Apr 10

Futures Update – Exiting Long S&P

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.

AlphaCapture

 

Going into Friday that leaves us LONG: 30yr, Gold, Corn, Live Cattle.

Our remaining positions are as follows:-

RATES

Long 30yr ($ZB_F) 2/3 +$1,937.50 per contract

COMMODITIES

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

 

 

 

Apr 08

Exiting Long TASER Intl ($TASR)

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.

AlphaCapture

 

 

 

 

 

Apr 07

Exiting Long $ACT, $AAP, $PGTI, $TYC

We exited $UA and $EBAY this morning as per Friday’s exit signals for returns of +72.3% and -5.9% respectively, and tonight we have four more for tomorrow in $ACT +55.6%, $AAP +11.3%, $PGTI -3.3%, and $TYC -2.6%.

We also came close to exits in $TASR -5.9% which just survives following a very marginal break of a trailing level, and $BKW +20.9% which steadied, and $RAD +1.2% which rallied strongly in the afternoon.

As I’ve explained in previous periods of drawdown, these phases are all part of doing business, in fact it’s what makes sure you stay in business. You don’t fear drawdowns when you have a plan to deal with them. It’s more fun to just ride winners but this part of the process is what makes sure those winners pay for all the losers with room to spare. That’s what makes it a winning system, and losing trades are part of a winning system. Believe me if you think of losing trades as costs to your bottom line you’ll have no hesitation in cutting them, but that will be made much harder for you if you’ve also developed some attachment to a stock or to an idea or theme it represents.

Here are tonight’s exit signals:-

Long $ACT 7/5 +55.6%

Actavis has been in a consistently strong trend since our entry in July. Much like the exit in $UA, we’ve waited for confirmation through the confluence of several indicators and we got that move today to trigger our exit.

AlphaCapture

 

Long $AAP 12/4 +11.3% (incl 12/18 div $0.06, 3/19 div $0.06)

A more recent trade having entered in December, $AAP has seen lurches like this before only to recover its footing, but this looks a lot more pronounced with the increase in volume and has breached our trailing stop.

AlphaCapture

 

Long $PGTI 1/6 -3.3%

$PGTI gave us what might look like a very marginal break, but we’ve already been generous with this keeping the stop there and not moving up to the 3/24 close following the resurgence from that level, so it’s time to go.

AlphaCapture

 

Long $TYC 2/18 -2.6%

Right up to Friday $TYC had been holding up relatively well, in fact it almost looked ready to trigger an add or new entry point, but that all changed with today’s session, slicing through support and triggering a tight trailing stop.

AlphaCapture

 

 

 

 

 

Apr 06

Exiting Long $UA, $EBAY

The rout in high growth traditional momentum names continues, and it now appears to be spreading to holdouts like $UA, and latecomers to the party like $EBAY which had been underperforming for a while before Carl Icahn brought it back on everyone’s radar. Both have now triggered exits for us which we’ll execute at Monday’s open. As of Friday’s close $UA was showing a profit of 71.2%, while $EBAY was showing a loss of 4.2%.

Long $UA 7/5 +71.2%

This has been a solid trend and is another name that serves as a good example of trend following methodology. All the levels of initial stop and subsequent trailing stops (even a potential future one) are shown. Notice this isn’t the first time $UA has breached its 50-day, and on previous occasions that thankfully wasn’t enough to take us out. This current exit is a good example of what is. I often acknowledge that for me placement of a trailing stop, especially after a significant move, can be more troublesome than an initial stop when trying to define where you are wrong. Because of this it can help to have a confluence of factors. We have that here with $UA. It got hit hard by nearly 10% this week, 16% off its highs. Not only did that mean we had a lower low and lower high in place with the move to 5-week lows, it was also the lowest close since the huge breakout at the end of January, a major break below its 50-day MA, and the first close below the ATR trailing stop since our entry 9 months ago. That’s enough for me. I’ve already had people say ‘you should have sold at $120′. Take a good look at that chart. Those same people would have said the same thing on the huge break up through $70, then $75, up through $80, and $85. What about when it pulled back over 10% after that. Yeah, should have sold at $85. Then it goes again, and back below the 50-day again, should have sold it at the high. On and on it goes. Months later here we are over $100 having been at $120. Yeah should have sold at $120. Ignore these fools. They would never have the luxury of selling here let alone $120 because they would never be able to stay in a trend this long or buy the highs that got us into the trend in the first place. As trend followers we will never get in at the low or out at the top (neither will anyone else but they won’t admit it), but we do have a decent shot at taking a big chunk of the middle of the biggest trends as we have shown countless times in the last year or more. I’m happy to take our 70% here.

AlphaCapture

 

Long $EBAY 2/25 -4.1%

$EBAY started very well but the breakout proved short-lived. It’s made a couple of attempts to bounce back from its recent break below its MA’s but the recent series of lower highs and lower lows was extended further this week resulting in a close below our trailing stop and triggering our exit.

AlphaCapture

 

 

 

 

 

Apr 06

Futures Update – Exiting Long Euro

A turbulent week in markets and after seeing Friday’s action and listening to some of this weekend’s commentary you’d be forgiven for thinking it was a down week across the board in equities. It wasn’t. The S&P made all time highs and finished up on the week. This is one of the few places you’ll read that this weekend.

Now that doesn’t mean I’m being complacent or turning a blind eye to the underlying action of individual stocks. Far from it. That’s the point. What the market does and what your individual stocks do are two different things. Trade what you see on the instrument you’re trading. It’s what I do for both stocks and futures.

Was Friday’s session in the S&P ugly? Yes. But it’s still in an uptrend, and above our stop, so we’re still long. Hasn’t the NASDAQ been hit hardest of all containing so many momentum names that are down 15-20% from their highs? Yes. And we exited our NASDAQ long for a small loss as soon as we got the signal nearly two weeks ago. The NASDAQ said get out, the S&P didn’t. Take whatever signals the market gives you without trying to reason or makes sense of them all. That was an essential mindset to help navigate markets this week.

Apart from the strength in our S&P long we also benefited from an end of week bounce in Gold, and a resumption higher in Corn. Those gains offset a pullback in the 30yr, and further losses in Live Cattle and the Euro, the latter of which was enough to trigger an exit for Sunday’s open. As of Friday’s close it was losing $1,975 per contract.

Exiting Long Euro ($6E_F) 3/7 -$1,975.00 per contract

The Euro has yet again failed to follow through convincingly on what looked like a strong breakout. It could be chopping us out before it goes on another run but we can’t afford to stay in to find out.

AlphaCapture

 

Going into next week we are now LONG: S&P, 30yr, Gold, Corn, Live Cattle.

Here are the remaining positions:-

EQUITIES

Long S&P ($ES_F) 2/26 +$1,050.00 per contract

RATES

Long 30yr ($ZB_F) 2/3 +$781.25 per contract

COMMODITIES

Long Gold ($GC_F) 3/13 -$6,550.00 per contract

Long Corn ($ZC_F) 3/5 +$912.50 per contract

Long Live Cattle ($LE_F) 3/28 -$1,340.00 per contract

 

 

 

Apr 02

Entering Long EXCO Resources ($XCO)

EXCO Resources ($XCO)

This was on our Stocks To Watch list over the weekend and it’s followed through beautifully so far this week, climbing to 5-month highs today. The recent increase in volume, although not always necessary in many of our setups, is particularly welcome here when we’re potentially reversing a long-term downtrend and confirming a bottom is in place, or at worst witnessing a countertrend rally which could still have room to run. In such a situation we need a stop that gives us some room so I suggest we use the 3/13 close of $5.08. A break of that confirms we’re wrong and with the 20, 50, and 100-day MA’s stacked and rising just above it, we have some further confirmation if breached. This breakout level can likely act as a potential trailing stop if we continue higher.

AlphaCapture

 

 

 

Mar 29

Stocks to Watch

Here are some setups I like. I don’t currently have a position in any of them. It’s interesting to note the dominant sector themes here. Other than that, no commentary, just charts:-

$AEP

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$AZO

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$BHI

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$CAT

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$CLR

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$D

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$DTE

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$DVN

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$GLW

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$HOLI

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$NEE

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$NI

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$XCO

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$XOM

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Mar 29

Review Of Open Positions – Stocks

We took a trip to Stop City last week as the market continued to come under pressure with exits in $ATHN +20.1%, $TOL -6.3%, $GOOG +11.2%, $LVS +7.6%, $SIAL -3.6%, $MCK +47.5%, and $GNTX -2.7%. All reasonable gains and small losses. As I said in a quick pep-talk here, when the exit signals come you should resist the urge to think what could have been, and instead feel a sense of triumph when you look back at the scoreboard. How we act at these stages of our process is crucial in determining the final outcome. Keep the losers small, run the winners until they’re invalidated, and don’t deny yourself the opportunity of fresh entries. Keep on keeping on.

In addition to the various exit signals we also took two new positions this week, in $IBM and $AA. The sell-off in traditional high-growth names has been notable, with many momentum names suffering significant declines culminating in IBD moving into ‘market in correction’ mode late this week. In contrast, we’ve been rewarded for concentrating not in high-growth momentum names per se, but rather wherever momentum appears, whether it’s in utilities or old-economy industrials and cyclicals. We weren’t able to re-enter many of the high-fliers we had played before like $NFLX, $PCLN, $TSLA, $QIHU etc on their last run higher because the risk/reward was less than optimal. As a result our number of IBD names has dwindled to just 3 this weekend ($ACT, $UA, $PKG which as if to underline the point are our three oldest positions by far) but our portfolio remains at around 20 names as strength in other areas of the market continues to provide us with new opportunities.

Here’s the summary of positions as at Friday’s close taken from our performance tab:-

SUMMARY AS OF 3/28/14

OPEN POSITIONS:- Total 20: 14 winners, 6 losers. Average win +21.5%, average loss -1.4%.

CLOSED POSITIONS:- Total 114: 57 winners, 57 losers. Average win +17.7%, average loss -7.1%.

ALL POSITIONS SINCE INCEPTION (1/27/13):-

Total 134: 71 winners, 63 losers (53% win). The average win is +18.5%, the average loss -6.6%.

 

As always we’ll look at our losers first, then the winners. Here are our 6 losers:-

Long $TYC 2/18 -0.8%

$TYC moved back into losing territory for us this week with a marginal 2-day break of its 50-day MA. It’s also sitting just above the breakout level that triggered our entry, and a return below $41.38 will take us out for a small loss.

AlphaCapture

 

Long $EBAY 2/25 -1.9%

Long $MOS 3/6 -1.9%

Long $CMS 3/17 -0.1%

Only a marginal loss here, but otherwise everything remains intact with utilities continuing to perform well overall. It will be interesting to see if that continues should the market regain its footing as the strength in these areas certainly appears to be more than just a safe haven play. New highs could see the stop move up to $27.74.

AlphaCapture

 

Long $IBM 3/26 -2.3%

Long $AA 3/28 -1.6%

 

Here are the 14 winners:-

Long $PKG 3/25 +68.2% (incl 6/11 div $0.40, 9/10 div $0.40, 12/18 div $0.40, 3/12 div $0.40)

This $PKG position is now a year old, and this current period of weakness from the highs is the roughest it’s faced so we could be nearing the end here. We’ve seen brushes with the 50-day before, in fact it’s breached it marginally on several occasions without taking out a previous level, and so far this looks similar to those. Currently it’s just above our trailing stop which sits at the breakout level and just below an ATR trail. A clean break of both of those will indicate it’s finally time to say goodbye.

AlphaCapture

 

Long $ACT 7/5 +62.7%

This is a good example of how I will sometimes use a confluence of factors to determine a trailing stop. As I’ve mentioned previously, I find initial stops relatively easy to place, they should by definition be placed where you are wrong but there is also a measure of risk/reward within that. For trailing stops it’s much harder to determine where you are ‘wrong’ as after a significant gain even with a reasonable decline it could still be argued compared to your entry it is still in an uptrend. It’s at this stage of the position’s life that the risk/reward element has to carry greater weight, and using a combination of factors can help determine an appropriate exit. Actavis has been a very successful trade, but already more than 10% from its highs it’s clear the uptrend is in danger. It’s already made a lower high and lower low and by that alone could have signaled an exit by some standards but that may be a little too intolerant for what has been such a strong trend. Instead I am using the previous low closing price from the last gap higher which coincides with the 50-day MA, and a generous 6x ATR. All are in very close proximity, and a clean break of all three would be strong evidence for me it’s time to step aside.

AlphaCapture

 

Long $UA 7/5 +89.0%

Long $BKW 11/1 +24.2% (incl 11/6 div $0.07, 2/24 $0.07)

Similar to the example with $ACT discussed above, $BKW has a confluence of levels just below here, and a convincing close below $25.32 would be enough to trigger an exit.

AlphaCapture

 

Long $AAP 12/4 +17.5% (incl 12/18 div $0.06, 3/19 div $0.06)

Long $PGTI 1/6 +9.7%

Another candidate for inclusion in the “Why I use closing stops” book chapter, just how pissed off would you be right now if you had been stopped on the intraday break of $10.69 on Monday only to see it finish the week at $12.08? It seems the volatility is here to stay with $PGTI, but this latest move has at least allowed us to tweak that stop a little higher to Monday’s close of $10.85.

AlphaCapture

 

Long $NVR 1/30 +2.7%

Long $VMC 1/30 +6.1% (incl 2/20 div $0.05)

Long $MSFT 2/3 +7.6% (incl 2/17 div $0.28)

$MSFT had kicked us out cheaply over the new year but thankfully gave us another opportunity to enter which so far has paid off. The appointment of a new CEO is well and truly behind us and the long-anticipated announcement of Microsoft Office for iPad appeared to keep the stock on the right track this week. Our stop is still a very comfortable distance away down at $35.82, but all being well in the next week we should be able to move that to the 3/14 close of $37.70 just below the 50-day MA.

AlphaCapture

 

Long $BRCM 2/10 +2.6% (incl 2/11 div $0.12)

Long $RAD 2/14 +7.5%

Long $TASR 2/19 +1.1%

Despite being embroiled in the recent momentum malaise, $TASR finished higher this week thanks to a healthy pop on Tuesday that saw it reclaim territory above its MA’s. Our stop has moved up to $17.09 which would keep any loss at a reasonable level and require another break of its 50-day, an ascending trendline, and price support.

AlphaCapture

 

Long $SRE 3/17 +0.4% (incl 3/25 div $0.66)

Long $WEC 3/17 +1.2%

 

 

 

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