on the week, after appearing to reject an attempt at higher prices midweek with an intraday reversal. For now it remains above the 20EMA and the short and intermediate-term uptrend remains intact.
Long Live Cattle ($LE_F) 3/28 -$1,000.00 per contract
Despite what looks like a very labored attempt to maintain higher levels, Live Cattle did manage to marginally retake the the 50-day MA this week and keep the longer-term uptrend intact.
Let’s now move on to our stock positions.
Here’s the summary of positions as at Friday’s close taken from our performance tab:-
SUMMARY AS OF 4/11/14
OPEN POSITIONS:- Total 14: 10 winners, 4 losers. Average win +11.4%, average loss -2.7%.
CLOSED POSITIONS:- Total 121: 60 winners, 61 losers. Average win +19.2%, average loss -6.9%.
ALL POSITIONS SINCE INCEPTION (1/27/13):-
Total 135: 70 winners, 65 losers (52% win). The average win is +18.1%, the average loss -6.7%.
Notice, despite the carnage people will tell you has taken place in the market, our numbers have remained very consistent over the last 6-9 months, with a strike rate around 50% and average win 2-3 times average loss. That was further underlined with our exits this week in $UA +72.27%, $EBAY -3.98%, $ACT +55.73%, $AAP +11.24%, $PGTI -3.91%, $TYC -2.68%, and also in the two exits signaled for Monday in $BKW +19.0%, and $BRCM -3.0%.
Those additional exits will leave us with just 12 open positions as follows:-
Long $PKG 3/25/13 +61.7% (incl 6/11 div $0.40, 9/10 div $0.40, 12/18 div $0.40, 3/12 div $0.40)
$PKG has somehow held on again, finishing Friday nestled right inbetween its ATR and price stop levels. For what it’s worth it also coincided with a 20/50 MA cross and it will be a major surprise if we’re still writing about this position as being open this time next week. Either way, it’s been a great example of what we do; following a trend for over a year no matter what the market was doing, maintaining a safe enough distance to keep us in during pullbacks, with a position size small enough to make it tolerable and big enough to make the payoff worthwhile.
Long $NVR 1/30 +3.1%
$NVR remains below its 50-day but hasn’t yet resumed lower. Our stop remains around the 1083 level.
Long $VMC 1/30 +1.8% (incl 2/20 div $0.05)
$VMC has weakened but still sits above our price support along with an ATR trail and ascending trendline.
Long $MSFT 2/3 +4.7% (incl 2/17 div $0.28)
$MSFT broke below its 20EMA and embarked on a brief test of its most recent breakout level. The rising 50-day is now coming into view and it will take a break of that along with a lower low to trigger an exit for us.
Long $RAD 2/14 +17.7%
A great week in $RAD, and another addition to the ‘Why I use closing stops” hymn book, twice coming back from below our stop on an intraday basis only to close above it before catapulting higher. That is why. We’ve now tweaked that stop slightly higher to Monday’s closing level and will keep our distance until a new base emerges.
Long $MOS 3/6 -5.8%
Our biggest open loser, we marked the recent high with our entry, and despite the weakness $MOS had been holding above its MA’s until slicing through its 50-day Friday. Our stop is just below here at $46.45.
Long $CMS 3/17 +2.1%
All three of our utilities (see also $SRE, $WEC below) are similarly positioned with small gains and longer-term uptrends intact. This week it was noticeable they not only outperformed during market weakness but also held their ground on the rallies suggesting they’re more than just a safe-haven play and are showing true leadership.
Long $SRE 3/17 +1.1% (incl 3/25 div $0.66)
Long $WEC 3/17 +3.3%
Long $IBM 3/26 +0.1%
$IBM took little part in last year’s market rally and remains indifferent to its movement lower now, having consolidated its recent breakout and resuming its short-term uptrend ahead of earnings next week.
Long $AA 3/28 -1.1%
We had a post-earnings ‘pop-and-flop’ move from $AA this week but there’s little doubting the trend here.
Long $XCO 4/3 -0.9%
$XCO had a deep pullback on Friday to take us back into negative territory but there’s little damage done to the intermediate-term action here. Time will tell but this still very much looks like a major bottom has formed.
Friday’s weakness saw two more trailing stops breached, triggering exits in $BKW and $BRCM for Monday’s open. As of Friday’s close they were showing returns of +19.0% and -3.0% respectively.
Long $BKW 11/1 +19.0% (incl 11/6 div $0.07, 2/24 $0.07)
$BKW had been in a seemingly relentless uptrend and with the recent market weakness has started to pull back. We had a price stop and ATR stop in close proximity and it took both out on Friday which also coincided with the 20EMA crossing back below the 50-day. Combined that’s enough for us to take the money and step aside.
Long $BRCM 2/10 -3.0% (incl 2/11 div $0.12)
$BRCM had appeared to be riding the coattails of more senior tech stalwarts benefiting from some support in an otherwise difficult tape, but Friday’s move looked and felt like a rug-pull following through on Thursday’s close below its MA’s and slicing through our trailing stop into negative territory.
An interesting session to say the least. I certainly didn’t foresee us going from all time highs to being stopped in the space of a week, but fortunately I don’t have to, that’s just for forecasters to try to predict and reason. These type of movements and volatility however can serve a useful purpose, as they help underline the need to remain flexible in our thinking in terms of what’s possible, but unflinching in our discipline to trade our plan.
The long 30yr position was again the bright spot today, defying the ‘rising-rate environment’ mantra, and this week we’ve also seen a reasonable recovery in Gold which was on the brink of being stopped at the lows. We’ve also seen Corn and Live Cattle improve slightly. The one loss has come in long S&P which with today’s slump closed below our trailing stop to trigger an exit at tonight’s open for a loss of $550.00 per contract.
Exiting Long S&P ($ES_F) 2/26 -$550.00 per contract
This trade went through quite a transformation. At the outset I warned that given we would have to place the initial stop at the base of that v-shaped bottom the less favorable initial risk/reward might make it prohibitive to more cautious players, but as it moved higher we could trail with it and an additional entry or add signal may then occur. That’s exactly what happened bringing the stop right up to 1832.50 as the market made new highs. That actually put us in a great position and gave a good additional entry point; knowing you get to run with any continued advance, or on a swift reversal lower you get taken out for a small loss. Obviously the latter is what just happened. But even now think where that leaves us. If this turned out to be the low and we rebounded to fresh highs, we would just have ourselves another buy signal and could now use this level as the stop, a great risk/reward trade. Would it matter that the level we got out now turned out to be the low? Of course not. The risk of a small loss for the possibility of unlimited upside, I’ll take that trade every day. And what if instead it continued lower from here, 1800, 1700. Even better. We just paid a small price to find out if the trend could continue and when it didn’t side-stepped a huge decline by having the discipline to stick to our rules. This game isn’t easy but it can be simple with a robust methodology and a consistent process. For now we take our loss, move to the sidelines, and await the next signal which we’ll take without hesitation long or short.
Going into Friday that leaves us LONG: 30yr, Gold, Corn, Live Cattle.
Our remaining positions are as follows:-
Long 30yr ($ZB_F) 2/3 +$1,937.50 per contract
Long Gold ($GC_F) 3/13 -$4,970.00 per contract
Long Corn ($ZC_F) 3/5 +$925.00 per contract
Long Live Cattle ($LE_F) 3/28 -$1,400.00 per contract
A relief rally in the market lifted many of our names today having earlier in the session seen $BKW and $RAD retest their trailing stop levels, but by the close we had one new exit signal with $TASR breaching its trailing stop.
I thought it was interesting that although many names that had recently suffered managed some kind of bounce today, there was even further strength in areas like utilities that had already been acting well during the recent selloff. That to me indicates more than just ‘safe haven’ gains, that’s something more sustainable, strength on an absolute and relative basis. $XCO also had another big day, and although it’s early days, it looks like we’ll see some further upside from $AA tomorrow after it beat earnings estimates after hours. Here’s our exit on $TASR:-
Long $TASR 2/19 -6.02%
Yesterday we got a very marginal break of the trailing stop on $TASR and as I sometimes do with trailing stops (not initial stops) I gave it a day’s grace. Even though it’s only moved slightly lower again that’s a notable underperformance in a day of recovery for most of the market. It’s frustrating to see something only marginally below your level but I believe you can overemphasize the possibility of it recovering from there versus continuing its recent course. You get to the point where you can’t make excuses for something anymore and I’m already there. That’s twice we’ve been stopped since the big 52% win in summer 2013. Longer-term it may well be the story remains in place, but I can’t take the story to the bank. Only price pays and price is telling us it’s time to go.