Minimize Risk During Earnings Season

We are heading into a very busy earnings report this week from the titans like $AAPL, $GOOGL, $FB, $AMZN, $KO, $MCD, $AMGN, $TWTR, $MBLY and $EW.  Major oil companies that have been beaten down for the past 24 months will also be reporting their earnings this week.  The tech titans trade huge volume of shares daily and they account for over 25% of the total $ volume traded daily on the $NASDAQ.  They will move the market for sure.  How stocks react to earnings and the guidance going forward is anybody's guess.  It is speculative and risky for retail traders to be holding onto the stock positions during earnings unless it is collared with selling a call and buying a put.  I lower my risk of losing my profits by closing the positions prior to earnings report release.  This is always built into my  Trading Plan

Below is a list of stocks that were on  My Watchlist  that I highlighted in my posts in June and July.  I have indicated entry price and profits made when the positions were closed off.  If you have been doing  Virtual Trades   that I have been suggesting to my followers to practice trading and sharpening trading skills, this will also be the time to make detailed entries of the trade in the journal.  This will allow you to look over your trades in future for valuable lessons learnt in trading.  Brexit  was a bonanza for some of the traders since devaluations of the Euro and British Sterling Pound currencies enabled the Gold miners to shine during several weeks of uncertainty.

Stock Positions Closed for Profit

1. $AU  $15.96 closed 7/1  for 19.30% profit in   4  wks
2. $ABX $19.73 closed 7/12 for 9.98%  profit in 5.5 wks
3. $GDX $25.13 closed 7/12 for 16.99% profit in 5.5 wks
4. $OKE $44.33 closed 7/13 for  9.00% profit in 4    wks
5. $AEM $48.47 closed 7/20 for 10.00% profit in 6.5 wks
6. $NEM $34.99 closed 7/19 for 18.29% profit in 6.5 wks
7. $SLW $20.39 closed 7/22 for 28.25% profit in 6  wks
8. $BGS $44.00 closed 7/22 for  7.68% profit in 6  wks 

Market Outlook

Currently my sentiments is very bullish. July normally is a dull month and the market just does +0.32%  when you look over the average the past 50 years.  This year it surprised most traders and most were caught off guard.  Institutions have been investing their profits into defensive utility names and dividend paying stocks.  That all changed at the end of June and the overall market surged 4% in just 4 days.  That is a very powerful move by the indices.  In the last 4 weeks :

• $DOW  is +8.35%
• $SPY   is +8.00%
• $QQQ  is +10.00%

Market has been very resilient for the past 7 sessions and indices has been trading within a very narrow range.  We have only 2 distribution days each for $SPY and $NASDAQ.  Most companies will be reporting their earnings in the next 3 weeks and we are starting off with some titans reporting this week.  100 of the S&P 500 companies have reported earnings so far and the market has reacted very positively towards it.  Charts of the 3 major indices that I monitor  ($SPY, $QQQ, $DJX)  look very similar to Oct 2014, Oct 2015 and Feb 2016 when the indices surged more than 10% within 6 weeks from the lows.  Momentum in the market is very strong and I have my sights set on the following targets for the indices in the next 4 weeks

• $QQQ 119
• $SPY  225
• $DJX  19,300

Option Trades

Most of the growth stocks that are on my radar are extended with the surge in the market we experienced the first 2 weeks of July. My post last week I had presented a detailed case study on $NVDA that was extended and where I highlighted the use of Credit Spread Option trades to squeeze some profits every week from a stock that continues to be accumulated by the institutions and maintains an RS rating of 98.  I also mentioned $ULTA as a possible candidate too.  This stock is extended but consistently shows up on the IBD  (Investors Business Daily)  sector leader screen, reaching new highs with RS line pointing up.  You might want to examine similar trades utilizing the 3 major indices that I monitor.  Do as many virtual trades as you can to learn how best to identify the right option strategy to profit from the momentum in the market.  

Last Wednesday I had placed Credit Spread Option Trade on:

 $SPY July (week 5) sell 216.5 put and buy 214.5 put for Credit $52:$148 Risk per one contract.   

On Monday I also placed a very similar trade on :

$NVDA July (week 5) sell 52 put and buy 51 put for Credit $31:$69 Risk for one contract.  

I never ever do naked option because that would be unlimited risk and I am all about mitigating risk in the market.

Happy Trading!

Amin

Follow me on tweeter @spotlightamin to keep yourself current daily on what is happening in the market.

Low Risk Trades on $NVDA

In my post last week, I had indicated that I will share with you 

Low Risk Trades utilizing Option Tools on $NVDA. This stock met all my criteria for the most minimums I look for in an IBD style growth stock. In the month of May, it was :

• In the Top 40 IBD (Investor's Business Daily) group
• RS and EPS ratings were in the high 90's
• Accumulation/Distribution rating was B+
• Up/Down volume had been 1.4 and increasing every wk
• Shares traded was over 10 million daily
• Share price was above $35 ($350 million trading daily)

Earnings was due on May 13th. It is always risky to buy stocks ahead of earnings because the stock could either be supported or dumped by the institutions. That is a risk I am never willing to take. Earnings was good and the stock surged over 22% in less than 4 trading sessions. Institutions came in with buying volume when the market opened on Friday May 13.  Stock gapped up 15% in volume 500% above average daily volume. They continued buying the stock with 200% above average daily volume for the next 4 sessions. 

8 Week Hold Rule

I follow IBD rules with growth stocks and the rule states that:

"If a stock surges more than 20% in less than 3 weeks from its buy point, you should hold it for 8 weeks"

Mr William O'Neal made this rule because he found that stocks that are heavily supported by the institutions, will let the stock digest its gains for 8 weeks and slowly add to their positions soon after. $NVDA has shown a history of consolidating gains of 10% to 15% during earnings for a couple of weeks and than continue to go higher soon after that until the next earnings. It is disappointing as a retail trader to miss out on an opportunity with $NVDA to make over 28% gains within just 14 sessions. All is not lost because one can utilize Options as a tool to capture profits that you missed in a stock such as $NVDA 

Credit Spread Option Trades

$NVDA was still meeting all my stock selection criteria on May 25th except that it was extended beyond its buy point and there was a risk of stock retracing. I wasn't willing to risk $4600 buying 100 shares of stock at that time. Since it was a stock that was on an 8 week hold rule, utilizing short term Credit Spreads offered me a low risk (less than $350 @ risk) to attain a profit of $100 to $150 in less than 10 to 15 sessions (3 weeks) $NVDA has options offered every week since it is such a heavily traded stock. Here is a summary of 5 Credit Spread Option Trades done on $NVDA

1. May 25th Trade June sell 44.5 put Buy 42.5 put 2 contracts $110 Credit:Risk $290
2. May 27th Trade June sell 45  put  Buy 43  put 2 contracts $100 Credit:Risk $300
3. June 13th Trade June (week 4) sell 45.5 put Buy 44.5 put 5 contracts $155 Credit:Risk $345
4. June 20th Trade July (week 1) sell 46 put buy 45 put 5 contracts $155 Credit:Risk $345 
5. July 1st  Trade July sell  46.5 put buy 45 put  3 contracts $138 Credit:Risk $300

I harvested profits of 92% on an average of the total credit planned. There was never more than $350 at risk in a trade at any given time. Profits were harvested from one trade and rolled into the following trade. Total profits was $600 in 6 wks. Stock only had to move up or down just a point. 

This is how I utilize options to profit from a stock that is extended but consolidating between earnings. You may want to scrutinize $ULTA which has very similar chart patterns as $NVDA

Happy Trading!

Amin

Follow me on tweeter @spotlightamin to keep yourself current daily on what is happening in the market.

Harvest Profits Now

The worst time period in the market is from May through September. Over the last 50 years, $SPY has averaged less than 0.13% in these 5 months. This is the time of the year traders should have little exposure in the market. There are growth stocks on  My Watch List  every week and I only take a very small position when the market is in a confirmed uptrend. I also do a lot of Virtual Trades to keep my trading skills sharp and to test out some new strategies. 

As a trader, you are looking for a Return on Your Money but I look for  Return of My Money  during the summer months. Growth stocks this year have returned 5% in most cases and rarely have they given us more than 10% profits. I have targeted 6% to 10% profit targets in my trade plans for stocks on my watch list and -3% to -4% as a loss exit. When my profit targets are met, I will have trailing stops in place if the stock continues to exhibit high RS ratings and trading above 21 day ema.  This is how I view Return of My Money

Leading Growth Stocks

I have highlighted over 50 growth stocks in my blog and tweets in the past month to alert retail investors like myself who are managing their own trading account. These are the stocks that the institutions are buying. They account for over 75% of the stock market activity. That is one reason why I look at stocks that have an RS ratings above 90 and trade more than $100 million daily. Market has been bullish last week and $SPY, $DOW and $QQQ are approaching their all time highs. It is a euphoric phase we are going through right now. GREED  is beginning to set in. This is the time to give your positions a second look and harvest profits or adjust your trailing stops. Quite a few of these stocks are getting extended. The worst thing you can do is to give back these profits. Here is a list of these stocks:

• $AEM
• $NEM
• $ABX
• $GDX
• $SLW
• $RGLD
• $BGS
• $OKE
• $DG
• $AWK
• $NI
• $SJM
• $WEC
• $DG
• $DLTR
• $ALGN
• $MO

Stocks on My Watch List

1. $MLM
2. $VMC
3. $SWHC
4. $ULTA
5. $NVDA

I am looking for low risk trades utilizing Option strategies this week. I shall review a case study on $NVDA in my next blog and share with you how to go about having little exposure of your $ in the market to profit from growth stock that the institutions are supporting.

Happy Trading!

Amin

Follow me on Tweeter @spotlightamin to keep yourself current on what is happening in the market.

Trade Plan

In my weekly blog, I highlight and share with my followers stocks on my watch list. It is a short list of 10 stocks or less. These are the best of the best candidates that have an RS rating of 90 and above and trading above the 21 day ema. They are stocks that are highly favoured by the institutions and they trade over $100 million daily. These stocks tend to be less volatile and the ones I prefer to trade because of their liquidity. 

In the month of June, I was asking my followers to do Virtual Trades (trading on brokers virtual platform without actual money at risk) to get practice at trading before actually executing a real live trade. I laid out a trade plan with entry price, profit target and a loss exit target for 19 stocks during the month. Some of my followers were sharp enough to follow the trade plans and adjust their profit targets up with the use of trailing stops. There were others who had losses of 3% to 4% but did not follow the trade plan for losses. They ended up with losses in excess of 10% and decided to just give up on the market. Planning a trade and trading your plan is the key to success in trading. One of my students made a remark to me a year ago  "No Plan, No Trade" 

Summary of Performance in June

I am a firm believer of Trade Plans and I just don't execute any trades until I have firmly established attainable profit targets. All stocks are bad unless they go up. Stocks performance is at the whims of the market conditions and that can change at a moments notice. Three weeks ago we had a pathetic jobs report and two weeks ago we had to deal with the uncertainties of Brexit. Lot of good stocks rolled over but than again some of them went counter trend. Last week US market made up all the losses that we suffered in the previous week. This week I thought it might be a good idea to share with my followers, all the successes and failures of 19 stocks that I shared last month with my entry and exit targets.

Losses: (closed)

1. $EDU  -3% 
2. $NTES -4%  
3. $AYI   -3% 
4. $FB    -3% 
5. $CTXS -3%
6. $ZBH  -3%
7. $MAS  -3%
8. $AVGO -4%

Profitable:

1. $MXL  +6%
2. $ALGN +5%  (open)
3. $BGS  +8%   (open)
4. $DG   +7%   (open)
5. $OKE  +8%   (open)
6. $AU   +19% (open)
7. $ABX  +12.6%(open)
8. $AEM  +14.7%(open)
9. $NEM  +15.3%(open)
10. $GDX  + 15.6%(open)
11. $SLW  +27%  (open)

Lessons Learnt

There were 19 stocks that I highlighted with specific entry point as well as profit and loss targets. I had a 47% loss rate and 53 % win rate with my stocks. It is just like a coin toss (50/50 chance) but I managed to have my losses controlled within my loss targets and managed my profit targets to take advantage of stocks that continued to trend higher. 

There were 8 stocks that amounted to losses of 26% and were closed off with contingent orders in place. This way I got my emotions out of the way and just allowed my trade plans to get executed. I had also 11 stocks that amounted to 138% profits. Most of those trades are still open with a trailing stop in place. Overall I am showing 112% return for the month. The most important lesson that I learnt in June is:

1. Keep your losses 3% - 4% from the entry point
2. Plan profit targets 6% - 10% from entry point
3. Trade only stocks that are trading above 21 day ema
4. Trade stocks that have an RS ratings of 90 and above
5. Use trailing stops for stocks that have attained initial profit target.

My Stock Watch List

• $NVDA ($47.64)
• $SJM   ($147.51)
• $DLTR  ($92.27)
• $MO    (66.23)

Currently $SPY is approaching 211 which is a major resistance area. Market is in a confirmed uptrend according to IBD and one has to be prepared to enter the market with small positions initially. We also have earnings season with $PEP and $WBA reporting this week. 

Happy Trading!

Amin 

How I Did Last Week

As promised to my followers, I am going to share the results of stocks that I had highlighted just 2 weeks ago in my blog on June 6th. My market outlook at that time was very dim. We had a pathetic jobs report of just 38,000 jobs created in May when in my view we should be looking for 200,000 to 300,000 range. The slow down in job growth and lower labour participation rate has been the theme for the last several months. Bulls have run out of breath after 7 yrs 6 months of bull market and it best to just follow the institutions. They have been piling their profits in dividend paying utilities and consumer staple stocks. They have been defensive in their investments and I found it best to look at GOLD mining stocks and staple items like FOOD.

Here is the summary of stocks highlighted:

1. $AU  entry $15.96 up $16.77
2. $ABX entry $19.73 up $20.47
3. $AEM entry $48.47 up $52.03
4. $NEM entry $34.99 up $37.19
5. $GDX entry $25.13 up $$26.71

These are GOLD stocks that have attained over 6% profit in the last 2 weeks. I had planned for 10% as a profit target and 5% as a loss target.

Dividend paying stocks that I had highlighted were:

1. $OKE entry $44.33 up $45.82
2. $BGS entry $44    up $46.66

These stocks have attained over 5% profit overall and I had planned for 8% as a profit target and 4% as a loss target.

I had a failure as well. $AVGO was highlighted for entry @ $159.75 but was triggered for a loss @ 4% with a contingent order in place.

My Market Sentiments this Week

Brexit was not a good thing for the markets world wide. UK is the 5th largest economy and it is the first domino to fall. We are all interconnected and what happens in one part of the world is going to affect all of us. Most bull markets in US have been 5 years long and our current bull market has run over 7 years now. We are heading into the 2nd quarter earnings confession booth in two weeks. Increased earnings and increased sales is what drives the price of a stock. Projections are that this will be the 5th quarter of lower sales and lower earnings with $SPY. I have the following as my lower targets for the 3 major indexes.

• $DOW ... 16,500
• $SPY  ... 194
• $QQQ ... 96.50

These targets may not be reached this week but I am keeping that as my support area. Quite often market bounces back a little after a dramatic move down of over 3.5% on Friday. History suggests that when the indexes drop to this level on Friday, Monday trading sessions it drops even further. This happened recently on Friday August 21st when the $SPY dropped 3% only to be followed by another 5% drop on Monday. Volume on last Friday June 24th was just as heavy as the one on August 21st. Monday following the volume increased even further by another 25%  Does history repeat? 

Stocks on My Watchlist

1. $MLM
2. $VMC
3. $MO
4. $SJM
5. $DLTR
6. $WEC

Once again I am looking at US centric, dividend paying and food stocks. They pose less of a currency risk and these are the stocks that institutions are favouring. They all show an IBD RS ratings of 90 and above and rising recently. 

Happy Trading!

Amin 

Be Defensive

Traditionally hedge fund managers and senior traders take time off in May and leave it for the junior traders to hold the fort. I had closed out most of my positions in mid April and headed out on transatlantic cruise to Europe for three weeks. Looking over the $SPY charts this weekend I noticed that we are exactly where we were in mid April. I made a note in my trading journal so I would be reminded of it next year. Being in CASH is a position too and as a retail trader I know most of us are inclined to fall into thinking that one has to have all their money working for them all the time in the market. One has to remind oneself that any money invested in the market be it currencies, precious metals, bonds, stocks or options on stocks are all exposed to market risk. It is best to mitigate risk and execute only low risk trades. I try to get into trades where the probabilities are on my side and plan my trades to harvest profits and mitigate losses.

Market Outlook

Currently there are a lot of uncertainties in the market. We had a pathetic labour report last month with measly 38,000 jobs created when we should have at least 150,000 to 200,00 job creation every month. Most US banks have announced they will be slashing jobs. There are uncertainties of Brexit (UK exiting the European Union) and we wouldn't know anything for sure until Thursday market close. Most banks have already indicated that they would exit UK and head off to mainland Europe if that happens. UK is the 5th largest economy of the World and their exit will depress the entire Europe's economy. It is bound to have ripple effects in depressing the emerging market economies as well as developed economies. Free trade in the last 20 years has made everyone in the world wealthier and Brexit would be a protectionism of UK's economy.

Stocks on My Watchlist

1. $X
2. $STLD
3. $CLR
4. $FANG
5. $BCR
6. $OKE
7. $BGS
8. $DG

I am also looking for a hegde with Gold mining stocks that I mentioned in my blog on June 6th There was selling volume in those stocks twice its normal daily volume on Friday June 17th and yet they maintained their trading above 20 dma. That is indicative of institutions buying up those shares and a sign of strength. They all have RS ratings above 96.  Stocks that I currently monitor are only the ones that have the highest possible RS ratings (above 92) They are the ones that institutions are buying.

Happy Trading

Amin

My Performance This Week

Market took a sudden turn on Friday June 10th and I was stopped out of $NTES and $EDU for a loss. No trader wants to take a loss on a stock that is fundamentally sound and technically showing strength. Both these stocks were showing RS ratings in the 90's and kept appearing on IBD 50 stock screen and were showing up as the sector leaders. There was a strong institutional support and both stocks were trading over 1.5 million shares a day. These are very liquid issues but the market health just deteriorated on Friday with massive sell off. $SPY and $QQQ both had volume over 50% above average and gapped down at the open. Institutions were obviously harvesting profits and rotating into dividend paying stocks once again.


Most traders that I talked to over the weekend were very upset at the losses that they took on their stock positions on Friday because they did not have a stop loss limit order in place. I make it a habit of mine to have contingent orders in place for Loss as well as Profit targets on my positions. Had I not done that than I would be facing a loss of -5.39% on $EDU and -7.35% on $NTES instead of just -3% loss that I had planned with my Trade Plan.

Market Outlook

Traditionally looking over the last 50 years, June and Sept are some of the worst performing months in the market. In 2014 however, June performance surprised us with +1.58% and the $SPY was trading above the 30 day sma all month long. Currently institutions have begun to take positions in dividend paying stocks. In the last 3 weeks, $XLU (Utilities) have gone up a staggering +5%  $XLP (Consumer Staples) +3.78% and $XLV (Health Care) +2.87% Institutions are being defensive once again and that is where I see opportunities this week.

Stocks on My Watch List

1. $T
2. $VZ
3. $TFX
4. $BCR
5. $BSX
6. $IDXX
7. $RTN
8. $NOC
9. $MO

I shall be watching the Asian markets tonight (Sunday) before going to bed to get a clearer sentiment of what to expect Monday morning. I am very cautious heading into the market next week with all the noise in the market about Brexit and the tragedy in Orlando Saturday night. It is best to let the stock charts be your guide. Stock charts are really human emotions on display.

Happy Trading!

Amin