10/11/2020 Markets up quite a bit this week. Looking like more upside in the near term, but I’m still bearish. Shorted BABA on Friday.

Hi everyone, welcome back. The markets look like they want to move quite a bit higher in the next one to two weeks, but I’m still cautiously bearish on all other time frames.

I started a half sized short position on BABA on market close Friday at 300. My stop loss is at 315 and my target profit is at 270. I don’t want to be net short on my short term trades since the market momentum is still up, so I plan to buy some AMGN for a quick swing trade (and maybe some DPZ).

Weekly chart of SPY below. Perhaps we retest the low to mid 350s this week before pulling back. Maybe we just continue to shoot upwards, I don’t know. I still favor and prefer a move down so I can add longs.

Daily chart of BABA below. Entry: 300, Stop loss: 315, Profit Exit: 270.

After examining my trading history, it looks like my success rate on shorts in an uptrend is about 35%, and the average gain is half the size of when I go long with the uptrend. Either way, I’m currently risking .5% of my account on this trade, and will only add more if it goes in my favor (moves down).

I’ll keep you all updated if I decide to take any additional trades this week. Have a nice rest of your day!


10/3/2020 Markets up a bit this week. Added a little more to MRO and bought some ODT. Bearish on markets for all time frames except the very near term (1-2 weeks)

Hi everyone, welcome back!

Although I’m neutral/slightly bullish in the near term, I’m bearish in the 1-6 month time frame. Most sectors haven’t fully recovered and the recovery is lead primarily by the five largest companies.

The financial and energy sector underperformance is drastic, although we did get some sector rotation on Friday.

SPY daily chart below:

I added about 30% more to my MRO position at $4.07 this week. I also started a small position in OBT at $14 (a pharmaceutical company). I don’t have a hard stop loss so I’m using a much smaller position size. I plan to add more and complete my full position if we retest $12.

I bought more MRO because they reinstated the dividend – this to me signals MRO’s confidence in their future cash flows. I still plan to sell in the 11-12 range, which is what I think MRO is worth currently.

I bought ODT because the CEO and Boxer Capital LLC increased their stakes significantly. I did some research on Boxer Capital LLC and they have a very good track record, and ODT is now one of their largest positions. I also spent about an hour looking at their 10k annual report, but it looks very bad from a cash flow perspective due to its high burn rate from R&D costs. Either way, the CEO and Boxer Capital LLC have more information than me, so I will just follow their lead.

Insider transactions for the last 2 years below. Notice the heavy buying in the $13-$15 range in September.

I don’t usually do these long term holds (last one I did was on Boeing), but for these trades, I don’t have a hard stop loss, although I do have a mental stop loss. The way I manage risk on these trades is by using much smaller position sizes. The sizes are small enough that even if the company went bankrupt, it wouldn’t be a huge hit to my portfolio.

MRO Daily chart below:

ODT daily chart below:

I’m looking forward to next week’s stock market developments! Enjoy your Sunday 🙂

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!

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!