5/31/2020 Stocks up again this week (~3%), and I’m still bullish until SPY reaches 320. Airlines jump again, and I still have no position.

Happy Sunday everyone, I hope your day is going well.

Let’s look at the weekly chart of SPY.

Although I’m still bullish on the market in the near term (2-4 weeks), if I were swing trading, I would definitely be selling at or near 320. We are still about 5% away from that target.

Airlines jumped roughly 10% this week. Weekly chart of LUV below the following paragraph.

LUV has formed a nice bottoming pattern, with prices moving lower, but with RSI moving higher (bullish divergence). It’s more significant because it’s on the weekly chart instead of the daily chart. I’m not sure why I didn’t take this trade, but if I took the trade when I intended to, I would have been stopped out just before the stock rebounded. That’s one issue I’ve found with short term trading – you can get the direction right, but you also have to get the timing right or else you will still lose money.

Speaking of timing, the shorter time frame we trade, the more we should wait for a better entry. On the contrary, this means that if you plan to hold for a longer time frame, it doesn’t matter as much when you buy, so trying to “buy low” isn’t as important.

Enjoy the rest of your weekend and have a nice Monday!

5/24/2020 Markets, airlines, and bullish sentiment jump this week. No change to short term bullish outlook.

Hi everyone, I hope you are enjoying the weekend so far.

Despite the index pushing towards all-time highs and giving us a worse risk/reward ratio for going long, I think we will continue to move higher until bearish sentiment drops.

In the weekly chart of SPY above, I’ve highlighted that we want to be selling near the top half of the range and buying near the bottom half. This is known as “buy low, sell high.”

Notice the current trading range from March lows to all time highs (220-335). If we want a trade with a minimum risk/reward ratio of 2:1, we want to sell in the upper third of this range, and buy in the lower third of the range. For example, a trade could be to short at 300 with a stop loss near 330 and a profit target at 240. For going long, we would look to buy near 250 with a stop near 220 and profit target near 310. Although I favor continued upside here, notice that we are in the upper 3rd of this trading range, so selling here from a risk/reward standpoint is reasonable. Again, although I’m bullish, the risk/reward makes it too risky to be buying at these levels. Selling out of the money puts with the intention of getting assigned would be a reasonable alternative.

LUV weekly chart below. I still have not taken a position in airline stocks. This bounce is quite juicy and probably a bait so I’m waiting for a retest of the previous lows (low 20s).

Notice the large gain this week (20%+).

Thank you for reading. Let’s see what happens this upcoming 4 day week.

5/17/2020 Stocks down a little this week while airline stocks tank again. Analysis of my current positions and a long-term chart of Southwest Airlines. Still bullish short term (2-4 weeks).

Hi everyone, welcome back! Despite the indexes dropping a little this week, I’m still bullish in the short term (2-4 weeks). 

I mentioned last week that I was looking to buy airline stocks for either a quick weekly swing trade or a long term hold. I haven’t taken a position in airlines yet, but prices are continuously dropping so I will likely start selling short-term puts and look to either collect the premium if they expire or get filled on a position.

First, let’s take a quick look at my current three positions (BA, MRO, and PSEC). In terms of position sizing, I still own about 2.5 times as much BA as MRO and 2 times as much MRO as PSEC. 

BA daily chart below. Although I’m not too happy about this price action, we are in the 90-120 support zone so there’s a decent chance BA will bounce here. My average in my trading account is still under 100 (and just above 150 in my Roth IRA), so it is still a slightly profitable investment so far. My current plan is still to sell at 240+ with a minimum hold of one year to avoid short term capital gains taxes. 

BA daily chart 5_16_2020

MRO daily chart below. Energy stocks have been doing well the last couple months, and MRO has performed quite well. My average is still at 3.5 and I don’t plan to sell until the low 10s or until the insiders I’ve been following start selling. 

MRO daily 5_16_2020

PSEC daily chart below. This trade was intended for the dividends, so I don’t mind holding it unless the dividends go away. I will likely sell if it reaches 6, but will still hold it for at least a year. It looks like PSEC is in a trading range from roughly 3.8 to 5. My average is still at 3.81 but the position sizing is quite small so the gains are relatively small. 

PSEC daily 5_16_2020

Now let’s look at Southwest Airlines (LUV).

Monthly chart of LUV below all this text. For a long term investment (5 years+), I think buying here without a stop loss (or no plan to average down) would be pretty scary. I’ve highlighted the consolidation range from year 2000 to year 2013. It’s possible for the stock to drop to that zone, and the worst case scenario is the airline goes bankrupt. In terms of risk reward, assuming the airline does go bankrupt, we should be rewarded with at least 3 times what we put in. Buying here at 24 means we need to sell at 72, which is above the recent highs. With this risk reward of 3 to 1, we would want to buy near 20 with a plan to sell near 60. 

If I do invest in airlines, I plan to sell weekly or bi-weekly puts to collect premium until I get filled on my position. I will keep you updated. 

For a swing trade, our target would be near the breakdown level in the mid 30s. Notice we have volume expansion here (circled in chart below) so we should be nearing a local bottom. 

LUV monthly chart 5_17_2020

 

I hope you enjoyed the longer post and see you next week! 

 

 

5/9/2020 Stocks up this week more than I expected, and the AAII sentiment indicator hits 7-year high for bearishness. I am looking to buy airline stocks for a swing trade, because I’m bullish for the next 2-4 weeks.

Good afternoon. The S&P500 closed about 3.5% higher this week and the Nasdaq closed nearly 6% higher, which is much higher than my neutral / slightly bearish prediction I had for this week. My target for the next 2-4 weeks is 320 for the SPY (S&P500) and all time highs for the QQQ (Nasdaq).

However, going long here without a tight stop near 280 wouldn’t make sense from a risk/reward perspective. In other words, I wouldn’t be a buyer at these prices even though I think we are more slightly more likely to move up than down in the next 2-4 weeks. My stop loss would be too close to the current price and I could get stopped out too easily. 

For a longer term swing trade (~6 months), I would be looking to go long in the 250-260 range, preferably on the lower end of that range, with a target near 300 and stop loss near 235. 

Since the AAII sentiment indicator is now at a 7-year high for bearishness (~53% bearish for then ext 6 months), I suspect we will continue to move higher over the next 2-4 weeks. We use this sentiment indicator as a contrarian signal for the market. Because I’m bullish in the short term now, I’ve been looking to enter the airline stocks like Southwest (LUV) and American Airlines (AAL) for a quick 2-4 week swing trade (possibly up to 3 month hold). 

Let’s look at the charts of SPY, QQQ, and LUV.

SPY weekly chart below. Like I noted above, I think we touch 320 in the next 2-4 weeks.  

SPY weekly 5_9_2020

QQQ weekly chart below. Although it is stronger than SPY right now, there is big bearish RSI divergence building up, so even if we do make it to all time highs, I doubt we will be able to hold those levels for more than a 3 weeks. 

QQQ Weekly 5_9_2020

Southwest airlines (LUV) daily chart below: 

I think all of the bad news (and more) has been priced into the airline stocks, so from a fundamental standpoint I would be long here. From a technical standpoint, we have made new lows while the RSI has been going up. This bullish RSI divergence makes it more likely that I will take a swing trade sometime soon. I’ll keep you all updated if I take a swing trade here. 

LUV daily 5_9_2020

5/3/2020 Markets flat this week, and futures point to a fairly large gap down Monday. Looking like a neutral / slightly bearish week.

Hi everyone. Below is the weekly chart of SPY. Since we dropped Thursday and Friday, I suspect we will have a bit of continued selling next week (at least on Monday and Tuesday).  As a result, I think we close neutral or down about 5%. If we move down, we will probably retest 270 rather quickly, and anything below that would mean a retest of the 250s (~10% lower from 270). 

Sentiment is still quite bearish so we could see continued buying until more people are bullish, but I still think it is more likely we move lower next week. Thanks for reading! 

SPY weekly 5_3_2020

4/25/2020 Markets end the week slightly lower as the VIX drops to the lowest level in nearly 2 months. Bought some PSEC earlier this week.

I hope you are all having a great Saturday!

Although I “feel” bearish here, I’m thinking we will move higher for two reasons. The AAII weekly sentiment indicator is back to being very bearish, with 50% of the respondents thinking we will move lower over the next 6 months. Also, the VIX has dropped from about 45 to 36 this week. 

My upward target is 310, representing another 10% higher. If I were to buy the index here, I would put a stop near or just above 270 with a target at 310. I think that if the index breaks below 270, the low 250s will be retested rather quickly (1-2 weeks), and that is a level where I will start thinking about buying more with my stash of cash. 

Below is the daily chart of SPY:

SPY daily 4_25_2020

Below is the daily chart of PSEC. I entered at 3.81 earlier this week (you can find the post by scrolling down to the previous post) and despite the very nice rally off the divergent low, I still plan to sell somewhere between 5 and 6. I prefer staying in this trade longer than usual because of the monthly dividends. Although I don’t want to pay short term capital gains taxes, I might just sell at 5 and look to buy it back at a lower price. 

PSEC daily 4_25_2020

4/22/2020 Markets begin somewhat orderly correction this week. Bought a reasonable position in PSEC at market close today.

Hi everyone, I hope you are all staying safe and are still quarantined. I don’t think I’ve left the house in the last week, but that’s pretty normal for me anyways.

The markets are somewhat stalling near resistance this week although we did see a spike up today. I found one stock that I decided to buy today (PSEC). With the purchase, I’m at about 45% cash and 55% stocks (up from about 55% cash and 45% stocks from about a month ago. The cash position is also a bit smaller since MRO and BA have gone up in the last month. 

My Schwab portfolio checkup says my portfolio is in really bad shape since I have all my eggs basically in Boeing, with smaller positions in MRO and PSEC that combine to about half the position size as Boeing. It also says I have way too much cash for my risk tolerance – Schwab thinks I should have 5% cash, but I have 45% cash. 

Anyways, I bought PSEC at $3.81 on market close today. The CEO bought a tremendous amounts of shares (30 million shares in March, almost doubling his initial position size of 40 million). His average purchase price is about $4.5 for the new purchases. I’ve also noticed a big bottoming pattern in the chart (daily chart below). Notice how the price keeps retesting lows, but the RSI (momentum indicator) disagrees with the price action.

Another benefit is their dividend yield of 19%. They pay a dividend of 6 cents per month (which isn’t suspended yet), so even if the stock price doesn’t move in the next year, I’ll be getting a 19% return just from the dividends. I have the dividends set to auto reinvest so I can avoid paying taxes on short term capital gains. I plan to hold for at least a year with a minimum price target at $5. My decision to hold longer is dependent on its price action, dividend yield, and insider activity. I have another limit order set to buy more at $3.2.

PSEC daily 4_22_2020