Market   Condition

Currently market pulse on IBD (Investor's Business Daily) indicates Market is in a  "Confirmed Uptrend".  We have 7  "distribution days"  between the  $SPY  and the  $NASDAQ.  5 of those 7  "distribution days"  have piled up in the last two weeks.  That is worrisome and it makes sense to lighten up on some positions and raise some CASH.  Since the  "Follow Thru"  day of April 3rd,  $SPY  is  +28%  and the Growth Stock index  $QQQ  is  +37%.  That is an incredible performance in the market in the last 16 weeks.  $QQQ  lost its support at the 21 day ema (exponential moving average) during Friday's session.  It's just less than  -4%  away from the 50 day sma (simple moving average).  It is quite normal for the market to take a breather after gaining  +2.3%/week  on average since April 3rd.  Lots of leading stocks are consolidating their gains and building new bases from which to propel higher.

 

Game  Plan  For  The  Week

We are heading into one of the most volatile weeks of earnings report this week.  Last week  $TSLA  (+192% since April 3rd), dived  -10%  within days after the earnings report.  Stock was very extended prior to earnings report (it was +30% from it's 50 day sma).  It is always a good strategy to lighten up on stocks prior to earnings.  If your recent purchases of the stock is less than  +10%  prior to earnings, it would make sense to close out the position prior to earnings.  If you have been scaling into position with additional buys as the stock makes progress, look over your most recent purchases and evaluate it's progress as you approach the earnings deadline.

This week we have :

• $AAPL    (+52%), below 21 day ema
• $AMZN   (+57%),  below 21 day ema
• $DXCM   (+60%), Option call open interest at 440
• $FB         (+49%), below 50 day sma
• $GOOGL(+35%), Option call open interest at 1530/1550
• $NOW    (+64%), Option call open interest at 430/440/445
• $PYPL    (+86%), Option call open interest at 175/180
• $SHOP   (+159%) below 21 day ema

slated to report earnings.  These stocks have performed very well during current market rally.  Stocks that are highlighted, along with  $MSFT  account for  +45%  of the  $QQQ.  That is a very high risk in the market for the  $QQQ  to sustain it's uptrend if some of these leaders fumble during their earnings report.  I have indicated some of the risk factors along side each of the above stocks.  Stock performance since April 3rd is indicated in parenthesis.  Call option open interest implies where the market makers are pricing for the stock movement to occur.  Most of these stocks are indicating a modest gain of  +5%  or less.  Have a look at your stock positions and determine for yourself how much are you willing to risk for a modest movement in the stock during earnings.   

Review my post of June 28th where I have shown how  $AMZN  was scaled up with additional buys as the stock kept making gains.  Any additional purchases made after the last purchase on July 1st at  $2757.99,  ought to be closed off prior to earnings.  It would be healthy for the stock to consolidate between  2955  and  3155  and form a new base for the next move higher. 

Happy Trading

Amin

Check  Your  Greed  During  Earnings

The Game of Chance

Stocks are always dear to the outside public when prices are low and distrust prevails.  If they are bound to speculate, this is the very time when they ought to buy for a "long pull".  But they have no confidence and will not come in.

When a great movement has been projected, and the bubble has become inflated near its utmost tension, then it is that stocks look cheap.  People are imbued with the belief that the extent of the rise has no limit.  They rush in to buy and are supplied by the insiders, who have planned for just such a consummation.  The result is they get left.  Twenty, thirty or forty percent, margins are wiped out.  Or, if financially strong, they have to wait years, perhaps, for another boom to come round to let them out whole.

The saying,  "A fool is born every minute,"  is said to have originated with one of the most prominent operators in Wall Street.  Certain it is that a new crop of fools is always counted upon and seldom fails to respond to the allurements offered.  

Mr Jamie Catherwood (The Finance History Guy @investoramnesia.com) tweeted a week ago the above passage from 1887 book on  "Plain Truths about Stock Speculation".  His tweet resonated with me particularly in the current market.  $QQQ,  the leading Growth Stock index is  +41%  in the last 15 weeks since the  'Follow Thru'  day of April 3rd.  That's  +2.73% per week.  At this rate the the  $QQQ  would be  +142%  annualized.  We all know that is an unprecedented move and certainly not sustainable.  Our  GREED  sets in and we start to extrapolate the results of the movement in the stocks we own.  

How  Should  One  Decipher  Data  to  Check  Greed?

Use  Technicals  to  Guide  You

Earnings calendar for the second quarter is picking up pace this week with over 10% of the  $SPY  components slated to enter the confessional booth.  Last week  $NFLX (+45.8% since  'Follow Thru'  day of Apr 3rd) dropped  -7% during  earnings report.  They actually had an increase in total subscribers but the institutions still didn't support the stock.  Some institutions probably decided to harvest profits with part of their positions - just as we as retail traders do the same when there are profits of  +20%  to  +25%  in the stock.  This is one reason why one should never go into the earnings report day with the entire position.  

Here are some of the technicals to utilize to help guide you in assessing the risks of holding stocks through the earnings season.

1. Check and see how far the stock is from the 50 day (sma) simple moving average.  Ideally it would be best if the 50 day sma is closer to the 21 day ema(exponential moving average).  Further away the stock is from the 50 day sma, greater the risk one has should the stock drop to that level.
2. Check to make sure your stock is the leading stock and trading above the 21 day ema.  If it is trading at 8 ema or 10 sma, it reflects momentum of the stock.  That's a leading stock.
3. Stocks tend to move closer to where the open interest with options on the stock is trading at.  Most stocks tend to show an open interest at the $10 level above or below the closest monthly or weekly option chains.

Following is what I find looking over the 8 leading Growth Stocks that are reporting earnings this week.  Use that as a guide to help you decide how much of a risk to take off prior to earnings.  It's so easy for us as retail traders to get our emotions spiked during earnings and think that the stock would go all the way to heaven.  Stocks go up in a stair stepped fashion.  They go up and rest for a while building a flat or 3 weeks tight or a shallow cup base.  Sometimes the stock may consolidate for several weeks before making the next move higher. 

Looking over the technicals, I would consider stocks in red and in bold letters (bottom 4 stocks) to be at a higher risk and would reduce holdings through the earnings report.  I am indicating how far the stock is from the 50 day sma in %.  Farther away it is from the 50 day sma, greater the risk should the stock pull back to the 50 day sma.  It's quite normal for the stock to test that level when it has made substantial gains since the  'Follow Thru'  day.  In parenthesis are the Call Options with the highest open interest.  That is what the market makers are expecting the stock to move towards.

1. $CMG   ... 8% (1130/1140/1150)
2. $PETS  ... 10% (40/50)
3. $TMO   ... 10% (390/400/410)
4. $TXN    ...  8% (135/140)
5. $ALGN  ... 17% (320/330)
6. $IBKR   ... 20% (55/60)
7. $ISRG   ... 15% (650/660)
8. $TSLA   ... 30% (1500/1520/1530/1540)

Happy Trading!

Amin

Mitigate  Risk  During  Earnings  Report

This week, We will be in the midst of second quarter earnings season.  We have over 10% of the  $SPY  companies reporting earnings.  Stocks that are fundamentally strong with strong technicals will usually break out when earnings get reported.  If the institutions have a firm conviction in the stock, they will start bidding the stock higher.  They control  75%  of the total daily volume in the stock market.  Their conviction in the stock is what will move the stock up or down.  The fuel to spark a surge in the price of growth stocks is accelerated earnings and increased sales every quarter.  It's never the P/E ratios.   

Growth stocks tend to outperform the general stock market - using the performance of the  $SPY  as a barometer - by 2 to 2.5 times.  They also drop down by just as much when they top out and face profit taking by the institutions.  We have been in a new bull market since attaining the lows on March 23rd.  Growth stock index  $QQQ  has been trending along the faster 10 day sma (simple moving average) for the past 16 weeks.  It has visited the slower 21 day ema(exponential moving average) 4 times during that time but never pierced it.  That is a sign of a good healthy uptrend.  Currently it is trending above the upper trending channel and it's due for a mild pull back down to the 10 day sma (-4.19% correction).  It's quite normal for the index to retrace back to the 21 day ema (-5.77% correction) after having gone through 16 weeks of slow and orderly progress along the 10 day sma.

The strong uptrend that we had from the lows of Dec 24th 2018 to May 3rd lasted 19 weeks before it corrected  -11%  in the following next 4 weeks.  Similar retracement of the  $QQQ  would bring us back to the highs we had attained on Feb 19th.  With the earnings being reported by the underperforming financial banks and the airlines and other transport industries of rails and the trucking company, one should expect the market to be volatile.  We also have one of the strong   FAANG  stock ($NFLX +48.62%  since Apr 2nd  'Follow Thru'  day).  It was  +8.50%  on Friday July 10th with trading volume over  +250%  of the average daily trading volume.  One can expect there will be some profit taking by the institutions in the coming weeks.  

Action  Plan  This  Week

July traditionally is a very weak performing month.  With volatility increasing due to the earnings season, it's critical to watch your stock positions and monitor signs of trouble if the stock begins to falter.  Unless you have a substantial profit cushion in a stock, it's prudent to not allow gains of over  +20%  or more to evaporate.  Markets don't always go straight up every day and every week.  Stocks take a breather and they climb up in a stair step fashion.  It's never a good idea to have your entire stock position at risk during earnings report.  Earnings report could be good and yet the stock could drop.  Similarly the stock could rise if the earnings report is weak because the institutions like what they see and hear.  

One of the things to look out for is to see if your stock position begins to pierce the 21 day ema and trades below it.  Defensive acton would be to start scaling down your position as the stock begins to falter down to the 34 day ema.  During the last 2 strong down ward sharp correction in  Oct/Dec 2018  and  Feb/Mar 2020, it took both the indexes  $SPY  and  $QQQ,  just 3 trading sessions to bring it down from an all time highs down to the 50 day sma.  That's a brutal correction and hopefully we all have learnt a good lesson from it.  Hopefully we will all be better prepared should the market falter or go through to a  milder correction of  -4%  to  -10%.

IBD  Style of Investing in Growth Stocks

https://youtu.be/cpNVHCydUr8

Mr Jim Roppel, hedge fund manager explains how he utilizes the IBD(Investors Business Daily)  CANSLIM  system of investing in Growth Stocks.  It's an excellent interview and I have watched it a couple of times.  I had tweeted this utube video a couple of times last week for the benefit of my followers.  He emphasizes selecting the best of the best stocks in the leading groups and leading sectors.  He firmly believes that in order to make a big difference in your portfolio performance, one should concentrate the stock portfolio to just a few stocks.  He has adapted the system to his style of trading and his personality.  

Enjoy the video and save it for your digital library to replay it.  Let me know your thoughts and take away from this video.

Happy Trading

Amin

$QQQ  Pyramiding (Scaling in)

"When they came on the scene, Kmart was one of them, when in 1962 it only averaged about 2,000 shares traded each day. Jack Eckerd was another, which in April 1967 also averaged just 2,000 shares of trading each day. Both of these stocks went on to become huge winners. Even though the institutions at first would not pick up Pic'N Save, O'Neil did for his own personal account. He actually kept purchasing this stock on the way up, buying more shares every one or two points when the stock would rise. He did this for several years. In fact, he made 285 different buys on this stock in a span of 7 n 1/2 years. This is probably one of the most masterful examples ever of how to pyramid a winning position. At one point he actually owned 4.99% of the total stock outstanding (if you own more than 5%, you must register with the SEC). This stock would turn out to be one of his biggest winners ever, with some of his initial positions up 20 fold when he finally sold out and his profits were a main source for starting the newspaper Investors's Business Daily a few years later".

Mr. John Boik, the author of his book:

"How Legendary Traders made Millions"

had tweeted this passage from page 148 of his book over 2 weeks ago.  It impressed upon me so much that I felt I ought to share some of the modified techniques I utilize to accomplish pyramiding.  I have often mentioned that institutions account for the bulk of the move in the price and daily volume in a stock or etf.  Moving average lines of a stock tell a very subtle story of what the institutions are doing on a daily basis.  Following is a  brief synopsis of how the Growth Stock etf  $QQQ  was handled to increase the position size in a single equity.  One of the less riskier aspects of an etf trading is that there is no earnings report risk.  There are no earnings surprises like you would have with an individual stock every quarter.  It's a passive strategy to employ that simplifies your trading.  

$QQQ  Story

$QQQ  etf usually consists of all the stocks that are in the Nasdaq 100 index.  It includes 100 of the largest domestic and international non financial companies.  Currently its weighted heavily towards the US based companies - 97.55%.  That reduces the the risks of being exposed to China, Japan and European based companies.  83% of the Nasdaq 100 index is in the 3 sectors - Information technology, Technology communication services and Consumer discretionary.  The  FAANG  stocks ($FB, $AAPL, $AMZN, $NFLX, $GOOG, $GOOGL) plus the  $MSFT   account for 46.8% of the  $QQQ   etf.  Average price of these 7 stocks is over a  $1,000.  That may scare some investors.  3 of these companies are over a  $Trillion  companies and 2 others are getting close to it too.  Investing in  $QQQ  allows the retail trader to participate in these leading stocks with a little less volatility risk.

Following is a one of the ways one would scale in utilizing the technical chart action of the etf.  I have given my reasonings for scaling into each of the positions since the 2  'Follow Thru'  days in early April.

1. $188.50 ... Initial starter position on Aril 3rd when $SPY had a  'Follow Thru'  day.  I had my doubts since the index was well below the 200 day sma (simple moving average) and prone to failure.
2. $202.14 ... Second starter position on April 7th when the  $QQQ  had a  'Follow Thru'  day.  I still wasn't quite convinced since the index was well below the 200 day sma.
3. $210.63 ... Added on buy scaling up on April 21st.  Both starter small positions are now over 7.5% on average within 2 weeks now.  10 day sma crossed over the slow moving 50 day sma just the day before.  I am convinced now that the  'Follow Thru'  day has firm legs.  First 2 to 3 weeks of  a confirmed uptrend historically is when most of the gains are made.  This added on position is now a bit more shares than the initial 2 small starter testing positions.
4. $216.18 ... Added on buy scaling up on April 27th.  The index  21 day ema (exponential moving average) crossed over the 50 day sma.  Etf is showing momentum from institution support.
5. $218.77 ... Added on buy scaling up on May 15th.  Etf is trading along the faster moving 10 day sma for the last 2 weeks.  It bounced off the 21 day ema the day before.  Another sign that the institutions are continuing to propel the stock higher.  News and the politics is the least of my concerns right now.  Chart action is very positive.
6. $229.05 ... Added on buy scaling up on May 28th.  Index was supported at the faster moving 21 day ema.  It was held up and trading tightly for couple of days at 230 resistance level.  50 day sma has firmly crossed over the 200 day sma for a few days now.
7. $243.78 ... Added on buy scaling up on June 16th.  It was once again held up at the 21 day ema.  Etf is progressing up at every  $10  upward movements from $200 to $210 to $220 to $230 and onto $240 mark ever since the  'Follow Thru'  days.
8. $242.77 ... Added on buy scaling up on June 30th.  Its been trading very tightly around  $240.30  for 3 weeks now.

Currently the initial  2 starter positions are +33.79% and + 24.76% (Average for both starter positions is +29.28% in 13 weeks).  Average for all the 8 positions is  +15.99%.  Following this strategy simplifies your trading.  Best of all, you don't need to do the thorough and complicated and methodical research of all the individual stocks in the etf's.  You can just focus on daily charts every day and review the weekly chart at the end of the week.  It's stress free - especially when you have other things like your work or business that pulls you away from the computer during market hours.

Happy Trading!

Amin