Sunday, February 26, 2017

My Market Outlook

Market continues to show momentum and I still maintain my bullish bias.  In the last 3 weeks, the 3 major indexes that I monitor daily are still trending along the   20 day sma (simple moving average)  and they have advanced:

  1.  $SPY   +2.85%
  2.  $DJI     +3.73%
  3.  $QQQ  +3.83%

$XLK (Technology)  is  +4.73%  in the last 3 weeks and continues to be the leading sector.  Last week we noticed that the market was consolidating with all 3 indexes as well as the Technology Sector trading tightly and orderly.  I find that comforting.  This behaviour allows the   50 day sma   to catch up with the   20 day sma.   Institutions are taking a breather right  now before they start making new committments in the weeks ahead.   

Low Risk Trade

Most of the stocks that I brought to my readers attention in the last couple of weeks are extended beyond their ideal buy points at the moment.  Most growth stocks will advance  +10%  to  +20%   before they begin to retrace.  Sound portfolio management requires one to have an appropriate trailing stop for stocks that have advanced in such a manner so as to lock in the profits and take the risk off the table.

Last week I had mentioned that I will highlight an   Option Spread Trade  that was done as a Low Risk Trade.  Here are the details of that trade:

$CMA - January 27th the stock was in the leading Financial Sector and it met all my minimum criteria of   IBD (Investors Business Daily)   style stock selection to be on My Watch List.  The stock had already advanced  +32%   since the   'follow thru'   day on November 9th and was consolidating for 6 weeks after attaining this gain.  It bounced off the   50 day sma   on January 17th with trade volume of over   +50%   above average normal daily volume.  This indicated conviction from the institutions.  Instead of purchasing a stock,  I chose to initiate the bullish Debit Call Spread.  

Trade:  $CMA Bullish Debit Call spread Buy March 70 call and sell Mar 75 call for a debit of $1.10 for 9 contracts   ($990 Debit)   on January 27th.  Trade closed out 12 days later on Feb 14th for a credit of $1.60 for 9 contracts   ($1440 Credit)   That was a gain of  +45% with less than $1,000 at risk.   The stock only moved less than   +5%  for this trade to become profitable.  Soon after closing out the trade, stock began to retrace and currently is below its support price of   $71.30

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Monday, February 20, 2017

My Market Outlook

My market outlook is still very bullish in the coming week.  Lately I have been getting a lot of response to my tweets and stocks that I have highlighted in my blogs the past couple of weeks.  I sense that some of my followers did not participate during the  "Follow Thru"  day on November 9th and instead have watched the market continue to go higher.  Now they are concerned that they are missing out on this rally.  There are others who did step into the market and are euphoric since the   $DJI  has catapulted over 600 points in just the last 2 weeks.  They are holding onto their gains and expecting the market to continue to trend higher.   The question I often get lately is    "What Should I Do?"    I will attempt to answer that question in my post today by letting you know   "What Would I Do?"

My Analysis

It is always a good idea to analyse the 3 major Indexes   - $DJI, $SPY   and   $QQQ -   that I follow to identify where the strength in the market comes from.  In the last 10 weeks since Dec 7th, all the three indexes broke out from their resistance lines and they have advanced:

  1. $SPY   +4.67%
  2. $DJI     +5.5%
  3. $QQQ  +9.67%
When I analyse all the 9 sectors of the market,  $XLK (technology)   is  +8.32%    That has been the leading sector for the last 10 weeks and that is where the opportunities have been. 

What would I do?

I will highlight 5 stocks that have appeared on My Watch List in the last 8 weeks.  Some of these stocks were mentioned in my blog and others were tweeted on my tweeter  @spotlightamin.  Some of them were mentioned in my posts and commentaries on  Linkdin.  These stocks have already crossed over their ideal buy point and would be risky to chase them.  Market will most likely consolidate the gains made in the last 10 weeks and these stocks may retrace too.  I am indicating areas of support and resistance where these stocks may provide an opportunity to take a position:

  1. $AMAT ...  $33.62
  2. $AVGO ... $208.85
  3. $ZION  ...  $44.43
  4. $CMA  ...  $71.30
  5. $CFG   ...  $37.08 

I prefer to take a  "Low Risk Trade"  since some of these stocks have already either passed their ideal buy points or they broke out in low volume.  I prefer high volume break out on Growth Stocks.  This volume sometimes comes before or after passing their buy zone.  Chasing a stock beyond its ideal buy zone is a losing proposition.  I would utilize   At the Money Credit Option Spreads   on these stocks to profit from their momentum.  They are all trading above the 20 dma (day moving average).  Some of them are very liquid issues that offer weekly option chains.  That is something I would highly consider for these stocks.  

Next week in my post, I will highlight some of the  Option Spread Trades  that were done on some of these stocks.  

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Sunday, February 12, 2017

Review of My Trade Journal

I have developed a system of trading that has enabled me to increase the size of my trading account every year for the past 25 years.  It took me a long time to come up with my winning system and I consistently backtest my system.  Every so often, I look over my trade journal to review some of my losing positions.  I do this to verify if my system is still valid.  I want to continue to do what works and avoid doing what doesn't work.  In May of 2015, I lost money on   $AVGO   but on Jan 20th 2017, I profited   +44%   of the capital at risk  (Credit Option Trade)  within just 3 days.  I wanted to verify as to why the trade worked for me last month but a similar trade failed just 2 years ago!  

The Backstory

In the past, I've discussed my   strict criteria   for stock selection and   $AVGO    actually made it through my gauntlet of must-haves in May of 2015.  This stock was a great candidate in my opinion, especially because it:

  • Was in a defined uptrend channel after the market correction in October 2014
  • Earnings were already out of the way
  • The stock had moved into its buy point zone
  • The market was in a confirmed uptrend  

So I put together a trade plan with a   +10%   profit target and a   -3.33%   as a loss thresh hold for the stock and then I pulled the trigger on an option trade in early March of 2015.

Why It Went Against Me

Even the best stocks still have risk associated with them.  In this instance, the stock wasn't actually the problem, though.  In late March of 2015, institutions started a massive sell off with a number of their holdings.  As a result, the market moved back to uptrend under pressure within just 3 sessions!

I was stopped out at my   -3.33%    loss thresh hold and thankfully so.  The stock continued its fall that day and ended down   -6%   by the market close.  What's more,   $AVGO   went right off the cliff after that and eventually moved down   -16%     ouch! ouch!    Obviously I made the right call with planning my stop loss in advance of taking the position.

What I Learned From Losing Money on $AVGO

I honestly believe that you can learn more from a loss than you can from a win so I have incorporated a sort of   "post mortem"   phase with every trade, regardless of the outcome.  When I sat down to document my findings on this losing trade, here is what became clear to me:

  • My ability to select strong growth stocks wasn't the issue here
  • Fundamentals on this stock were not a contributing factor of the loss
  • Institutional behavior dominated the outcome of this trade

In Conclusion

Any time you lose, it's easy to start second guessing your methods but you have to fight that urge and think objectively.  Tweaking your system is a time intensive endeavor so you don't want to pursue that unless it's necessary!  It's critical to back test and let the data drive your decision making process.  

Stocks I am Monitoring This Week

My market outlook is still bullish.  The 3 major idexes that I follow - $DJI, $SPY and  $QQQ,   have been marching higher after  6 weeks of consolidation.   $QQQ   has been the leading index since the beginning of Dec 2016.  With that in mind, here are some stocks worthy of a closer look for profitable opportunities:
  1.  $NTES
  2.  $AVGO
  3.  $NFLX
  4.  $ZION
  5.  $BABA
  6.  $MS
  7.  $AMAT
Always be aware of earnings due date for any stocks that you follow.  $UBNT  gapped down  -16.68%   on Friday Feb 10th in volume that was  +15  times above normal average daily volume.  That kind of a loss in a trade can devastate your portfolio.

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Sunday, February 5, 2017

Value Your Time

Like most others, you probably track a trade in order to keep tabs on the daily ups and downs, however, that's not the best use of your time.  I don't know about you, but I like to have a life outside of my trades, and that means keeping my time management in order.

Without a clear goal it's easy to get off track so that's where it has to start.  In my case, I automate my profit, loss, and timing exit so I don't monitor a position for clues on when to get out.  Instead, I monitor positions for the sake of testing my system.

Changing my mindset from tracking positions for reactive reasons to tracking positions for learning purposes took a bit of work on my part but I'm glad I stuck with it!


If you're going to change your mindset the way I did, you'll have to learn to automate the way I did as well.  There are a number of reasons I include automation in my process but mainly I do it to remove my emotions from a trade.  In addition, automation frees up cycles for me and discourages me from getting tunnel vision on one particular position.

Automating is actually a pretty easy affair and I do it for every exit condition in my framework.
  1. Profit: Every time I place an order I include a contingency to close my position if my pre determined profit target is achieved.
  2. Loss:  After including my profit contingency I enter in my pre determined loss contingency.
  3. Timing: Sometimes a stock plots a sideways course so I also include a contingency to close out the position before the end of 40 trading sessions.
In all 3 scenarios, the planning and math have been done before I get involved on the trade.  Automation can only work properly if you create your rules up front and if you stick to them.

Keep A Trade Journal

The most successful traders keep detailed trade journals for every position they take, win or lose and you should follow suit if you aren't already.  Think of this as the post mortem stage of the process.  You need to know what to do more of, and what to avoid moving forward.

It's also important to stay organized by keeping your journals in one place.  In the past, that meant putting notebooks into my filing cabinet.  These days I'm able to store everything in the cloud which is much more convenient.  Services like Google Drive, DropBox, and iCloud are all available either free or at a low cost and are definitely worth consideration for your investing tool kit.

When it comes to documenting a winning trade, make sure you can identify why it was a winner and how you can identify others like it in the future. 

A Winner

A recent example of a winner for me would be $SWKS.  This stock gave me a profit of 10%  within 10 days in late January 2015. Looking over my journal, I noticed that the stock was in a definite defined uptrend channel ever since market correction in mid October of 2014.  It was good that I kept a detailed journal because once again this stock came through my watch list filter in early March 2015. I hit another 10% profit target in 18 days this time. 

In terms of documenting a loss, it's important to understand when and where things went wrong.  If it's something in your control, look for ways to eliminate the barrier moving forward.  If it's because of something out of your power (bad press, a national tragedy etc), that information is important too.

A Loser

A recent example of a loss for me would be $AVGO where I lost 3.33% in late March 2015.  There was nothing fundamentally wrong with the stock as it passed through all of my watch list criteria.  The reason it turned against me is because institutions began to be major sellers market wide on all stocks just 3 sessions into my position. I was stopped out for a loss within 3 days but I conserved my capital. The stock ended up dipping down 16% so the stop loss saved me from disaster. 

ps: This post was first published in May of 2015.   My outlook for the market is very bullish currently and I felt it  was important for me to repost this blog.   

Happy trading!



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.

The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.