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$SPY

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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.

Please read the terms of service.
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.

mansplits2

stay flexible

“Turn that off, it’s time to go to sleep”, my wife said.  But I couldn’t pull my eyes away from my phone.  The market that had closed the regular trading session just shy of all time highs a few hours earlier, was now plummeting faster than I had ever witnessed before.  The “expert” consensus was wrong.  The majority of British voters wanted to leave the European Union.

The “Brexit” whipsaw underscores the importance of staying flexible.  A bearish macro pattern of lower highs and lower lows that had controlled the weekly chart of the S&P 500 for most of the last year was broken a couple of weeks before the Brexit voteBullish!  The post Brexit crash sliced through TWO potential higher lows AND the 200 day moving average.  Bearish!  The snapback rally that followed reclaimed ALL of the moving averages in just 3 days.  Bullish!  I don’t think I ever flipped my stance back and forth from bullish to bearish faster.

above the moving averages bullish, below bearish

Above the moving averages we are bullish.  Below them we are bearish or at least cautious

A few weeks on, with the S&P 500 now at all time highs, it’s easy to say that the Brexit whipsaw was just a bunch of noise that was best ignored.  Keep in mind though that one of these days we may see the beginnings of a REAL crash.  Never forget that complacency can quickly wipe out all of your hard earned gains and then some.

So where does the market have the potential to go now?  The S&P 500 has just carved out an ENORMOUS bullish “W” formation visible on the weekly chart.  As I mentioned before when discussing the two smaller W’s that make up the bottoms of this larger W formation, the potential measured move is calculated by adding the height of the W to it’s top.  I calculated a conservative height that ignores the “tails” of the weekly candlesticks as well as a more aggressive target which includes the full height to draw in the rectangular “measured move zone” in the chart below.

a monster "W" in the S&P 500

a monster “W” in the S&P 500

As you can see, a move to the potential measured move zone is good for better than 220 points or 10% over the next year!  As long as the S&P 500 continues making higher highs and higher lows above it’s moving averages we will maintain a bullish stance… but as always, stay flexible.

OMN

821x sell: OMN

(watch video below for market recap and trade details)

OMN – sell at market

Other 821x buy ideas:

ARIS – buy with a limit price of $4.17
SLX – buy with a limit price of $26.61

I only track one 821x model portfolio trade at a time for educational purposes.  Remember, 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.

Please read the terms of service.
OMN

821x buy: OMN

(watch video below for market recap and trade details)

OMN – buy with a limit price of $6.92

Other 821x buy ideas:

BANC –  buy with a limit price of $19.94
PGEM – buy with a limit price of $14.92
VRTV –  buy with a limit price of $38.95
BLKB – buy with a limit price of $62.12
WYNN – buy with a limit price of $95.96
ROIC – buy with a limit price of $20.20
F – buy with a limit price of $13.45
MSFT – buy with a limit price of $52.32
SBNY – buy with a limit price of $137.38

 

 

I only track one 821x model portfolio trade at a time for educational purposes.  Remember, 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.

Please read the terms of service.
FN

821x sell: RWM / buy: FN

(watch video below for market recap and trade details)

RWM – sell at market

FN – buy with a limit price of $33.43

Other 821x buy ideas (equities):
HDS –  buy with a limit price of $34.33
QSR – buy with a limit price of $42.16
RP –  buy with a limit price of $21.68
ADS – buy with a limit price of $209.68
FCNCA – buy with a limit price of $259

(international)
EWK – buy with a limit price of $17.98

 

I only track one 821x model portfolio trade at a time for educational purposes.  Remember, 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.

Please read the terms of service.
RWM

821x sell: ZOES / buy: RWM

(watch video below for market recap and trade details)

ZOES – sell at market

RWM  – buy with a limit price of $61.96

Other ideas (domestic equities):
ADPT –  buy with a limit price of $63.15
CRM – buy with a limit price of $75.79
SUPN –  buy with a limit price of $16.80
UIHC – buy with a limit price of $17.40
CTSH – buy with a limit price of 61.35
HRL – buy with a limit price of 39.9
TPRE – buy with a limit price of 11.36

(copper/gold miner)
TRQ – buy with a limit price of 2.82

(international)
RSX – buy with a limit price of 17.07

 

 

I only track one 821x model portfolio trade at a time for educational purposes.  Remember, 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.

Please read the terms of service.
ZOES

821x sell: PRIM / buy: ZOES

(watch video below for market recap and trade details)

PRIM – sell at market

ZOES – buy with a limit price of $38.23

Other ideas:

SABR –  buy with a limit price of $28.69
VNQ –  buy with a limit price of $83.10
XLU – buy with a limit price of $48.77
PSQ – buy with a limit price of $53.92

 

 

Please read the terms of service.

 

PRIM

821x sell: XLU / buy: PRIM

(watch video for market recap and trade details)

XLU – sell at market

PRIM – buy with a limit price of $23.43 (be aware that earnings are on 5/5/16

Other ideas:

IRIX –  buy with a limit price of $10.32
GLRE –  buy with a limit price of $21.69
GLD – buy with a limit price of $119.42
GFI – buy with a limit price of $4.16
GPRO – buy with a limit price of $13.56

Please read the terms of service.
stare(crop)

patience pays

A dangerous misconception many DIY Investors have is that our job day-to-day is to “make money”.  Obviously, that is the outcome we are hoping to achieve, but it is not what we actually do.  Remember, we have no control over the direction of the market or of our holdings at any point in time.

No, our primary job is to manage risk.  Day in, day out this is what we  are actually doing.  The stock market can provide life changing monetary rewards, but with those rewards come enormous risks.  The only way to safely gain exposure to the rewards of trading is to strictly define and manage the risk you are taking.

There are two primary ways we do this:

  • Position size – I touched on this in my trading manual, but basically we NEVER want to go “all in” on any single trade.  We need diversification.
  • Stop-losses – This is the price at which we would admit that the trade setup is no longer valid and would therefore sell.  This level should be identified BEFORE we enter any trade.

Our position sizing tool combines these concepts.  I encourage you to play around with it so you can get a good handle on how much you are risking on any given trade.

There is, however, another often overlooked component of risk management that is perhaps even MORE important than the ones above: patience.

By this I mean having the discipline to allow marginal or higher risk trade ideas go without you while patiently waiting for the BEST, low risk, high probability setups.

Warren Buffett has a famous quote that’s relevant: “The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.

The fact is, every time we enter a trade we are putting our money at risk.  Therefore, we should always take a moment beforehand to ask ourselves, “is the perceived reward worth the risk?”  Be picky.  Be patient.  I promise you, it will pay off.

This concept comes to mind when looking at a chart of the S&P 500.  The market has just run 15% higher in about two months.  It’s just below a declining trend line that connects the closing highs from last July and November.

showing downtrend line connecting lower highs in SPY

right back up to the downtrend line connecting lower highs in SPY

If the current rate of ascent continues, we could be looking at new all-time highs in just a few weeks!  However, what is most likely to happen?  Personally, I think that after such a big run and at an important trend line, it’s more likely that the market will pull back in this area.  This doesn’t necessarily mean that we should get short.  The market doesn’t HAVE to pull back.  And if it does, keep in mind that it would actually be bullish for the market to put in a definitive higher low before breaking the macro pattern of lower highs and lower lows.

The bottom line is we have a short term bullish market still within a larger bearish look.  These mixed messages are about to come to a head so I believe the best course of action right now is patience.  It makes no sense to increase exposure to risk in the face of this uncertainty by taking big bets here.  Let’s continue to manage our open positions and patiently observe market action in this pivotal area.  There will be plenty of time to pounce when the outlook becomes clearer.

 









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Model 821x Trade

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