Bulls and Bears - The Market

[Isiah6:8]

I'd call it over valued because Trump is threatening their supply chain. (and their US labor force)

I agree.

My question was more because if he looks at what he liked about those companies back in the time he looked at them, he might find some companies today, or play those very same companies and see solid returns based on today's outlook. I thought AAPL was terrible in 2008 when I was in grad school and even wrote a paper on it. The split adjusted price was like $20 (ugh), but after re-looking on it, made a solid amount of coin in later years on it, albeit not what it could have been if I had been correct initially.

 

[compforce]

Hindsight is always 20/20... Here's what happened with one of my trades today... I won, but because I couldn't day trade again today I missed something my self-built indicator turned up (yes, that is my own indicator that I programmed). If I knew what was coming, I wouldn't have closed my trade. Or I wouldn't have traded earlier and saved a day trade for it. I made a total of about $270 today, but missed on the big $600 winner. C'est la guerre

 

[Isiah6:8]

Nice, tough to go poor by taking profits! I think it becomes tough on people to do it daily because there is a lot of that. It also becomes tough because if your strategy works, and it grows then the numbers get bigger and that can either change the landscape of the trade, or the mentality of the trader. Just add some zeros to it and the stress can increase exponentially. Your system seems really solid, I initially was thinking it was using an exponentially weighted price method to derive an intrinsic price but that wouldn't make sense in the example. Whatever it is, I hope it keeps rocking on for you.

Have you tested it in other securities or does it really only lend itself to gold?

I am currently trading a small cap consumer name which I have 8 times the adv to do. So going quietly and trying to grab hold of the name is important. A lot of it is taking advantage of those using the standard algos they would use in large cap names. This trade could take a few weeks to finish but a lot of it is trusting the method to achieve the goal. Over the long run is what is important. A lot of our trades in SC are like this, our assets are consolidated across maybe 120 names so pretty concentrated.

 

[compforce]

It also becomes tough because if your strategy works, and it grows then the numbers get bigger and that can either change the landscape of the trade, or the mentality of the trader. Just add some zeros to it and the stress can increase exponentially.

That's why I am trying to trade it mechanically and plan to automate the system once it's proven and I make the big jump to PDT margins. I just want to look at the end of the day and see the profits :) I think I'd be a basket case in a week if you added two zeroes on my trades and I was still manually trading.

Have you tested it in other securities or does it really only lend itself to gold?

The system is actually pretty complicated, using the current trends from 5 other names and the future to determine my entries. Fortunately, they line up about 2-4 times a day. If I were to try to manually calculate my entry on a one minute chart, I'd never enter because it would take too long. Hence the indicator you see there doing the calculations for me. Currently I've back tested about 8 other ETF pairs and have not found a similar correlation that trades nearly as well. UWTI/DWTI does it too, but the b/a spread is usually .25 or more, the profits are only about .05% higher over time and the BP requirement is double. I'd be better off doubling trade size on gold rather than doing that pair, at least until the time when my trades are big enough to start requiring sweep orders.

 

[compforce]

A lot of it is taking advantage of those using the standard algos they would use in large cap names.

You just hit on something really important. For most small time investors (like me) the efficiency of the market is going to crush them. They think "oh, I saw an article today that apple is going to move their manufacturer to the US" and so they quickly buy or sell apple based on the news. The problem with that is that unless you can predict the news before it goes public, without insider trading, the market has already priced it in. In the case of options all of the probablilities of either Trump or Hillary winning were priced in months in advance. Then, within minutes of the concession call, the prices all corrected to match the outcome, during extended hours trading, which most individuals don't have ready access to. Trying to buy something after an event, based on the event is foolhardy. The way to make money is to find the momentary inefficiencies and get in before the algos do. Or learn the algo patterns (nearly impossible) and look for that brief moment before their trigger gets hit. Or you can chase after the "dumb money", occasionally get a loss because the algos got into your trade and forget about the big hits, which is what I'm doing.

AIRR is looking pretty good right now. Midcap Industrial ETF up to an all time high of 22.50 from 18 since the election and still moving pretty sharply although today was a bore.

 

[Dienekes]

Any recommendations on charting/algorithm software, preferably free? I'm learning as much as I can right now about the technical indicators and then, tackling fundamentals before I start trading with a super small account, and I would like to develop a strategy using some sort of tool to help.

 

[compforce]

Any recommendations on charting/algorithm software, preferably free? I'm learning as much as I can right now about the technical indicators and then, tackling fundamentals before I start trading with a super small account, and I would like to develop a strategy using some sort of tool to help.

Set up a free account with TD Ameritrade. They give you their charting software for free if you aren't a professional. They also have built in paper trading (15 minute delay). If you don't want to do that, google finance or yahoo finance work just fine

 

[Isiah6:8]

Any recommendations on charting/algorithm software, preferably free? I'm learning as much as I can right now about the technical indicators and then, tackling fundamentals before I start trading with a super small account, and I would like to develop a strategy using some sort of tool to help.

There are some solid charting websites for free out there. I don't use them a lot due to BBERG having stuff I can draw on, but I think BigCharts is still around and that has a lot of technical data on it. Outside of that site I would defer to those who use them a lot.

I am of no help on the free algo stuff, I have never used any of the free ones. The ones that we use are sell side ones which we are given the sauce to and modify.


@compforce I recently went to 35% cash in my PA, I think I want to have some dry powder because I don't see a lot of fairly valued or undervalued plays right now in the market in general. I wouldn't be surprised to see a bit of a pullback here and hopefully some of these full valuations come down a hair across the board. I am keeping my eye on smaller banks and industrial companies. I might play a few consumer names going into holiday season for a 30 day trade but I don't really have a good feel for that space.

 

[compforce]

@compforce I recently went to 35% cash in my PA, I think I want to have some dry powder because I don't see a lot of fairly valued or undervalued plays right now in the market in general. I wouldn't be surprised to see a bit of a pullback here and hopefully some of these full valuations come down a hair across the board. I am keeping my eye on smaller banks and industrial companies. I might play a few consumer names going into holiday season for a 30 day trade but I don't really have a good feel for that space.

I'm at 40% + day trade capital.

I bought puts on both Facebook (FB JAN17 115/110 put vertical) and Twitter (TWTR JAN 17 18 put) today. Facebook has credibility issues in its core revenue producer, advertising. Twitter has been deliberately banning conservative voices so they are leaving for elsewhere.

Hoping for a last minute rally in gold this afternoon or I'll have to take the weekend risk and average down on Monday.

L Brands (LB) and Ross (RDC) are pretty strong. I've been seeing institutional money getting behind RDC in the last couple of days and their earnings call was very strong.

 

[The Hate Ape]

I feel AAPL is valued correctly.

What the future holds in terms of moving manufacturing out of China, I have no idea. I am certain however that there will be a very speculative market if this comes to reality. That said, I believe AAPL will be seriously under-valued at that point.

 

[compforce]

I feel AAPL is valued correctly.

What the future holds in terms of moving manufacturing out of China, I have no idea. I am certain however that there will be a very speculative market if this comes to reality. That said, I believe AAPL will be seriously under-valued at that point.

Moving out of China means a huge rise in manufacturing costs for products that are already at a price that people can just barely swing. If it weren't for telcoms subsidizing the phones, people wouldn't be buying those $700 bricks. Add into that, market saturation and I think you have a recipe for an earnings call that starts a selloff. Apple is trading at something like 7X earnings. Even if it was as low as 3X, how could they ever possibly grow their revenue to meet the expectation.

Now add in there Trump's position on H1-B visas and immigration and you have another MAJOR hit to Apple's bottom line. You do know that Apple is one of those companies that uses almost exclusively foreign labor for its operations here in the states, right? What happens if that labor pool goes away or gets significantly reduced forcing them to hire Americans at a higher cost per employee? What does that do to their earnings?

As far as repatriating their funds, those are already factored into the stock price. Moving money that they already have without having to pay taxes on it does NOT change the stock price or valuation. Market efficiency is not going to allow them to get credit for the move unless there is some way to GROW their capital by moving it.

I stand by my overvalued position.

 

[ThunderHorse]

Here's the thing though, when Motorola made a phone here in the states, overall margin on the phone wasn't hit that much. What was poor was the marketing and the appeal of the brand. It declined like Nokia declined because they weren't able to keep pace with apple even though Motorola was still pushing a great product. All of that is marketing. Remember when everyone had a razr?

 

[The Hate Ape]

AAPL is an incredibly innovative and forward thinking company. It has eyes and ears in a lot more sectors than phone manufacturing and will absolutely be part of the next Century and so forth. The ticker will get slammed by speculation and possibly lower earnings calls but overall, the company will grow far above the expectations of the future. Far above it.

It will be undervalued.

 

[Isiah6:8]

I think a stock like AAPL is a time horizon name. Is it over valued currently, maybe, more likely than not. On a longer timeline, probably not.

AAPL is an incredibly innovative and forward thinking company.

This is why it makes them so hard to bet against over the long run. Their brand recognition is also out of this world. When I was in China a few months ago for a clip I could not believe how highly regarded a phone would be. Although, coming from a place where baby formula from Nestle is gold, it should not have been so surprising.

 

[compforce]

OK, so time for a quick test on everyone's technical trading/chart reading abilities. I had an interesting day today. I was trading NUGT, one of the gold ETF's I've been mentioning. One thing that is important to know about NUGT is that you can't sell short, you can only buy it, which means that all sales are real shares being sold (you have to actually own it to sell it). If you are bearish on gold, you go long in the sister ETF DUST. Here's what NUGT looks like over the last year (1 year, 1 Day chart):


So here's the setup... You (I) own 200 shares that you had to hold overnight because the profit wasn't enough to cover the commissions. You bought those shares at 8.77. Today, the market opens and the shares immediately plunge putting you about $100 in the red:



What do you do? Why? - To avoid cheating, I'm going to give this to you in pieces.

 

[Isiah6:8]

Gold trade

I assume we are at the point on the far right is where we are. If it were me, I would double the position, put a stop down 20% from there and my automatic exit point would look to be back at the opening price on the day which I would guess is somewhere around where the red starts on the left.

Having only looked at that name last week and seeing the volatility in price that would be my initial thought. I would not hold the trade overnight if it got to my exit point. I say that because I would be playing the vol in the name and the intrinsic price I would use calculating last nights close.

Ultimately, I would probably want to be long this name more times than I am short it I think in the next 30 days unless it poison pills which it doesn't look like

 

[Dienekes]

Assuming options are available:

1. Buy a protective put to minimize losses, but allow a large upside on a stock you are still bullish on because you bought the shares.

2. Buy a call option on the DUST ETF since it will rise as NUGT drops

3. Sell immediately at a loss, and buy the DUST ETF

The chosen strategy above depends on the fees, commissions and options pricing, but that's about the best I could come up with. Thanks for the learning opportunity.

 

[compforce]

Assuming options are available:

1. Buy a protective put to minimize losses, but allow a large upside on a stock you are still bullish on because you bought the shares.

2. Buy a call option on the DUST ETF since it will rise as NUGT drops

3. Sell immediately at a loss, and buy the DUST ETF

The chosen strategy above depends on the fees, commissions and options pricing, but that's about the best I could come up with. Thanks for the learning opportunity.

#s 1 &2 - if you are going the options route, what strike prices would you select? How long until expiration?

For now let's ignore commissions and fees and just talk about the price action.

 

[compforce]

Assuming options are available:
3. Sell immediately at a loss, and buy the DUST ETF

Here's the chart for DUST for the same time period... The range is 50.00 - 54.50 during that period. Is it really an option to sell NUGT and buy DUST?

 

[Dienekes]

#s 1 &2 - if you are going the options route, what strike prices would you select? How long until expiration?

For now let's ignore commissions and fees and just talk about the price action.

I'm thinking the price plunged to $8.27 since you owned 200 shares and you said that put you in the red about $100. I would try to buy a weekly option at the highest strike price I could get for a premium less than $50 a contract. At 2 contracts that would cost $100, so then the strike price would need to reach $9.27 to ensure recouped losses so that would be the minimum strike price to put you at breakeven minus commissions and fees. A higher strike price for a put option would be ideal because then you can sell at higher regardless of the lower stock price, but if it goes up higher then you're doing fine minus the premium paid.

ETA: I chose weekly because I assume the premiums are cheaper for a shorter timeframe.

Here's the chart for DUST for the same time period... The range is 50.00 - 54.50 during that period. Is it really an option to sell NUGT and buy DUST?

View attachment 17287

Ha, well I guess not.

I figure Isaiah6:8 is probably on a way better track than since that would be cost averaging down making a higher potential upside with less average paid per share. That never crossed my mind.