8/23/2020 Stocks up slightly this week while QQQ continues to shine. Thinking about starting a small short position on Tesla.

Hi everyone, I hope you had a nice week.

Stocks are up a little this week, with QQQ / technology stocks leading the way again. I’m thinking about starting a small short position on Tesla or the market in general. 

Here’s the daily chart of Tesla (TSLA) below. I would probably hedge my bet by going long QQQ as a hedge. 

TSLA daily 8_23_2020

SPY daily chart below. I’ve been mentioning the bearish RSI divergence for multiple weeks now. 

SPY daily 8_23_2020

An update on my positions – I’m still long MRO (up quite a bit), long XLF and short SPY in a pairs trade (down a little -> ~ .5% of my account), and looking at the INO/NVAX pair (long INO, Short NVAX).  Thanks for reading! 

8/16/2020 Stocks mostly flat this week, and it looks like we will continue higher in the short term. I’m still not buying at these levels. Looking at an INO/NVAX pairs trade.

Hi everyone, welcome back. I hope you had a nice weekend!

Daily chart of SPY below. I still think we move lower in the medium to long term, but will probably continue higher in the short term. As a result, I am still not buying the index here for a long term hold. 

SPY weekly 8_16_2020

A trade that I have been looking at is the long INO, short NVAX trade. They are highly correlated stocks since they both make vaccines for Coronavirus. The trade idea is that since the spread between the two has widened a lot (~ 2 standard deviations from the mean), going long INO, and simulataneously going short NVAX for a 3 month hold before earnings seems reasonable. 

My position size if I take the trade would be very very small, and I would place a 25% stop loss on the trade. In other words, if the spread between them widens an additional 25% (drops to a ratio of .075), I would get stopped out. Since I only want to risk 1% of my account, I will only use 4% of my account on this trade.

I plan to take profits within 3 months (right before earnings) or if the ratio between them goes to .20. It’s a 25% stop loss and 100% profit exit, so the risk reward is roughly 4:1. 

Weekly chart of the ratio between INO and NVAX below:

INO_NVAX Weekly 8_16_2020

Daily charts of INO and NVAX below:

Ino daily chart below:

INO daily 8_16_2020

NVAX daily chart below:

NVAX daily 8_16_2020

I hope you all have a wonderful week! 

8/9/2020 Stocks continue higher surpringly and nears all time highs, but I’m not bullish medium/long term yet. I think SPY will break out to all time highs, but then have a substantial pullback (~20%).

Hi everyone, welcome back. I hope you had a nice weekend!

We will probably move quite a bit higher above all-time highs in the short term due to the upwards momentum, but then break lower. I still think we head towards the low 270 range once technology stocks pull back.

Also note the large weekly RSI divergence in the weekly chart of SPY below. 

SPY weekly 8_9_2020

I’ll keep you posted with a mid-week update if anything interesting develops.

I always remind myself that it’s better to be patient and not lose money, then to lose a lot of money buying at the wrong time. 

 

8/1/2020 Stocks up a little this week, but QQQ rises after strong earnings from the big tech companies. Still not convinced this is the next leg up – I think we move lower.

Hi everyone, welcome back to the blog!

I think the S&P500 will still retest the low 270s to 280 level, which is about 15% lower from here. From a risk/reward standpoint, I think it’s equally likely we move up 15% or down 15% from here, meaning the risk/reward ratio is only 1:1. I would need to believe that it’s just as likely for the index to move up 30% as it is to drop 15% (risk/reward of 2:1) for me to consider buying the index here. 

Here are 3 reasons for why I think we move lower:

  1. Most of the market gains are still led by technology stocks, namely the FAAMG stocks (Facebook, Amazon, Apple, Microsoft, and Google). If and when these companies sell off, the whole market will get dragged significantly lower.
  2. Momentum is waning, as you can tell from the bearish RSI divergence (same or higher price high, but same or lower RSI reading). 
  3. Markets are very expensive from a historical standpoint if you look at the P/E ratio and Market Cap to GDP ratio. 

However, 3 reasons why we might not move lower are:

  1. The market has mostly stopped reacting negatively to coronavirus news (reacts positively though). 
  2. The Fed continues to pump liquidity into the market.
  3. Sentiment is still extremely bearish (~20% bullish, ~50% bearish, 30% neutral), meaning there is likely a lot of sideline cash waiting to buy dips. This usually means we will continue to move higher, at least in the short term, unless something unexpected happens (which will probably be non-coronavirus related). 

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

SPY daily 8_1_2020

The QQQ is also building up a bearish RSI divergence, but is holding up quite strong near all-time highs. Daily chart below:

QQQ daily 8_1_2020

Thanks for reading and enjoy the rest of your weekend! 

 

7/26/2020 Stocks flat this week as technology begins to underperform the broader markets. Short term momentum still up, but I think we start moving lower in the short term now too.

Hi everyone, welcome back. Stocks didn’t move much this week, so we will look at SPY and QQQ and then call it a day. 

Last week I thought we would continue moving higher until something more drastic changed. I think the charts are telling us that the character has shifted from being near-term bullish to near term bearish.

Over the last month, SPY would normally close the week strong, but we got 2 consecutive down days to close the week this time. A large part of this downmove is due to the weakness in the technology sector. There’s also the bearish RSI divergence, hinting that the upward momentum is weakening. 

SPY daily chart below, notice the bearish RSI divergence (higher high, but lower RSI reading). 

SPY daily 7_26_2020

QQQ (tech heavy ETF) daily chart below:

I think we will move to the high 230s rather quickly before we get a strong reaction. The move would put QQQ roughly 6% lower. However, notice how the last 2 times QQQ reached an RSI near 50, it recovered. I suspect this time will be different, but we will see. 

QQQ Daily 7_26_2020

Enjoy the rest of your weekend, and I will see you next weekend like usual! 

7/19/2020 Analysis of longer term chart of Amazon ($AMZN). A long time blog viewer was interested on my thoughts.

Hi everyone, I hope you had a nice weekend. A long time blog viewer asked me where I thought a good entry was for a 1-2 year hold on Amazon. As a result, I’ve made this blog post solely on Amazon. Don’t hesitate to reach out if you also want a chart analyzed or have any other questions. 

Weekly chart of Amazon below (over the last 5 years). We are looking at the weekly chart instead of the daily chart because we are looking to hold for 1-2 years. 

AMZN Weekly 7_19_2020

I analyzed the drops Amazon had after making a new high, and circled the drops in the chart above. The average comes out to -24% from high to low, which would be a drop to ~2500. 

I prefer missing a trade that would have worked than to take a trade too early and lose money on it. However, a strategy could be to buy a 1/4th position at around 2500, and add the last 3/4ths position somewhere in the 2000-2200 level. 

To manage risk without a stop loss, I would keep the position size relatively small since Amazon is more volatile than the stock market, with a beta of about 1.3.

If you wanted to manage risk with a stop loss (recommended), I would put it near 1600, since any price below that would indicate a behavioral change. The largest drop in the last 5 years was 37% and a drop to 1600 would be a ~50% drop. 

If we are planning to sell near the previous high at 3300, a 2500 entry is mediocore from a risk/reward standpoint. If we plan to sell at a loss if it goes below 2000 (previous breakout level, which is now support), we are gaining 800 but risking 500 (risk/reward below 2:1). However, if we plan to sell near 3300 with an entry in the 2000-2200 level and a stop loss near 1600, that’s a risk of 400-600 for a reward of 1700, an excellent risk reward of 3:1 or 4:1. 

Again, since there’s a good chance Amazon won’t reach the 2000-2200 support level and reverse sooner, we could always take a small position near 2500 and plan to average down in the 2000-2200 support level. 

Happy Sunday, and thanks for reading! 

 

 

7/18/2020 Overall market is up this week, but QQQ drops. Thinking of going long on $TSLA, $NFLX, $SQ, $NIO if the market drops (or these stocks drop).

Welcome back to the blog! 

Stocks are still mostly grinding sideways or up slightly. Below is the weekly chart of SPY.

SPY weekly 7_18_2020

I don’t like prices up here for going long unless I was doing short weekly trades (less than 2 month holds). Over any longer time period (>2 months) and I think we are more likely to be lower than higher, we will see what happens. I’d want to be long near 300 and 275 for medium term swings (~3 month hold). Below I discuss some pullback trades I plan to go long on if SPY does pullback another 7% (to 300) and 15% (to 275). 

I’m considering going long on Tesla, Netflix, Square, and/or Nio on any more sustained weakness for a short/medium term swing trade. For example, although I don’t like Tesla from a fundamental perspective at all, the trend is still up, and once they report earnings next week, it could present a nice “buy the dip” opportunity for a swing trade back up. 

Same goes for Square, Nio and Netflix – although I think they are extremely expensive from most metrics, they present good short/medium term swing trading opportunities. 

I plan to hedge my bets with a couple of shorts in the technology sector to reduce my overall sector risk when going long though. Below are the charts of Tesla, Netflix, Square, and Nio, and where I plan to enter.

Tesla daily chart below (long at 900-1000): 

TSLA daily 7_19_2020

Netflix daily chart below (long at 400-450): 

NFLX daily 7_19_2020

Square daily chart below (long in 80-90 range):

SQ daily chart 7_19_2020

Lastly, Nio daily chart below (long at 8-9):

NIO daily 7_19_2020

Enjoy the rest of the weekend, and see you next week (unless we get a large market sell-off and I swing long 🙂 

7/12/2020 Markets moving up as expected, and it looks like we will get continued upside due to this upward momentum. Bullish very near term (1-2 weeks), bearish on all other time frames.

Hi everyone, sorry for the somewhat later update. I’ve been pulling my hair out working on my Boba company website because I have no idea what I’m doing. Turns out I sat there messing around with setting it up for 13 hours this Friday (until 6am), and then 9 hours yesterday.

Anyways, enough of that, let’s look at the charts. SPY weekly chart below.

I think we still pop the 320 resistance, but then gradually move lower after that. Perhaps we reach 330, or perhaps we pop to all time highs, but I think we eventually move much lower. 

SPY weekly 7_12_2020

Next let’s look at how my pairs trade on XLF and SPY is doing. 3 year weekly chart below.

The lowest ratio of XLF to SPY in 2009 was roughly .07, so right now financial are doing so bad, it’s equivalent to how they were doing in 2009. I’m still holding this pairs trade and will likely hold it for another 3-12 months. 

SPY vs XLF Weekly 7_12_2020

Thank you for reading, and see you next week. 

7/4/2020 Stocks up 4% this week and begin to chip away at the bearish case. Sentiment indicators still overly bearish, hinting at continued upside. I’m no longer bearish short-term.

Happy 4th of July, I hope you are having a nice day!

Recently, the market is back to going up on good news, and not going down on bad news. This to me signals that we move higher until something more fundamental changes.

From a technical perspective, the obvious levels to look out for on the SPY are the local high at 320 and the local low just below 300. A break above 320 likely signals new all time highs, while a break below means we likely retest the low 270s.

Although I think we move higher from here, I suspect the 320 level will be hard to get past, and even if we do, it will likely fail whether that is near or past all time highs. I believe the upside is limited here, so I will keep my 90% cash 10% stocks asset allocation. I suppose with my large pairs trade I took on Thursday last week that I am technically no longer 90% cash, but since the pairs trade I took is a market neutral strategy, I’m “effectively” 90% cash.

Also, the AAII sentiment indicator is still excessively bearish, hinting that there is a lot of excess cash on the sidelines (myself included). Again, we use the AAII sentiment indicator as a contrarian signal to the market. Since it is still excessively bearish, if we go by this signal, we should be positioned to be long here. I’m avoiding this signal though.

Weekly chart of SPY below:


I took a nice day trade this week, which I normally don’t do, but the opportunity provided itself and my brain kept telling me to GO GO GO, so I went for the trade. I told my twin on Monday morning, “I woke up today and just really wanted to short Boeing.” He looked at me without saying anything, but might as well have said “cool story bro.”

By now I hope I have baited you into thinking I made so much money I wouldn’t have to work for months, but I actually lost money on the trade. Haha gotcha. The reason I said it was a nice day trade was because I followed all my rules, stayed calm during the whole trade, and also learned something valuable. What I learned is that sometimes although I’m taking a good risk reward trade, the odds of the stock making such a large move in my preferred direction might either take too long or just not happen since it’s a day trade. This applies to my swing trades too since there’s always an opportunity cost to being in a trade and tying up capital.

30 minute chart of Boeing below:

I noticed the large counter trend gap up in the premarket, reaching 184.5 at the highs. My plan was to short at the open as long as we opened above 183, we didn’t. Instead of getting baited into the massive sell-off at the open. I waited. And waited. And waited… Then Boeing finally jumps up to 184.5, briefly hitting 185 and quickly reversing. It looked good, so I didn’t check Boeing until much later in the day, where I noticed I got stopped out.

Since my account is relatively large now, I didn’t want to risk 1% of my account on this trade since it would be a sizable dollar amount to me (and I hate losing money), so I risked .25% of my account to gain .75%.

I suspect the markets will be getting more volatile these next few weeks since we are near a breakout level, so at least I should be entertained even if I’m basically sitting on the sidelines right now.

Again, Happy 4th of July, and see you next weekend!

7/2/2020 Started a large pairs trade between SPY and XLF at 10:30 am mountain time.

Hi everyone, welcome to a quick mid-week update.

I noticed that the financial sector of the S&P500 (XLF) was underperforming the S&P500 (SPY) by about 20%. This large divergence has recently occurred, so to take advantage of it, I went long XLF and short SPY. I plan to hold it until the two prices converge again, which I suspect will take between 3 months and 2 years.

I would normally put a stop loss on the trade, but did not use one here since it is extremely safe (market neutral) and the two assets are 86-89% correlated. I currently only have 10% stocks and 90% cash in my portfolio, so I don’t mind owning XLF at a lower price if for some reason they start to diverge more.

Edit: Since it is possible for these two ETFS to diverge further, I will likely cut my losses if I lose 1% of my account.

For sizing, I went quite large, using 25% of my portfolio to buy XLF, and matched the same dollar amount to short SPY. Unfortunately, there’s a small fee on the SPY short, which is 20 cents a day or .25% per year. If the trade works out, I will gain 20%, which is large compared to the .25% fee to short SPY. Hopefully this fee doesn’t increase.

To summarize:

Pairs trade initiated on XLF and SPY. Long XLF, short SPY. Closing out trade when prices converge.

Chart of pairs trade below: