Fun Fact #21
Did you know that Bill Ackman, the famous manager of the hedge fund “Pershing Square,” had a one billion dollar short position on Herbalife (HLF)? His reasoning for the massive short position was because he claimed Herbalife was running an illegal pyramid scheme. Thus, he mentioned that he would take his Herbalife short position “to the ends of the earth.” Unfortunately, he had lost so much money for his hedge fund that recently he announced that he no longer has a position in Herbalife. There’s a movie about his story regarding Herbalife called “Betting on Zero.” I found the movie quite entertaining.
I’ve modified my two week targets (for April 20th) down a little bit, but I’m now short term (2 weeks) bullish. I’ve also added Tesla (TSLA) to the watchlist because I think there’s a good chance it will resume the downward trend. Unfortunately there are no shares available to short (at least for me), but you could always buy puts.
Today we had another sell-off that accelerated into the afternoon. I had an intra-day update where I predicted that as long as QQQ held above 158, we would see a 160-161 close. Unfortunately, we blew down below 158 and closed well below that level at 156.63.
Although today’s leg down puts QQQ slightly below the weekly trend channel at 160, I’m still bullish for the next two weeks. I’m bullish because the current sentiment is extremely bearish, which means everyone already sold. If there’s no sellers left, the price can only move up. For the intermediate to longer term (1-3 months), I’m neutral or slightly bearish due to political uncertainty and mid term elections. Until the 200 day moving average starts curving downwards, I think the uptrend continues. I don’t think it makes much sense to short the indexes since they are near support levels and could see a big bounce.
Being too heavy on the long side also doesn’t make much sense with all the political uncertainty. The best approach would be to be net neutral or slightly long. This means you short sell stocks and go long on stocks such that your overall exposure to the market is approximately 0. Hence, even if the market goes down a lot, your short positions would realistically make you money while you would lose money on your long positions. If done properly, this net neutral strategy could maximize returns and reduce a lot of risk.
I really like the trade of going long on BABA right now. As long as we don’t break down below the 160-165 level, I think we are going to bounce back to the 180 – 190 level.
Above is the weekly chart of BABA. Notice how buyers get aggressive near this price level. The short term momentum is still down meaning you could wait for confirmation and then buy in. However, if you wait for a confirmation that buyers are present, you won’t have as good of a risk reward ratio. The entire market could have another sell-off next week due to more trade war issues as well as Russia retaliating against the Russian sanctions. This would almost certainly drag BABA down below the low 160s.
The daily chart of QQQ is above. I’ve drawn in a rectangle to show visually where buyers start stepping in. Although we could see another whipsaw like on February 9th (when QQQ hit 150 briefly), I think the index will hold the 154 level here.
One thing to note is that if AAPL falls below 165, I expect QQQ to also break below 154.
Good luck trading next week, and thanks for reading like always! 😀