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Sep 04

Entering Long CIGNA ($CI), Iconix Brand Grp ($ICON)

Two new stock signals tonight providing attractive risk-reward entries into long-term uptrends, $CI and $ICON, both of which will be entered at Thursday’s open.

CIGNA Corp ($CI)

Fairly simple stuff here. $CI has been in a very consistent and efficient uptrend for over a year, and has spent the last 5-6 weeks consolidating in a fairly tight range. It’s recently edged to new highs but without much conviction until today. I like the wide-range day to fresh highs, and although it wasn’t on great volume, in this light trading environment we can perhaps say it wasn’t without volume. I also like the close proximity of the stop, a meaningful close below the 8/15 close of $76.71, that will be enough and will coincide with the 50-day MA.

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Iconix Brand Grp ($ICON)

$ICON shows a similar price chart to $CI longer-term, but has been slightly more volatile in recent months. Today’s advance took out the descending trendline from the 8/6 high and was on reasonable volume for the third session in four. A stop on a clean break of the 8/28 close at $32.21 makes for a good risk/reward trade here.

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9 comments

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  1. Adam

    What do you think about Ford or GM on their moves today? Considering going long one.

    Also, something occured to me watching gold gyrate, ever consider following other commodities like copper, silver, agriculture, coffee, lumber, nat gas?

    1. Jon Boorman

      F and GM had nice moves today, probably want to see them consolidate and go again to then use last weeks lows as stops.
      I trade all those commodities but I limit showing signals for just 10 major markets.

      1. Adam

        Well darn. Thanks for the insights.

  2. Tim

    Jon, are your signals computer generated for your equities positions? Also can you touch on position sizing, how much of your portfolio do you risk per trade?

    1. Jon Boorman

      I use some basic screens to find opportunities, but for the purposes of this blog I also have a discretionary element when manually reviewing the risk/reward parameters. In that respect on stocks I consider myself a rules-based discretionary trader. Initial risk is 1% of portfolio. If you’re not already familiar with Van Tharp I would recommend reading up on his work on position sizing. If stock is $20 and the stop is at $16, then risk (1R) is $4, and you are risking 1% of a $1.0m portfolio, so $10,000 / $4.00 = 2,500 shares. Note 2,500 shares employs capital of $50k but you are risking 1% ($10k).

  3. Keith Bailie

    Hi Jon,

    two questions for you:

    1- do you have any rules around how much of your portfolio you would ever put into one stock? As they say, you really don’t get a feel for a stock until you have a position in it and if a current position is doing well, would it be crazy to continue to pyramid into that stock assuming the signal is there — treating it like a completely separate trade essentially? Or a slightly different but related question, do you limit the number of stock positions you take. I know O’Neil was had some guidelines around the size of your portfolio and the number of different positions so curious how many people follow that.

    2- maybe a dumb question but when using that 1% of portfolio to figure out risk, I assume you always use the total amount of your portfolio for the calculation regardless of how much is already at work in positions? Or do you calculate risk based on how much current buying power you have?

    Great stuff BTW!

    thanks again,
    Keith

    1. Jon Boorman

      1. 1% initially, but I add to winners, so on a second entry you would top it up to 2%. The best way to think of the second entry is to imagine u had no position at all, what would be the trigger to get you in, that then becomes your entry for the additional part, and wherever the stop would be now becomes the stop for the whole position. Yes there are many ways you can limit exposure, sometimes by number of positions, other times by sector exposure, I currently have 30 longs but I would never have 20 of those 30 longs in one sector, you should come up with parameters that make sense for you, maybe max 5% in any one sector.

      2. Yes use the total portfolio, but in relation to number 1, you can also put portfolio level restrictions on like a given % of open equity means not taking on any new positions. Read Andy Abraham’s Trend Following Bible book for more on ideas like that.

  4. Keven

    You posted that $CI and $ICON provide “attractive risk-reward entries”. I understand your calculation of ‘risk’ from your response to Tim’s question…where does the ‘reward’ part come in? What are you using to come up with the ‘risk-reward’?

    1. Jon Boorman

      It’s a remnant of my days as a prop trader thinking in terms of 2:1 or 3:1 risk/reward, but it’s less relevant in trend following. In most cases you can use price history, resistance levels, previous highs, it’s obviously harder to define for something already at all time highs but that’s one of the key parts of trend following, you can never know where you are in the trend or how far it can go. When something’s at all time highs it’s already doing what you want it to do, it’s going up, can it continue that trend enough to justify the risk, that becomes the question and the risk is the price you’re willing to pay to find out. Sometimes it’s a harder proposition, like the TSLA entry, if I’m willing to have a stop 20% away did I think it was capable of going up 40-60% to justify that, yes it was perfectly possible. In the case of CI and ICON the stop is very close, less than 5% away, so could a stock at all time highs move another 10-15% higher, yes easily.

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