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! 

7/12/2020 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:

6/27/2020 Markets down about 3% for the week. I sold my PSEC and barely missed my short entry on Facebook. Looking to sell puts on MRO to increase my long exposure.

Hi everyone and welcome back. I hope you had a nice week and are having a great weekend as well!

The S&P500 closed about 3% lower this week, which was mostly the result of the Friday sell-off. Although I think there’s a good chance we move higher the first couple of days of next week, my original downward target of 275 still stands. If selling gets intense, we could reach it in a matter of 2 days.

Because I’m bearish on the overall market, I decided to sell my PSEC. I had planned to hold for much longer (1 year+) and to sell it at a slightly higher price. I got out at 5.09 on Thursday, and I bought in at 3.81 in April of this year.

I had been wanting to short either the SPY or QQQ for the last couple weeks, but since my broker doesn’t have shares available to short, I decided I would short Facebook (FB) instead because I noticed that it was under performing the indexes. Because I was only going to hold this short for 1 month until its earnings date, I waited patiently for a retest of 240 which never happened (highest it got on Thursday was 237). Facebook closed down 10% on Friday if you include afterhours and is trading at 212.5. Although I think it’s likely to continue lower from here, the risk reward is no longer favorable for me to short it here.

Daily chart of FB below:

Lastly, let’s look at MRO, a stock that I am planning on adding more shares to. Daily chart below. I plan to average up into this position sometime in the next couple weeks by selling cash secured puts until I get filled. I don’t mind owning more shares at $5 and below since I think the stock has a fair value around 11-12 dollars based off its 15 year average price to book ratio. Discussion of MRO’s fair value below this chart.

I almost never look at fundamentals, but I figured if I plan to hold MRO for up to 5 years that I might as well look at some key financial ratios. Again, I’m new to this so I could be totally wrong on my fundamental analysis. Let me know if you have any suggestions.

My thought is that a stock will eventually trade at its average price to book ratio in the long run, as long as it doesn’t go bankrupt of course. Since MRO has been around for over 100 years (founded in 1887), I suspect the risk that they go bankrupt in the next few years is relatively low.

The above lines represent where MRO is cheap, average, and expensive based off its 15 year price to book ratio. It has a current price to book ratio of .4, with a 15 year average price to book ratio of roughly .8. The red line is where the price usually stalls out, which is a price to book ratio of 1.2 or so.

If we convert these price to book ratios to prices, MRO’s fair value is around $11-$12, with anything near $6 being half off and the $15-$16 range as being expensive. I plan to use this to gauge when I buy and sell this ticker. Since we are under 6, I plan to sell cash secured puts like I mentioned above.

I hope you enjoyed the post, and please let me know if you have any questions. Stay safe and enjoy the rest of your weekend. See you next week like usual!

6/25/2020 Sold all my PSEC shares at 5.09 today, and looking to short Facebook (FB) for 1 month until their earnings report in late July.

I sold all of my PSEC shares at 5.09 today due to the recent market’s reaction to new information regarding the state of the economy and the Corona-virus. Although my minimum target of $5 was reached in a really short period of time – roughly 2 months from late April where I purchased it – I originally planned to sell it in the $6 to $6.5 for a mean reversion.

Either way, the position sizing was pretty small, so although I’m up over 30% (I bought in at 3.81), the capital gains aren’t substantial. With this sale, I’m just over 90% cash, with my only position being MRO.

I’m still looking to re-enter Boeing in the 90-140 range for a medium to longer term swing trade or investment. This time I’m thinking of implementing “The wheel” options trading strategy, where I sell cash secured puts, and when filled, sell covered calls until my shares are called away. In some sense, this is no longer a swing trade nor an investment, but a play on theta (time decay) for options.

I’m looking to do either a regular short on Facebook, or a covered short trade which reduces my risk and reward. I would normally like to short the indexes like SPY or QQQ instead, but my broker won’t let me short them right now. I also don’t like messing around with inverse ETFs, since they aren’t meant to be held for more than a couple days with all the volatility drag shenanigans.

The plan is to short FB at or near 240, with a hard stop loss 15 dollars above my entry (1% risk), and a minimum profit exit at 200. This gives us a risk reward of about 2.5:1 which is decent. I plan to exit my trade early if it quickly goes against me and the overall market moves higher. I also have a timed stop of 1 month since I don’t want to hold the short through the earnings report.

If I do the covered short strategy, I plan to sell the monthly 220 put for a 5 dollar premium, which gives me some protection if the stock moves up, but also caps my gains if the stock falls below 220.

I’ll post charts of FB this weekend if I take this trade.