"Know Your Edge, Style and Time Horizon"

As we continue to find ourselves in highly correlated, news driven markets, a number of prior leadership names are breaking down or at least showing signs of weakness ( i.e. CRM, LULU, GMCR, NFLX).  Despite having a laundry list of names, many swing trade breakout plays have also been few and far between, in terms of sustainable trending moves.  However, as I have been going through my nightly screens for the past couple months I am noticing a higher proportion of high dividend names continue to emerge.  Many of the same names are at or just below 52 week highs.

Amidst an environment in which treasury yields continue to narrow, and markets tread in a largely trendless fashion, it seems reasonable for investors to hide out in high yield, “defensive type investments.”   A look at the chart of TLT provides further evidence to such a thesis.

Regardless of the rationale and whether or not the aforementioned reasoning is sound, I think it is increasingly important to be cognizant of one’s time horizon, and mindful of where money is flowing.  As a greater proportion of the high dividend names hit all time highs, it is becoming more important for longer term investors to be cognizant of charts/the momentum mindset and traders to identify their time frames.  From an investment point of view, one must understand that momentum traders are often attracted to names with great relative strength, at or near all time highs.  However, they do not have a fundamental allegiance to the names, and as a result can “flush” a name just as quickly as they bring it to new highs.  Rather than passively buying and holding, longer term investors must be mindful of the difference between momentum driven price action and fundamentalist factors.  On the other hand, as a trader it is important to define one’s time horizon prior to execution.  Even though a name may yield 5-6% (relative to 0 on cash), does not take away from one’s primary edge upon entering the position, which is a result of technical analysis. 

Using a combination of technical analysis and fundamental reasoning to structure an investment thesis is one thing.  However, structuring a trade through technical analysis and then rationalizing it later via fundamental reasoning results in inconsistency and often hardship.  Although rationalization through inconsistent reasoning is never a good idea when managing an investment portfolio, in my opinion recent developments can make such a mistake even more damaging.

The Difference a Week Can Make

I recently posted a bunch of "good setups" I saw this past weekend.  Coming into the week I thought we had a chance to compile some semblance of constructive price action.  However, with a 40 or so stock watch list I watched every name either barely breakout and reverse hard, or never breakout at all. In conjunction with a lack of actionable setups working higher, I see "leader" after "leader" breaking down rather than breaking out.

Coming into the end of the week, I don't see very many opportunities to the long side that fit my style.  In an environment of news driven markets with limited to no trend I think it is prudent to at least be cautious (shouldn't be anything new to most).  On the other hand, does this mean that I think the SPY is going to 50 or Europe is going to self implode? I have no idea, and frankly I don't believe it is my place to provide a crystal ball prediction.  I have levels defined, at which I define my risk just like everyone else.

On the other hand, it seemed reasonable to follow up on the names I had been watching and relay the message that they did not work.


Trade em well and enjoy the holidays.

A Few of the Many Nice Looking Charts

In going over my scans I came across an awful lot of nice looking charts so far.  I thought I would share a few here.  Enjoy

A Comparison of "High Flyers"

Over the course of the past couple of months a number of high flying momentum names have quickly fallen off a cliff.  Most recently was Green Mountain Coffee, which had been forming a longer term head and shoulders topping pattern prior to breaking down as illustrated below.

Following a worse than expected earnings call, the company proceeded to breakdown below the neckline, and has not looked back since.  A great illustration of how important it is to get off the train when momentum breaks.  For further illustrations of the power of broken momentum, I would refer you to $OPEN, $CREE, $JVA etc etc.

More recently I have been watching Salesforce.com ($CRM) which has been a powerful momentum leader of the past couple of years. However, some of the more recent earnings call have not been at par with the street's expectations. As illustrated below, $CRM is also forming a very similar head and shoulders pattern to that of $GMCR.

 Furthermore, there are clear signs of institutional distribution in both instances on the right side of the pattern.  In addition, the insider activity in $CRM of late has not painted a pretty picture either (do your own digging).


Just an observation, take it for what it is worth.

Ten Quick Rules to Keep in Mind

1.)    Price Pays

2.)  "Every moment in the market is unique"--Mark Douglas (read "Trading in the Zone" ASAP)

3.)    Your opinion about what price “should be” means nothing

4.)   Identify your style and do not deviate from it

5.)    “Play great defense” @jfahmy

6.)  Plan your trade and trade your plan

7.)    Fighting a trend can be painful and dangerous

8.)    Everyone makes mistakes, identify them early and get rid of them

9.)    Hope fails every time

10.) One tick will not kill you

Search for Leadership: Setups in Vices and Cheap Retail

After screening a number of stocks this week and reviewing the stream, there are few quality setups I am noticing in tobacco, dollar stores and a select number of utilities.  Since I always have my eye out for boring D.R.I.P opportunities, here are a couple names I noticed throughout the course of the weekend.

Courtesy of @commavetrader we also have the recent IPO/ couch cushion shopping $DG looking good as well.  Dollar Tree is ($DLTR) is another in the space with strong earnings growth and a nice looking chart.  These aren't necessarily the high yielders as previously mentioned, however price is truth until it is not in my opinion. Other notable mentions in the cheap retail space that look good include $MCD and $TJX.

Although the aforementioned charts demonstrate potential, they are not the most promising areas to find powerful relative strength and strong moves in my opinion.  Granted there are thousands of ways to make money in stocks, however for those on the stream with an interest in monster trends such as those of past leaders i.e.: ($HANS, $CMG, $GMCR, $LULU) $MO, $LO and $SO in all likelihood will not present such leadership.


Depending on your time horizon and investment style, these names may provide opportunity for some.  Others may find opportunity in a 3 or 5 minute chart, given the violent intraday moves we have seen on a regular basis.  However, in my opinion we are still in a challenging environment on a swing trading basis.  There are a number of macroeconomic risks including China and Europe.  Among the areas of death at the moment include the Shanghai Index, Copper, Financials, the Aussie Dollar and steel.  I am not an economist and will not attempt to pontificate my economic views.  I'd much rather observe price and act accordingly. 

Here is what I see with respect to the $SPX…take it for what it is worth.


Good luck out there!

"Remove Your Ego, Do Your Own Work and Embrace Other’s Wisdom"

Being a relatively inexperienced trader I do not believe it is my place to dictate regular blog posts related to my opinion on the market, or pretend to provide expertise on investing.  However, in my opinion nearly every trader experiences moments in their career of stupidity and ignorance.  Regardless of how many times one reads Jesse Livermore, Mark Douglas or any other well publicized trader, we are all subject to times of poor risk management.

Having used social media and specifically Stocktwits for a couple of years now, I have had access to the minds of a number of brilliant traders that are constantly willing to share their insights and trading experiences (i.e.: @jfahmy, @gtotoy, @upsidetrader, @howardlindzon, @stevenplace, @daytrend, @reformedbroker, @zortrades etc. etc.)  During my time using the network, I have learned a number of lessons, such as not to trade in a choppy market, constantly do your own homework, “don’t be a dick for a tick”, define your risk, have a plan, no one cares if you are a great paper trader and play great defense. Each of the aforementioned insights has helped me significantly throughout the early stages of development in trading.

However, since I came into the business in 2007 a significant portion of my career has been in a strong market. As a result I have relatively limited experiences having my patience tested.  Although I was able to identify a recent change in market character relatively early; I made the mistake of thinking I could out trade a choppy/weak market despite there being nearly no setups..  After listening to Joe Fahmy and Steven Place talk a number of times about not wasting psychological capital or financial capital in a weak tape I tried it anyway.  Since I was not able to find quality setups from many equity names, I began to attempt trading other asset classes which were outside of my comfort zone thinking I was Superman.

Instead of being content in the fact that I identified a weak market, I thought I could still pull a few bucks out of it.  Despite agreeing with Reformedbroker’s post related to an idiotic chase for performance, Howard relaying his exits in Apple and Amazon, I still thought I could grab a buck.  Instead of embracing the clear warning signs from my nightly homework and confirmation from, Gtotoy’s bond stock ratio, Zortrades monthly 20 period moving average, Joe Fahmy’s blog, Howard’s non-momentum Monday and Steven Place’s intermediate term change in character, I became subject to a chopfest through a couple of poor trades I made.

Luckily after realizing that I was not Superman, I had a prior plan in place to get me out of these trades.  As a result, I was able to cut my losses at reasonable levels.  However, my need to be involved was stupid and uncalled for. Trading in assets beyond the normal scope of your business is never a good idea.  Although it may not have resulted in life changing losses, I think my stupidity can provide a lesson to many.

As a result, I wanted to make a quick post directed toward relatively new traders to relay the message that you ARE NOT Superman.  You likely CANNOT perform well in most market conditions.  If you cannot find a trade within your area of comfort, you DO NOT have to trade every day.  A significant portion of your time as a trader requires PATIENCE and WAITING.  Also, Stocktwits is a great asset with a number of great traders providing an abundance of information.  Do YOUR OWN work, make YOUR OWN CONCLUSIONS and utilize Stocktwits as a crutch. 

Good luck out there!