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821x sell: NTG

It’s been a good run, but the sun has set on our model trade.  As my family and I are out in the hill country of western Puerto Rico housesitting and taking care of our friend’s animals we received an 821x sell signal in NTG today.  Even though it appears to be oversold in the short term, I recommend selling AT LEAST half to lock in our hard fought 6% gain, which includes the fat dividend we received in August.  If you decide to hold half, I would sell it if NTG closes even one penny below yesterday’s low of $19.03.

doesn't look good but it is outside the bollinger bands...

doesn’t look good but it is outside the bollinger bands…

As far as the market as a whole, it’s at a crossroads right now.  The violent pullback of the last few days could be nothing more than a healthy retest of the breakout zone before the next leg higher.  On the other hand, we might be witnessing the beginnings of a failed breakout which could lead to a fast move lower.  Let’s continue to monitor price action for clues and stay flexible.  In the meantime, the proper course of action is to honor the sell signals in your individual holdings to both lock in profits/limit losses and raise cash.

healthy retest or failed breakout?

healthy retest or failed breakout?

After I get situated back at my place later this month, I will make a video with a new official model trade.  For now, I have a handful of 821x trade ideas that I hope you find helpful.  Have a good week!

SUPN – buy with a limit price of $22.51
ADS – buy with a limit price of $213.21
XBI – buy with a limit price of $63.54 (biotech ETF)

Inverse ETFs: (I would NOT get aggressive with these)
EFZ – buy with a limit price of $32.36 (short European stocks)
SH – buy with a limit price of $38.86 (short the S&P 500)

Remember, I only track one 821x model trade at a time for educational purposes.  IT NEVER MAKES SENSE TO PUT YOUR WHOLE ACCOUNT INTO A SINGLE TRADE.  Please refer to the section on position sizing in the 821x Trading Manual.

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bigwinner2

breakdown of a big winner

Last week I closed out the last half of my biggest winner of the year.  Let’s take a closer look to see what lessons and tactics we can take from it and use going forward.

As I’ve mentioned before, I had a lot of success trading precious metals miners from 2008 to 2011 which, understandably, caused me to grow fond of them.  Unfortunately, this fondness had me “going back to the well” more often than was warranted, resulting in unnecessary losses.  The lesson here is to not become so enamored with a particular investment that you are ignoring or discounting the pitiful technicals.  In other words, don’t fall in love with something that can’t love you back unless you enjoy losing money!

Having gotten burned several times, I was initially skeptical of the rally when gold shot up at the beginning of the year.  Unfortunately, by the time it was apparent that this move was different and appeared to have legs, I didn’t see a safe way to get involved.  The key was to be patient and wait for a low risk buying opportunity.  The signal I was waiting for arrived on March 29th in the form of an 821x buy signal in GLD which I tweeted out.

821x buy signal

821x buy signal with obvious place for stop around $116

Seeing this, I went through my watchlist of miners looking for a good setup.  The one that looked best to me was Pretium Resources (PVG).

PVG consolidating around the 200dma

PVG consolidating around the 200dma

I entered a limit order for $5.30 a share which was the closing price on the day PVG first flashed an 821x buy signal, and got filled the next day.  After a week of consolidation, it broke out of it’s wedge formation and was up over 50% in little over a month!  Shortly thereafter, it had a sharp pullback to the 21 day ema where it put in a pivot with a low of $7.43.  When I saw that the pivot wasn’t going to hold a few days later, I sold half of my position at $7.33 locking in a nice gain of 38% on that piece.

sold half here with the pivot broken and the moving averages curling down

sold half here with the pivot broken and the moving averages curling down

A few days later, PVG gave an official 821x sell signal.  Having already locked in gains on half of the position, I felt comfortable giving it one more day to see if the closing low of $7.04 would hold.  If PVG had closed even one penny below that low I was prepared to close the rest of the position.  Fortunately, it held and proceeded to give an 821x buy signal a week later!  In hindsight, I can see that it would’ve made sense to go back to full size at this point.

PVG held $7.04 and the 50dma and then gave an 821x buy signal

PVG held $7.04 and the 50dma then gave buy signal number 2

The second move was even more explosive than the first, putting my remaining half position up well over 100% by mid July!  Then last week, it finally gave another 821x sell signal.

second 821x sell signal of this trade

second 821x sell signal of this trade

Again, because I had already locked in profits on half of the trade I felt comfortable giving it one more day to see if the closing low of $10.61 would hold.  Unfortunately, this time it didn’t, so I closed out the balance of my position at $9.71 for a gain of 83%.

all good things come to and end...

all good things must come to an end…

Putting the two halves together, I netted a gain of 61% on this trade making it my best trade of the year so far.  For reference and comparison, my biggest loser of the year was WYNN for a loss of only 6%.  Letting your winners run and cutting your losers short is the key to successfully growing your savings in the stock market.

I hope that reviewing this trade demonstrates one way the 821x trading system can be used in practice.  If you have any questions about this trade or the 821x trading system in general, don’t hesitate to ask!

bullriding2

how to ride a bull

After a year long consolidation, the market has broken out to new highs.  As I’ve mentioned before, we have to take seriously the possibility that the post Brexit shakeout ushered in a new bull market (or a resumption of the bull market that started in 2009 depending on how you look at it).  A bumpy ride higher, north of 2,400 in the S&P 5000, seems quite reasonable.

 

beginnings of new bull run?

bull market breakout?

So how do we ride this potential bull?  Sure we can buy an ETF that tracks the S&P 500 like SPY, but that would only yield average results.  To generate alpha we need to actively put together and manage a basket of above average stocks that will outperform passive index funds.

One of the most common questions I get is, “What stocks should I buy?”  Well, no matter how much I believe in a company I would NEVER put a blanket buy recommendation on ANY stock.  I only want to buy a stock when it looks like it’s ready for an IMMEDIATE move higher and there is a stop loss level close by to limit risk.  I call the system I use help me identify these optimal entry points 821x.

When I want to add a new position to my portfolio, I scan HUNDREDS of charts looking for 821x buy signals and only enter the very best looking setups.  Some of the watchlists I scan through are from paid services and others I have built myself.  However, I am going to share with you two of my favorite watchlists that are completely FREE.  Both of these lists are focused on companies that are expected to experience above average earnings growth, which is a great place to put our money in a bull market environment.

IIC 100 – the Sharp Traders site has a wealth of resources on it, but the IIC 100 in particular is a go-to list for me that I review EVERY weekend.

IBD 50 – you have to subscribe to Investors Business Daily to gain access to the most up-to-date IBD 50, however, you can get a decent idea of what’s on the list for free by checking the holdings of the FFTY ETF.

Riding these stocks is actually a lot like riding a real bull.  You are likely to take plenty of bumps and bruises along the way when a trade doesn’t play out the way you hoped it would.  You’ll also likely experience the frustration of getting “bucked off” a big winner before it makes it’s run like we did in OMN and we almost did in NTG.  If it was easy, then everyone would be doing it.  However, if you do your homework and follow your trading system, you’ll come out of this bull run with a lot more money than you had beforehand.

feelinghigh

how do you feel at new highs?

The S&P 500 closed at a new all-time high yesterday.  Upon hearing that, the average investor’s first instinct is to think that the market is topping out.  Stocks are too expensive.  Valuations are dangerously stretched.  The higher they fly, the harder they fall.   We are overdue for a crash etc., etc..

However, we here at DIY Investor know better.  Perma-bear fearmongering is as unhelpful as unchecked bullish exuberance is dangerous.  Emotions and feelings aside, here are the facts: after making it’s FIRST new intraday high in over a year on July 11th, the S&P 500 made 8 additional new highs and there is no reason to think that there aren’t several more on the way.  Only ONE of these new highs will be a long-term top.  MOST of them are just stepping stones to higher and higher prices.  That’s why, counterintuitively, new highs are bullish.

the powerful uptrend that started in 2009 is still intact

high as a kite with no sign of coming down…

If this rally continues, fears of a failed breakout will give way to a fear of missing out.  IF this happens, the market can enter a mania phase where the uptrend gains EVEN MORE momentum.  IF the last remnants of fear give way to unbridled greed, the market can explode into full-on bubble territory, which would mean we would see MUCH higher prices than we are seeing now.  When this hypothetical bubble inevitably bursts, it will end badly for those that are unprepared.  However, those of us with a plan will do very well and be able to lock in the lion’s share of our increased wealth.

Before you accuse me of smoking something, let me just say that I fully understand that this is a far-fetched potential scenario.  Nevertheless, I do believe it is one worth keeping in the back of our minds as we break out of a year consolidation to new highs.

P. S., I only provide the actual buy and sell instructions for our 821x model trade here on the blog and through email to subscribers.  Be sure to follow me on Twitter @marketchameleon for updates in between.  On Tuesday, we received an 821x sell signal on NTG, our model trade. However, I recommended via Twitter that we not close the position unless it closed below $18.10.  The stock pivoted and proceeded to put in an 821x buy signal on Thursday so far averting an unnecessary shakeout!

 

bear hug

embrace a bear, in cash

The 821x system is a trend following system.  However, it’s not enough to know the direction of the trend for a trade idea.   We also have to stay in touch with the direction of the market as a whole.  We always want to have the wind at our back.  This is even more important in a down trending market where even “good” stocks gets dragged down with the “bad”.  Very few stocks make it through a bear market unscathed.

So what is the evidence that the market is currently in a primary downtrend?  First off, the S&P 500 is below a DECLINING 200 day moving average.  Furthermore, the definition of a downtrend is lower highs and lower lows.  The market just made a pronounced lower high and lower low that is visible even on a monthly chart.

no one rings a bell at the top?

nobody rings a bell at the top?

By the end of the first week of trading in 2016, my retirement account was almost completely in cash as my remaining positions flashed 821x sell signals one by one.  By the middle of the following week, my IRA was completely in cash as our model 821x trade at the time triggered a sell.  There is no absolutely no sign of an end to the current down trend.  It may take MONTHS for the market to heal and the primary trend to reverse.  I am thankful that the 821x system has moved my money out of harms way.

Many beginner DIY Investors feel like they have to stay fully invested all the time because “their cash isn’t growing if it’s on the sidelines”.  It’s important to remember however, that when stocks go down, the value of your cash is actually increasing in that you can buy more and more shares.  In fact, market declines are what set up some of the biggest and fastest gains as the downtrend comes to an end and the market reverses back up, refreshed.

When looked at this way, one starts to understand that maybe we should embrace a bear market.  This is obviously much easier to do when most of your money is safely in cash.

 

Before I finish, it’s important that I ask and that you answer the following questions honestly:

  • Do you know how to identify a potential market bottom?
  • Would you know when it’s appropriate to start aggressively buying stocks again?

Unless you can confidently answer yes to both questions, you absolutely should NOT put your retirement accounts in cash.

why average investors should not "flip to cash"

why average investors should not “flip to cash”

If you are on this site, I generally assume that you are a do-it-yourself investor or at least an aspiring DIY investor.  You are someone who wants to take an active role in growing your investment accounts by executing smart, higher probability trades.

However, when the market starts tanking, average investors start freaking out and do stupid things that hurt them in the long run.  Just in case any of these people have stumbled in, I want to make clear that average investors SHOULD NOT be flipping their long term retirement accounts into and out of cash.  They will likely miss the resumption of a bull market which would put their long term financial goals at risk.  Know thyself.

no exuses

no excuses

You’ve worked hard to build up your savings account.  There’s no reason why you can’t put that capital to work for you.  The stock market is an incredibly powerful and convenient tool that allows you to do just that.

But how do you actually go about using this tool to grow your savings?

The Standard Advice

  • Hire a professional to do it for you.  Unfortunately, when you account for fees and commissions, most money managers fail to beat the returns of a passive index fund.
  • Buy and hold a low cost index fund or ETF.  The downside here is that you would be vulnerable in the event of a major stock market crash.  Depending on the timing and severity, you may have to wait DECADES to be made whole.  It took over 15 years for the Nasdaq Composite Index to reclaim dot-com era highs and 26 years on, Japan’s Nikkei index still sits at BARELY HALF the level it was at the end of 1989.
  • Dollar cost average into a low cost index fund or ETF.  This is better, but it still relies on the assumption that the market WILL bounce back in the timeframe you need it to.  If you have A LOT of time, that has generally been a good bet.  However, I’m not convinced that it will be ALWAYS be a good bet.

Personally, I’m not willing to settle for mediocre returns from an expensive money manager.  I’m also not interested in patiently waiting for my account to recover from a market crash.  Been there, done that.  No thanks.  There is another way.

My Advice:

  • Buy stocks that are going up
  • Sell stocks that are going down
  • and DO-IT-YOURSELF!

It really is that simple.  So why don’t more people do it?  There are a lot of reasons, but for now, let me just address the two excuses I hear most often.

Excuse 1: “It’s too hard”

Repeating this statement is like holding up a white flag.  I mean sure, you have to apply yourself and do some work.  You do have to learn about managing risk and your emotions.  It shouldn’t be a surprise that something worthwhile will take some effort.

But let’s be honest: this isn’t brain surgery.  Hell, I can do it!  My background is computers and music, not Wall Street.  Seven years ago I didn’t know the first thing about stocks.  If I can figure this out, there’s no reason why you can’t as well.

Learn the rules of a trend following system like the 821x and then study charts.  See how a big winner looks at it’s buy point and vice-versa for big losers.  It’s not hard, it just takes practice and repetition to identify the best setups.

 

buy signal

buy signal

 

sell signal

sell signal

 

Excuse 2: “I don’t have time”

Do you have time to watch TV?  Do you have time to play video games?  Do you have time to surf the web?  I could go on but I won’t.  Just answer the following questions and be completely honest with yourself.

Is it worth investing the time it takes to develop a valuable skill that will ultimately lead to increased personal freedom? 

Is the short-term sacrifice worth the long-term benefit? 

If your actions are not congruent with your answers, perhaps you need to spend some more time on this to figure out the truth.  For example, if you continually engorge on junk food, one would have to seriously question the veracity of any claim you make about wanting to lose weight.

Another thing to keep in mind is that the first step is always the hardest and most time intensive.  Once you get past the learning curve of a system like 821x, it really should only take a few minutes a night to look through charts and enter orders if any.  The cost in time spent is miniscule in comparison to the potential benefits.

So get busy.  Don’t be afraid to make some mistakes.  Lose the excuses.  You can do it!









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Model 821x Trade

stock quote day % change total % change
YRD
23.38