3/23/2018 Market Indexes, FAANG, MU, and SQ

Fun Fact #8

Did you know that when a company declares a dividend, the stock price goes down by the same amount of the dividend? This is done to prevent arbitrage opportunities. An arbitrage opportunity is when you make money without taking any risk. 

Usually the dividend being declared is a small amount, so the drop in the stock is not noticeable. 

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Today was a stressful day for me, and probably for some of you as well. I somehow ended up slightly positive despite purchasing shares of FB and AAPL in the morning. FB has now broken below 160, so I was stopped out. My QQQ put saved me, but I noticed something strange about the pricing of the put. Although QQQ was down about 5 dollars, my put option gained less than 3 dollars of value. After talking to a Charles Schwab employee, they told me that this is because the market is anticipating QQQ not staying down for long, and that the demand for puts isn’t as high (buyers don’t want to pay as much for the put). Hmmm interesting…

I’ve noticed that MU, SQ, and AMZN have all crossed their 20 day EMAs after a powerful move up to all time highs. I think you should consider adding these stocks to your portfolio or at least put them on your watchlist.

I will analyze the indexes tonight or tomorrow, so be on lookout for that. 

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MU reported earnings last night. The report seemed decent, but I think that since MU had an overextended move up prior to earnings, it sold off today. Additionally, the market has been selling off violently the last week which has dragged it down. 

The current price looks like a good entry to go long based off the pierce of the 20 day EMA. However, this entry is quite aggressive given the political uncertainty right now. I said screw it and added a small position anyways. My QQQ put will protect me if something horribly bad happens with the tariffs. 

A close below the breakout location of 50 would signal to me that this isn’t a normal pullback, and the resumption of the uptrend might not continue for a while. Entering here gives a nice reward to risk ratio of about 2:1, given you put a stop slightly below the breakout location, and a profit exit near the 52 week high in the 62-64 range. 

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The SQ chart looks similar to MU. The reason for the drop today is also probably for the same reason. SQ had a really nice run-up, and has sold-off violently along with the market. I would look to buy at these levels since we’ve got a healthy pullback to the 20 day EMA. This trade is very similar to MU. If SQ fails to hold the breakout level of 50, this would signal to me that this isn’t a normal pullback. Again, if the entire market decides to sell-off again next week, it would be tough for SQ to swim against the current and continue it’s uptrend. 

Notice the touch of the 20 day EMA below. Before I move on to Amazon, notice that the volume for SQ is relatively light, whereas MU had a big volume sell-off today. 

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I mentioned in yesterday’s post, and some previous posts that the 1450-1500 range was a minor support level for AMZN since this was the previous breakout location. I’ve noticed that after the last two earnings reports, any dip is aggressively bought up. Why should this time be any different? Unless the market sells-off again next week, I would be looking to start scaling into this position. 

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Summary: The markets violently sold off in the afternoon and closed near the low of the day. This is almost identical to what happened last month, so my thought is that you should consider adding aggressively on any subsequent dips. 

I’ve been thinking about writing a stock trading/investing book that could benefit people of any skill level – from the complete beginner to seasoned veterans. The way I would provide value to the beginner is by explaining concepts, terminology, chart patterns, etc. in a simple and entertaining way. Speaking of entertainment, I hope to add some personal anecdotes in the book to make it a more interesting read.

I also plan to hand count all the times the stocks in the S&P500 bounced off a pierce of the 20 day EMA when certain criteria are met. Some criteria might be if we are in a bull market, if a support zone is hit, a no earnings driven drop from an all time high/52-week high, sector differences, etc. This statistical study would provide value not only for my own trading and the seasoned veteran, but for any trader that needs a solid trading system.

If you like what I write, please tell your friends and family members to come check out my blog. Word of mouth can really do wonders. 

Have a great day~