I felt it necessary from a patriotic stand point to provide our premiere banker with a free subscription to The Contrarian Trader. I have no grievance with Jamie Diamon but they appear to need som help from a technical stand point. Since JPM wasn’t one of the pathetic bunch that neared collapse in the 2008-2009 correction then it stands to reason tht there are other banks out ther that might be in the same trade as well. As for the Rusell 200 or the IWM they are in correction mode and we are short of this market. How did we know to get short? We use weekly charts and they told us to get out of our long positons the first week of April.
How often do traders put themselves out there and hold themselves accountable to the visitors who were good enough to spend some time watching them? I do! Linked above you will find commentary I sent out to members on 04/01/12 and you can see how we called the top of the trading range.
This was commentary I sent out to members on 04/01/12. I cautioned then that there was churning and sector rotation.
Selling AAPL Short
In this same commentary I went over why we were short of AAPL and sure enough we nailed it. After Gene Munster made his $1000 call on AAPL we added to our AAPL short. Why was Gene so good as to provide such a valuable call on AAPL for free no less? Do you have an account with his firm? My guess is that Gene did some self serving work so that his Wall Street through buddies could rotate out into the one day surge.
Russell 2000 “Roll Over”
In the same video we called for the roll over in the Russell 2000 and sure enough we got it.
The growth in disability rolls has been growing since the 1990′s and not since President Ronald Reagan have we seen a drop in disability rolls. Reading in Monday’s edition of Investors Business Daily since Obama took office Disability Rolls have grown by 5.4 million. As each person joins the disability rolls that is one less person that needs a job. Therefore, no need to count them among the employable in the U.S. How very convenient for an administration who loves central planning. To illustrate just out of whack the growth in disability rolls has become here is the statistic that tells is all. Since 2009 Disability Rolls have grown by 4.7 million while Non Farm Payrolls have grown just 2.3 million. What is the common trait among new receipients? Many have been unemployed for more then 27 weeks and are seeking a new source of income. If President Obama and his merry band of liberal thugs in Congress would simply get out of way of business perhaps these people would find more gratification in being employed. Until then, we the tax payer continue to subsideze them and that is exactly what the Obama administration wants.
European Union Growth by Euro Collapse?
The inevitable solution for both the Euro Zone and the United State will be growth and the only way to realize growth is through the devaluation of the Euro. The U.S. has pursued this policy for a number of years though although it continues we continue to repeat our now ridiculous “strong dollar policy”. The European Union has refused to reduce interest rates for some time but with their economies in a downtrend they’ll soon have no alternative and when they do cut rates it will signal to the market that the devaluation of the Euro has begun. The U.S. stock market will get hammered because the result will be a stronger U.S. Dollar and the Federal Reserve has little to no room left to lower rates here to compete. My conclusion is this, we are only in the 5th inning of the financial crisis. Let’s just hope we don’t end up going into extra innings.
We continued to outperform the overall market’s last week. Most of our gains were in our swing trades long of STRI and short of FRAN. We traded AAPL short again last week using the May $530 puts.
Stocks our our watch list for next week are penny stocks. The first is QTWW and CRME. Both of these stocks are oversold and appear ripe for a rally.
Our view of the stock market has become bearish and I will be discussing the dark clouds that I am seeing on the week chart of the Nasdaq as well as AAPL which we will look to short again. We will also be looking to add TZA to get us short of the Russell 2000.
Today we took profits in Francesca’s Holdings (FRAN) which I profiled last week on the blog and went into even greater detail with members in The Week Ahead Commentary which was issued last Sunday. It is a bit dated now but provides great insight into how we plan out our strategy for the coming week. I consider an action plan as we head into every week essential for continued out performace of the S&P 500. On Monday 3/25 we purchased the April $30 puts for .40 cents and sold them on Wednesday for .80 cents per share for a 100% gain. How did we do it? I expected shorts to get squeezed on Monday morning as the final week of the quarter kicked off “window dressing” by over paid and under performing hedge fund managers.
Today we also took profits in the( TZA) with is a leveraged ETF which puts you short of the Russell 2000. We held this as a hedge against long positions and I am glad we did.
So, do we always profit? Of course not and I know that many of my peers don’t post their losses. I am proud too because we keep losses small. Today we took a 2% loss in( MDRX) and will be looking to get back in at lower levels.
Take advantage of our 14 Day Free Trial Offer secure through Pay Pal. Cancel at anytime.
What we saw these past two weeks was in our opinion collusion among the so called Wall Street elite. Pete Najerian was good enough to point out the massive call option activity in the deep out of the money strike price(s) only two weeks ago. He swirled his eyes when asked what strike prices on Apple (AAPL) were most active. The stock then trading in the low $500 caused Pete to use non- verbal communication which I interpreted as being “ the fix is in”. Sure enough, we had our “event” being the “New IPAD” release and a number of brokerage houses tripping over themselves to upgrade AAPL. Coincidence or Collusion? You decide.
The Futures or the Bond Market
The financial media and brokerage house elite want you to watch the futures market so that they can get you excited and buy at the opening of trade. Why? It is because most are long only funds and cannot short stocks. So, to meet their quarterly numbers they must get you the little guy excited so that they can keep the bull market going. While you are buying they are selling.
This week we discuss the importance of the impact of Credit Default Swaps (CDS) which is are financial instruments which Warren Buffet terms as “financial weapons of mass destruction”.
Apple (AAPL) Short
Early last week we took profits in our AAPL short position using the April $495 Put options. We are not building a new position in the same option contracts.
Overbought Stocks
(ASNA) Looking to get short due to an unsustainable uptrend
(MNTG) ) Looking to get short due to an unsustainable uptrend
(BONT) Looking to get long on a pull back for a day trade and then looking to get short due to an unsustainable overbought condition
(ACAT) Overbought and ready to be shorted
Oversold Stocks:
(NURO) I mentioned this stock last week. It looks god for a rally.
(HUSA) We have already traded this once for a profit. Looking to reenter on the long side soon.
Possible Macro Shorts
(TZA) Looking to get short of the Russell 2000 due to it breaking of the lower band of it’s uptrend channel on a weekly basis. Buying TZA puts you 3x’s short of the Russell 2000
Cabot Microelectronics (CCMP)- CCMP has been added to our oversold list of stocks to buy. You need to use caution here. The decline was a result of a $15.00 distribution. What we are hoping for here is that the short sellers will continue to drive the stock down and dividend capture traders exit the stock.
Build A Bear Workshop (BBW)- BBW Is now an oversold stock but to early in the correction to buy. I believe that there is further downside and we will look to buy BBW when we hit a good support level and our indicators give the green light.
Balchem Corp (BCPC)- BCPC is an oversold stock but as with BBW still in the early stages of its correction. The best thing to do is to watch and wait.
Apollo Group (APOL)- APOL and members of this industry continue to suffer in the era of Obama. We are watching the October 2011 lows but will probably get a rally before then. This stock is a secular loser so we’ll want to take profits quickly and move to the sidelines.
Last week’s stock picks- Right, Wrong or Watching?
Almost Family (AFAM)- We were Right on AFAM. We called for a pull back on the stock and we got it.
Rex American Resources Corp (REX)- We were Right on REX. We mentioned this stock as a short and it did correct.
Cown Castle Intl. (CCI)- We called for a pull back on the stock which we did get however the stock did not behave the way we wanted it to . Although we did see a pull back I would feel more comfortable calling this stock a continued Watch as a short.
Dynamics Reseach Corp (DRCO) and Nuerometrix (NURO)- We called for a rally on both of these stocks and we did get an oversold rally but not at the risk to reward entry point that we wanted to these both remain oversold watch stocks.
Regeneron Pharmasuticals (REGN): Indisders dumping shares. Manipulation at hand?
Apparently Regeneron Pharmasutical’s management was advised of my commentary because I now have evidence that they have been frequent visitors on multiple occasions to this this blog. I will never have proof that they moved their earnings date up to create a short squeeze but if you give them the benefit of the doubt you have no business shorting stocks. Don’t get me wrong if I were dumping shares as insiders have been doing and saw huge short interest in the stock I to would make every effort to squeeze the short so I could sell more shares. Add to it the fact that a number of investment banking firms looking for business provided upgrade cover to sellers. Again, pure speculation on my part but I happen to be a successful speculator. Even after the shares were pumped higher we still made a profit.
Overbought / Oversold Stock Review from last week
In my The Week Ahead Commentary to members of The Contrarian Trader I analyzed the charts of the indexes and the major sectors and believe that the potential for a correction is likely.
Last week I mentioned U.S. Home Systems (USHS) of which we are short and have a profit. We’ll be looking to exit this position in the coming week.
Stocks that we discussed last week which remain on our radar screen are:
Companhia de Saneamento (SBS)- This stock consolidated and is a short term buy with but with an eye on getting short on a “key reversal”
Synnex (SNX)- This stock is also a short term buy with a longer term on getting short.
Plains All American Pipe (PAA)- Has also consolidated sideways setting up the opportunity for a brief rally but again, we want to look to get short.
Seagate Technologies (STX)- Remains a short opportunity but the risk to reward is not as favorable as last week. We’ll watch it though.
Marchex (MCHX) – We had been long of this stock but were stopped out with a small loss. However, we like the stock and it’s large short interest so we may just trade it long again.
Hot Stock Picks
Almost Family (AFAM)- Potential short after a strong move above all the major moving averages
Rex American Resources (REX)- This is one of my favorite shorts and will be watching it with great interest.
Crown Castle International (CCI)- Another great short candidate given its extreme overbought condition.
Dynamics Research Corp (DRCO)- DRCO is an oversold stock which is interesting given the fair amount of shorts that can fuel a short term rally.
Neurometrix Inc. (NURO)- This is an oversold penny stock which is interesting given that it trades at a discount to the pricing of a recent offering.
I will be tracking all of these stocks and alerts will be sent to members when we do enter and exit these trades. Take advantage of our 14 Day Free Trail Offer to receive these alerts as well as The Week Ahead Video Commentary which is sent out to members every Sunday.
Last week we reduced our exposure to Replegan Pharmaceuticals (REGN) because the risk to reward of being short
the stock was no longer in our favor. Lesson number one in stock trading is to have a reason why you are trading a stock and if you cannot articulate that strategy you should never have made the trade in the first place. In the case of REGN we entered the stock on the short side because it was at extreme overbought levels. An earnings announcement was weeks away and I had confidence that the stock would have corrected by then and we would be out of the trade. It appears though that management watched the charts and monitors the short interest. How do I know this? On Friday February 10th the stock closed below the lower band of its rising uptrend channel. That was a positive for us until management issued a press release after the close announcing that earnings had been moved up to the following Monday February 13th. I knew that we were about to get screwed. The lesson learned from this trade was to never ever underestimate how devious management can be when their stock is heavily shorted and never forget
how immoral bankers such as Bank of America and Deutche Bank can be by upgrading an extreme overbought stock in the hopes that they will get the dumb money off the bench and buy at the worst possible time for both longs and shorts. The other lesson learned is to never, ever react to a knee jerk reaction by the markets. We never forgot that the reasons why we shorted REGN in the first place were more present than ever and by the end of the week our $15.00 paper loss was reduced to $2.00 because we
had discipline and understood how the game is played.
Contrarian focus stocks
Companhia de saneamento Basico (SBS)- This is an extreme overbought stock which we will be looking to short as a
swing trade.
Synnex Corp (SNX) – This is an extreme overbought stock which we will be looking to short as a swing trade.
US Home Systems Inc. (USHS) – We traded this stock short for a profit a couple of weeks ago and are now looking once
again to short. This is an extreme oversold stock which is very near to us pulling the trigger once again.
EchoStar Holdings (SATS) – I discussed (SATS) last week and like the way it is behaving. We will look to add
as a short in the coming week.
Cobalt International (CIE) – This is another stock that I discussed last week and monitored. I like this as a
trade and should be considered a top pick.
Plains All American Pipe (PAA) – This is new to our screener and looks very good as a swing trade short.
Holly Energy Partners (HEP) – This stock is another top pick as a swing trade to the short side.
Willis Group Holdings (WSH) – This is our only extreme oversold stock and the weekly and monthly charts will help
us determine if this will be a swing trade or a long term investment.
Please take advantage of our 14Day Free Trial Offer and receive every Sunday “ Contrarian Commentary, The Week
Ahead” video commentary on all stocks listed above.
We were trading Apple (AAPL) both long and short during the summer after Steve Jobs passed away. I identified a divergence in the Weekly RSI from the stock price which was making historic highs and at an “Extreme Overbought” condition.
Contrarian Trader Watch Stocks
EchoStar Holdings (SATS)- We are looking to short EchoStar due to it’s overbought condition
Regal-Beloit (RBC)- The chart indicates that although the stock is at extreme overbought levels there is a good possibility of the stock continuing it’s rally early this coming week. We will monitor it for topping action.
Cobal International Energy (CIE)- Another chart at extreme overbought levels which gaped higher on Friday. I am reluctant to chase this one down. I would prefer to ope a position on strength and average my basis cost.
Cedar Fair (FUN)- The $27.40 level appears to be resistance. Ideally we will see a rally through that level. If it does we’ll watch our indicators and volume to give us the green light to short this stock.
Apricus Bisciences (APRI)- This is our one stock that appears to be nearing a price point that I find attractive to get long of for a short term trade only.
For a full analysis of these stocks and the direction of the overall markets sign up for the 14 Day Free Trial
Hugoton Realty Trust (HGT): We sold the remainder of our trading position however, I did take some share and held them in our long term account due to the dividend yield and the future of natural gas in the United States. A truly great contrarian trade and congratulations to my members.
Texas Instruments (TXN): This wasn’t a Contrarian Trade but it was a continuation trade of a stock in an uptrend. We too profits on Friday after a very nice profit after 4 days. Swing trades like this TXN trade are some of or favorites.
Watch Stocks:
Dun and Bradstreet (DNB): This is an overbought stock ready to be shorted.
TZA- (TZA) is a leveraged 3x’s short the Russell 200 ETF that is very volatile but our favorite for shorting the entire maket.
Metro Bankcorp (METC)- This is an overbought bank stock which we would like to short.
Real Networks (RNWK)- This is an overbought technology stock that we would like to short
Regeneron Pharmasuticals (REGN)- This is one of our favorite short right now. Heavily shorted by amatuer shorts it’s ripe to fall
Sea Gate Technologies (STX)- This is an extreme overbought stock in the technology sector which we are looking to short
Repuplic Airways Holdings (RJET)- is an onther overbought stock ripe a sell off. We will be looking to short RJET
Tata Motors (TTM)- An Indian car maker ripe to fall for a trade only. This is an overbough stock which won’t be able to stand more upside.
US Airways (LCC)- This airline is simply another transportation stock among the cyclicals in rally mode but ripe to short after being sent to an overbought condition.
Zimmer Holdings (ZMH) This big cap stock is at a very overbought conditon and we will be looking to short it as well.
Hugoton Realty Trust (HGT)- This is a profitable trade. We took one third profits on the trade and will look take further profits at higher levels.
Broadvision (BVSN)- We took profits on this short trade. This is a tough stock to borrow so we took profits quickly once we so how few shares were available.
Michael Kors (KORS)- We took profits on this long trade and may look to get long once again.
Contrarian Watch Stocks
Colvis (CLVS)- Looking to eventually get short but may in fact get long first if we break out above $20.00 using a trading stop loss.
Inergy (NRGY)- This is an extreme oversold stock with more probable downside. We have a price target in mind which I have shared with members. I will send an alert when I begin accumulating.
TZA- TZA puts you 3x’s short of the Russell 2000 (IWM). I am looking to add TZA to the long side if they squeeze the shorts in IWM which won’t last very long. That will be our opportunity to add TZA at a good risk to reward level.
Apline Global Priemiere Properties Fund (AWP)- We are looking to short this fund due to the overbought condition.
Tronox Inc. (TROX)- We are looking to short TROX due to it’s overbought condition.
Please remember that the current $29.95 membership rate will be available for a limited time only. Please lock in this rate before it goes higher. Take advantage of the 14 Day Free Trial Offer.
We opened a position in Hutoton Royalty Trust (HGT) last week and plan on dobuling that position bringing our basis cost down. The stocks is being dominated by the break down of natural gas prices which appear to have bottomed in the short term anyway. I will sending out an alert to members when we do add to this position and when we take profits.
Watch Stocks:
Sears Holdings (SHLD)- We traded this stock long a couple of weeks ago for a large profit. The stock has continued to rally and appears to be topping out as it hit it’s 50 day moving average.
THQ Inc (THQI)- This is a penny stock which may provide some upside opportunity if it continues to consolidate.
(TZA)- TZA is a leveraged ETF which puts you 3x’s short of the Russell 2000. We are watching this ETF because although the Russell 2000 is in rally mode it is rallying on decling up volume. More details will be going out on my outlook for the markets to members in The Week Ahead Commentary.
Michael Kors (KORS)- This is a recent IPO which we are looking to short but not yet! This will be a short term trade to the downside.
Broad Vision (BVSN)- This is one that I have been watching for two weeks. Dicipline when approaching this short trade is essentail. We are near the point of where it is safe to open a position but not quite yet.
This week I discuss our trade of Sears Holdings (SHLD) which we took profits on last week. This contrarian trade made us a profit of 10% within a few trading days. I also discuss Hutoton Realty (HGT) which we are not trading to the long side. This is an extreme ovesold stock with and RSI in deep oversold territory and a double bottom stochastic.
Sears Holding is one of our classic contrarian trades which newcomers and non believers in contrarian trading think is nuts until they see the rally on massive volume. We screened SHLD and is very near a buy alert which will be sent to our subscribers. Take advanantage of our 14 day free trial to see where our price target is and to received our buy / sell alert.
How main stream RSI and Stocastics ruless would have made you poor
Were you not a student of contrarian trading you might have followed the foolish advice provided by the so called technical analysis gurus who make vague, overlysimplistic and worse dangerous statements on how to use the RSI and Stochastics. So I begin the video showing how using their buy sell rules would have ended in big losses if you did not use a stop loss order which most people do not. Don’t get me wrong, I love the RSI and the Stochastics just to name a few. However, if you fail to identify historic support levels, observe price and volume action and simply rely upon indicators and ocillators you can go broke.
Well once again we blew away the S&P 500 yet the mutual fund mangers continue to collect fat fees for underperforming their respective benchmarks. What do we forecast for 2012? Volatility will continue to reveal itself because of an unresolved European Debt Crisis and Iran. Our strategy for 2012? The same, Contrarian Trading. We will use high volatility to day trade and low volatility to swing trade.
How did we outperform the S&P 500 again in 2011?
Contrarian trading requires that you identify over hated and over loved stocks and study their prices and volume action as well as the charts for divergences in technical indicators such as the RSI. What did we trade?
Apple Inc – Short
First Solar -Long
PF Sweed- Long
Netflix- Long
TZA – Long (TZA puts you 3x’s short of the Russell 2000 /IWM)
TNA- Long (TNA puts you 3x’s long of the Russell 2000/IWM)
Watch stocks Sears Holding (SHLD) Oversold
We will be looking to get long of SHLD in the coming week. I will be sending our Trade Alerts to members. For Exclusive services take advantage of the 14 Day Free Trial.
These stocks represent future opportunities as we move into the new trading week. Winners from last week are PF Sweed and Advanced Battery.Although we remain bearish on the stock market we will remain net short but will look to hedge our short portfolio with stocks that look to be at oversold levels.
Europe and its impact
Europe will continue to discount the stock market causing traders to take profits quickly. When will Europe cease to be an issue? When we have a default of a bank or valuations of U.S. companies reach a level that will cause value managers to go shopping for bargains.
Alhough our trading portfolio is positioned to the short side we do like to take advantage of oversold stocks and short squeezes during stock market corrections. Oversold stocks include First Solar, Home Away, Sequans Communications and PF Sweed. The RSI indicators on nearing oversold levels but in the case of First Solar it has more further downside risk than the others. I will be sending out Buy Alerts to members.
Last week we again traded DMND for a profit on each trade.
Yes there are balance sheet issues and yes you had an auditor commit suicide
last week. But as contrarians we view the markets over reaction as an
opportunity to scalp a trade. Let me emphasize that DMND is not an investment
yet and until there is clarity in their accounting practices you should not
consider this stock as an investment. A short term trading vehicle is another
matter.
Economic Data
Economic data released last week showing that GDP coming in
at 2.0% versus 2.5% was no surprise to contrarians. It doesn’t take a Harvard
Business School degree to help you understand that a Europe entering recession
a slowing China and an over leveraged US
Consumer are nothing but head winds for economic growth.
These are the stocks that appeared on our screener as providing
the best opportunity for short term profits. These are not investments but
short term trades only. ANF,TPX and OPEN
were once Investor’s Business Daily darlings and remain great companies but
there is a lot of healing to do. They are part of the Retail Sector which as
viewed by the RTH are weak and will probably get weaker. My analysis over the
years has proven that oversold stocks have a tendency to rally off of oversold
levels only to break down to new lows only days to weeks after their counter
trend rally. My point to investors is that there is no rush here.
We opened our short position in Apple on November 9ths and took half profits on November 11th and then on November 17th we covered our short closing out the trade when APPL hit the lower band of it’s rising uptrend ling.
Diamond Foods (DMND)Oversold Long Trade
We bought shares of DMND on November 15th and took profits on November 16th. We expect the stock to continue remain weak. DMND it remains on our buy watch list. I will be send out trade alerts to members when we pull the trigger.
Direxion Russell 2000 Short ETF (TZA) Long Trade
We went long of TZA on November 11th and were stopped out on November 15th. We went bought shares of TZA again on November 16th and took profits on November 17th.
On November 1st I posted a my opinion of as to why Apple (AAPL) was a short. Since that time we have traded AAPL twice with each time being profitable. The path of least resistance appears to still be down but not straight down. AAPL is still a great company with a massive follwing among not just consumers among the investment community as well. There will be short covering rallies and that is when we will add to our positon. To receive Trade Alerts you need to be a member of The Contrarian Trader. To members I will be sending out The Week Ahead Commentary on Sunday.
Please give me your opinion of my video in the comment section below and don’t forget to subscribe to our blog alerts. We do not share or sell email information.
Finding a reputable stock training school online is becoming increasingly difficult, as the lucrative field continues to attract participants—many of whom may not be truly qualified to provide top-notch instruction. Some online stock trading schools are merely fronts for eventual “up sells” to proprietary investment techniques or other resources. The schools themselves may offer relatively little to the prospective investor.
There is good news, however. Even though there are many questionable online stock trading schools, there are also some superior options that have proven themselves over time. Novice stock traders interested in “attending” stock trading schools should take the time to seek out these better institutions. Here are a few hints that may be helpful in isolating a quality virtual institution.
Evaluate price tags. The old saying, “If it sounds too good to be true, it probably is,” holds true for stock trading schools. If you find a trading school offering free or remarkable low-cost tuition, you should immediately be on the lookout for potential problems. The only way schools of this sort function is by enticing students with partial information or marketing hype and then “up-selling” them on a more expensive guide that features all of the details necessary to put the strategies discussed into practice. Likewise, one should be concerned about incredibly high-cost programs. Although you can’t expect a quality stock trading education free, you should also be wary about spending a small fortune for instruction from a non-accredited institution.
Investigate instructors. A potential stock trading school student shouldn’t be satisfied by the stated “fact” that an instructor is a successful trader. That’s because successful trading isn’t necessarily indicative of actual instructional talent and because there is a substantial risk that the instructor’s biography might contain exaggerations and/or outright lies. Potential students should make a serious effort to learn as much as possible about featured instructors’ histories, reputations and credibility before making a tuition payment.
Keep expectations reasonable. If you hope that participation in a stock trading school will immediately take you from being a wet-behind-the-ears novice to the status of a world-class trader, you should recalibrate your expectations. Don’t look at stock trading school as a cure-all. Instead, recognize that it is one course of information, among many, that you will need to climb the stock trading learning curve. This also means that potential students should have reservations about any stock trading school that makes wild claims or that portrays itself as a one-step, comprehensive source of all necessary trading information.
Stock trading schools can be a wonderful way to learn more about the markets and how to use them to your financial advantage. It is possible to select a strong school that will provide a quality experience. By considering costs, evaluating faculty, and being sensitive to the true limitations of any school you can make a smart stock trading school decision.
Now that you know what a stock trading school is and some ways to identify the best options, you can begin to search for a program that meets your needs!
We added (DMND) earlier in the week and doubled the positon early this morning on the big pull back. I do not like the way this market is selling off. We also closed out (KBH) which we bough last week and scalped a profit. I wanted to add to both of these posititon but market conditons being what they are make it criminal to allow profits to turn into losses. This pull back is no surprise to Contrarians as the recent rally has only been on very light volume
Other reasons for concern it Italy’s bond yield skyrocketing and our own 10 Year Treasury auction being poorly received.
Looking to short (AAPL) and(TZA) again. Alerts will be sent to members.
I mentioned in The Week Ahead Commentary posted below that we had added Diamond Foods (DMND) to our Oversold Watch List. I discussed that the stock had further downside to and sure enough Monday brought us very close to pulling the trigger on this trade. I went into great detail of this trade with Contrarian Trader members. We puled out to the weekly charts to analyze the best entry point by identifying historical support.
What do we like?
We like the fact that on a forward looking basis the stock is trading with a PE of less then 11. This is a discount to its historical PE range
We like that fact that the RSI is at 16 which is an attractive entry point
We are very near to historic support levels
What don’t we like?
We closed near the lows of the day
Downside volume was very high indicating that institutions are selling
What do we need to see?
We need to see volume drop off considerably.
We need to see bottoming tails on the candlesticks
We need to buy in increments so as not to accept to much risk all at once.
I will be sending out an email alert to members of The Contrarian Trader once we begin accumulating a position. For those folks who have never traded extreme oversold stocks I caution you that this type of trade is for only the most diciplined of traders. If you have any questions post them below.
We took profits last week on TZA and on AAPL. Our short trade of APPL was quick scalp of $7.00 per share. The stock has since rebounded but we are looking to once again get short. Stocks that we have added to our watch list are CEDC,FSLR, LNDK,CEDC, SWIS, DMND,AMAG,RBCN and GNW. I go into a few of these potential oversold trades in The Week Ahead Commentary and go into all of their chart set ups in The Week Ahead Commentary- Members Edition which will be sent Sunday November 6th. I caution anyone looking to trade these stocks not to jump in on Monday morning as I believe that many if not all have further downside.
Does the Hoopla Surrounding the Euro Make it a Good Contrarian’s Bet?
It has been nearly eighteen months since the European debt crisis burst upon the scene as the next impending disaster facing our global financial markets. Government officials seem unable to create a solution that the market will accept since unanimous consent within the Eurozone is a more foreboding task than busting a filibuster in our Senate. The press has had a field day lambasting each superficial attempt to reach some accord, and this uncertainty has driven our trading markets to new heights of volatility. The Euro has been front and center in this debate, and most investors have avoided the currency as if it were infected with the Black Plague of old.
The often-heard mantra of contrarian traders is that the time to buy something is when no one else wants it. Does this rule of the road apply to the Euro in these troubled times? The answer to this question depends on your individual tolerance for risk and whether you are adroit enough to handle the “whipsaw” machinations of our forex market. Despite the hoopla that has been created by the talking heads on our financial news channels, the Euro has actually performed as most experienced traders would have expected under the circumstances, yielding excellent opportunities for gain if you understand how to profit from volatile swings in the currency markets.
Stock investors may have shunned currency ETF’s for the time being, but charts from this medium do illustrate a few valid fundamental points that suggest that technical trading with prudent use of leverage can be a good profit angle for the knowledgeable and experienced forex traders among us. Here is one example worth a review:
The diagram above depicts the changes in value over the past twelve months for the Euro, the Canadian Dollar, Oil, and the S&P 500 Index. Pricing data from popular ETF funds have been used to construct this chart. “FXE” represents the Euro, and “FXC” is a substitute for the “USD CAD” currency pair, reversed to resemble share value criteria. Data from forex brokers would closely resemble these ETF results.
Several conclusions can be drawn from this representation:
The Euro has actually behaved in a very predictable wavelike pattern over the period, ending the year at roughly the same value as when it started;
The Canadian Dollar, known as a “commodity” currency due to the large oil reserves that fuel exports for Canada, is also seen to correlate very closely with the price of oil, although at a less volatile pace;
The Euro, as a rule this year, has correlated more closely with the S&P 500 Index, an indication that Europe will benefit if U.S. companies recover and post positive earning reports. Most experts would claim that, after the first few months of the period, the S&P 500 Index has actually been buffeted by the trends of the Euro, which have ebbed and flowed based on the latest bit of Eurozone news, whether favorable or unfavorable as to resolution of the present debt crisis;
Currencies are actually less volatile than stocks, which “vibrate” at amplitudes some 2 to 3 times greater than for either the Euro or the Loonie.
Should a contrarian investor look to the Euro as an opportunity? “Buy-and-Hold” strategies rarely apply in the currency world. Position trading with manageable leverage is the strategy recommended by most forex traders. Profits are derived from speculation as the market continually seeks a new equilibrium, based on the relative economic considerations of each currency pair. The concept of “intrinsic value” does not exist.
I have had Apple Computer (AAPL) on my Watch List for stocks to short for some time now. Yes the stock is cheap on both a current and forward PE basis and to say that I don’t find that a bit troubling is an understatement. What gives me the courage though to entertain a short positon in AAPL are some non-aruable techincals. So, let’s begin.
When you plan on shorting a stock that is so widely held and loved like Apple Computer you had better not rely on daily charts. You need to watch the weekly stock chart and the weekly charts are signaling to us that since April 2o1o AAPL was in fact weakening. What? You might say AAPL’s share price increased by 26%. How can you argue that? Well you can’t argue the increase in share price that is a fact. What is also a fact is that the vigor in which the stock was being accumulated peaked in April 2010 when the RSI was above 85. After correcting the stock resumed it’s uptrend but the RSI tended to lag the stock. This divergence became magnified begining in January 2011 and that divergence continues to escalate.
Fast forward to recent weeks and you will note how the choppy action on the Stochastic RSI failed to confirm the new highs in AAPL . The death of Mr. Steve Jobs, disappointing earnings are just a couple of the catalysts for a sell off. Add into the number of potential catalysts the common love affair among the analyst community with AAPL. Of the analysts covering AAPL 27 have Strong Buys and only 1 has a Sell on the stock. This has been unchanged fro the past year. Yes granted analysts are usually behind the curve but I find it hard to believe that the passing of Steve Jobs will not have an immediate and long term impact on their opinion of the stock. I am sure the pipeline of products at AAPL is strong but analysts are like lemmings. Once one turns negative they all seem to jump off the same cliff.
The key reversal displayed by AAPL during Monday’s trade did not go unnoticed by us and by many traders who use technical analysis to time their trades. Take note also of the declining up volume over the past few trading days. I call up days on light volume after a poor announcement “rotation days”. Those days provide institutions the opportunity to slowly rotate out of a stocks without causing it to tumble. The stock is in a tight pennant formation on a daily basis and it will soon show us that it is going much higher or lower in a rapid period of time.
The key to shorting a widely held and much loved stock like AAPL is to accumulate a short position in small increments and to utilize a static stop loss order above key resistance levels. If and when AAPL does begin to break we’ll convert our static stop to a trailing stop loss order to not just capture as much profit as possible but more importantly protect our downside. I will be sending out Trade Alerts to Contrarian Trader members as we begin to accumulate.
Your opinion matters so please leave your feedback below for discussion.
If you are feeling a bit exhausted and whipsawed as of late, you are not alone. Thank goodness for the weekend! We had an impressive week that saw the Dow rise 5%, the S&P 500 lift 6% and the Nasdaq gain 7.6%, but the solid showing does not feel all that great when we have had so many wildly up and wildly down days and weeks over the past two months. A 5% daily gain loses its luster quickly when the market is down 4.5% the next. It seems as though the stock market is driven only by fear, reassurance, fear, denial, fear, and finally a whole lot of positive-sounding press releases from Central banks all over the world.
This strange scenario becomes even stranger when you try to really figure out just who is bailing out whom over in the EU. There are “official” economic charts and graphs available online that attempt to describe the complexities in Europe, and then there are lampoon-style sites that have charts that look similar, but still make some serious fun of how crazily complicated it is over there. How can any EU banker or politician ever make sense of anything when the parodies of a bad situation seem as real as the “real” situation?
So, what is “real” right now is hard to decipher. The reason for all of the stock market gyrations we have had over the past couple months is because “the market” knows things are really bad, but it is unable to figure out how the longer-term variables play out. This leads to the day-to-day overreactions. It is a day-to-day battle between the Central banks and the “reality” they seem to ignore, postpone, and never confront. That is why the “can gets kicked down the road” endlessly. Politicians and Central bankers are far different than entrepreneurs, who actually CREATE jobs, and we are now painfully learning that we need a whole lot more entrepreneurs than bureaucrats if we are to get out of this mess.
On a different and technical note, the S&P 500 put in a loose, double top pattern in July around 1350, before that fade late in the month, which led to the plunge downward into early August. Since bottoming around 1120 several times in early August we have had nothing but wild rollercoaster rides up and down ever since. Amazingly enough, the S&P 500 closed out at a two-month high Friday, and it had many of the exhausted bulls thinking that maybe, just maybe, this could be a great time for a final turn from what has been a high-speed, 20% bear market decline.
It would definitely be a great time for a larger, upside run, but we historically hear of rallies from October lows, not rallies off October highs. Many strategists are still scratching their heads over the recent strength in stocks, but then again, there are quite a few market “seers” saying that fear levels and pessimism had become so high that a change was definitely in the air. Again, the supposed pros are still divided on the intermediate market environment, and the broader investor world is divided as well. The volatility we have seen shows that it is a tough and important juncture for stocks, so we will just have to wait and see what unfolds.
Meanwhile, across the pond, Germany and France had said that the end of the month was their deadline for coming to some sort of agreement on the Greek bailout, but we all know how that can be “extended and pretended” at a moment’s notice. Look for any “real” reform to likely be pushed into 2012 or later, after the current politicians are retired, reelected, or lobbyists or some sort of a combination of the three. The Greek card is the Joker Card right now, and it will be interesting to see how this EU deal concludes. The longer they wait, (the buzz goes) the more painful the Day of Reckoning will be, and the worse the situation gets, the less politicians want to address it. And, that is worrisome!
Loading ...
