"Everyone has a plan 'till they get punched in the mouth" - Mike Tyson

August 25, 2014

Handcuffed

Shared below is a chart of Russell 2000 volatility.  Is volatility about to pick up again?  We'll know soon.



Maybe it's time for the Russell to start fading here.  Maybe not.  The lower trend line has been a good spot for small cap investors to back away all year.  Perhaps it's only a temporary bounce.

Patience is priceless.  Summer is almost gone.  Enjoy your week!   

August 21, 2014

The Unbelievable

The exponential growth in technology is continuously allowing more and more rapid shifts to occur in the marketplace.  Whether it's solar panels, DNA sequencing or whatever; the precedent is set for far fetched scale-able technologies to become near term realities.

"Over the past 13 years the cost of sequencing DNA has dropped 1,000 times more than Moore's Law, from $100 million per human genome to only $1,000"

Ilumina has absolutely changed the gene sequencing game since their inception in 1998.  Who saw this coming 10 years ago?  You can find the rest of the Forbes story here.

Naturally the stock has been incredible over the past few years.  Looking at the chart, this thing doesn't look close to finished.  It appears to be forming an infamous cup with handle pattern looking for a move to the mid 200's if it breaks to new highs.  



  Trade 'em well!

August 19, 2014

EXAS; real promise or too good to be true?

I'm a firm believer that the best investments come from companies with things that change our lives.  In that context, often times I think of the iphone or the keurig coffee maker, but of course it's not limited to that.

Exact Sciences has come up with a way to detect colon cancer without the major turn-off that is a colonolscopy.  They simply screen the DNA in your stool with an efficacy rate of cancer detection in the same ballpark as doctors performing those dreaded procedures.  We must note that the detection is much lower for pre-cancerous polyps, which could be a deal breaker.  However, isn't is safe to assume this technology will improve dramatically over time?

How does this change things?  Well roughly half of the folks who should regularly screen for colon cancer don't.  If this was another quick part of one's physical, it's easy to see why more folks would do it.

At this point it seems clear it will recieve FDA approval, but how will it be received by the insurers and payment plans?  It certainly appears like it will save everybody money and lives at the same time.

Looking at the chart we can see it's just now taking out all time highs from the early 2000's.  Another major positive is the volume expansion that continues from 2010.

Charts can act very funny in biotech because so much depends on the FDA, but if this is for real there's little reason to think it can't triple and then some over the next couple of years.


Disclosure:  I'm long

Trade 'em well!

Insanity

I've recently profiled the rush out of junk bonds relative to treasuries and it's amazing how aggressively the junk bonds have come back.

Folks have been violently bearish and sentiment has driven this sharp rally back to the highs.  Need proof sentiment is violently bearish?

Traders are paying insane fees to short junk bonds.  Yes, the demand to short HYG was so great you had to pay over 300k a day to get short at the bottom.  No wonder it's just ripped!

It's hard to be outright bearish junk bonds with that occuring.  Those market forces could just keep ripping it higher especially as we get all beared up on any down turn


On a relative basis we still haven't seen a higher high in the HYG to LQD ratio.  Until that changes it's pointless to write off the red flag this is flashing.  Maybe it will soon.  

Trade 'em well

August 17, 2014

What now?

The market is trading off Russian headlines like that's all that matters and dips are getting shallower and shallower.  Eventually the bulls are going to trip upon themselves, who knows when.

There are some nice swing setups out there, but there are some subtle clues worth paying attention to early in the week.    

The NYSE A/D line backed off at resistance Friday.  I want to see it blast through before I get more aggressive long.


The biotech sector is the one to watch.  Can it lead the market higher and break resistance from February?


XBI has already broken the resistance, but momentum is unimpressive and the same can be said about Friday's candle


Financials struggled at resistance Friday, offering bears a level to trade against.


SETUPS

KANG has pulled back to the breakout area and keeps finding buyers under 20.  If I get long it'll be with a stop below Friday's low.


Tesla has traded very tightly after seeing numerous accumulation days.  Friday was an NR7 day.  We're looking for a move soon.


INSY with an awesome bull flag.  The risk and reward are both higher with this tight float name.


OAS has formed some bullish divergences and the market is starting to react.  It really depends on USO.


XON had a false breakout and false breakdown Friday after earnings Thursday night.  What's next?  There could be some vol expansion coming.

IMOS has based for two months after a huge run on heavy accumulation.


Trade 'em well!



August 10, 2014

Rotation Report

Weekly recap and look ahead:

Four prior S&P 500 cycle turning points lining up suggest these next few weeks are the most important time of the year.  Do we know what it means?  No, but we must be ready for anything, because we know it'll likely be very significant.  


 Weeks ago I would've thought maybe it meant a top was near.  However, Thursday fired a VERY rare buy signal in the 'At The Money' sentiment indicator.  The last two times the signal fired were the Obama lows of 2012 and just after the January low this year.  That said, it's probably worth ignoring if the bulls don't really crack the whip this week.


Then Friday, after a nice bounce, the stock only A/D line took out last week's high ahead of the markets.  It generally pays to follow the advance decline line.


I've posted on the KRE (regional banks) lately, specifically a negative point of view.  However, there is an alternative view to take note of.  So far, this has found a higher low and perhaps a continuation wedge is forming.


Looking at the recently leading index IWM, we see a failed attempt to break down a bear flag.  At this point it's kind of chopping around with neutral momentum.  Until momentum turns bullish, it's likely this is working off an oversold condition.  


Friday brought a bullish engulfing day in the World Index.  Stakes are in the ground.


Rotation Report: 

Friday China made a new high relative to emerging markets as it continues to trade well.


Specialty Retail is strengthening in a big way.  Is this an early sign the consumer is picking up again?  Or just hopes of a strong back to school season?


Real Estate relative strength is on watch for a major bottom breakout.  


We're seeing great action in the tourism group as it's managed to hold the 10D MA last week.


Mining relative strength has really picked up during the correction and we're seeing positive reaction in the periphery groups.


Trade ideas:

Poland is starting to react to a positive RSI and RS divergence on the daily chart.  No doubt, Russia backing off the throttle eases a lot of investor nerves. 


For the longest of time, FSLR has traded in a rising wedge.  Last week it dropped below support and had a very strong bounce creating a wedge.  


RH has traded in an orderly channel into the 50D where buyers have shown up.  The group is showing strength right now.


A specialty retailer FIVE has traded in this compression for most of 2014.  A break over this resistance line would be big time.  To fully disclose, I've gotten family long this one this summer.


Barnes and Noble came out with business changing news last week.  Also, Amazon is getting a ton of heat from publishers.  Note the 17% short interest.


WUBA is very tight at long time support.  That's some tasty risk reward, isn't it?


KANG - A recent China IPO, it's traded tightly after a vicious move higher.  It could be an Ebola play, should concerns arise about it spreading to the far east.



Trade 'em well!

August 08, 2014

Ebola

This morning, WHO described ebola as a public health emergency.  They expect it to be an issue for many months.  I hope it plays out as well as possible, but no doubt there will be interest in some potential plays.

One of the few public stocks with an ebola solution in trials is this BCRX. What I like more is this chart is a beauty.  

Technically it's shaped up for months after forming a cup with handle and more recently a head and shoulders bottom on the daily chart.  On today's news the stock broke over that level.



Looking on a much larger timeframe we can see the level it just broke has been major resistance dating back to 2006. 


Today's move has created a gap.  The rest of today's action is key.

Now you can definitely say it's strecthed and you don't want to buy a gap up and hope.  That makes a lot of sense.

Another play is KANG.  It's a recent IPO with a very tight float.  They describe themselves as a leading preventive health services company in China.  This chart is just a great setup, with a nice trend.


We have a clear risk level below this base, and the 50D is nearby.  What more could a swing trader want?

I'm long BCRX and am considering long KANG on a clear breakout as well.

Trade 'em well!

Any questions?  feel free to contact me (deets on the about page) or on twitter/stocktwits

August 05, 2014

Whole Foods

This morning a rumor on Carl Icahn taking a stake in Whole Foods was floated around.  There
appears to be nothing to it as of this writing.

Here and now Whole Foods on an accounting basis looks expensive with increasing competition and no doubt there are bears short on that thesis.  Frankly, we all are very aware of the bear case.

At the same time, the stock is down about 40% from last fall's high.

The big debate here is how much of an economic premium do they deserve?  They've earned a hefty one.  Whole Foods is THE brand behind the healthy eating concept and they have a gem of a concept in the in store meals.  Let's also keep in mind management had messed up so many earnings in a row, they finally have become very conservative with their guides.

Since there appears to be no truth to the rumors, undoubtedly some bears took today's pop as an opportunity to add.  At the same time think about how the last week or so has played out.  WFM dropped on earnings, the market sold-off hard last week and Icahn rumors are false.  Most bears are likely feeling numb to the fact the stock is now 10% off the lows.

Today's high around 40.50 has turned into a meaningful psychological turning point and a sentiment could really get interesting over that level.

If you've followed on twitter, you can see on the longer term time frame the conditions for a meaningful bottom are in place.


Trade 'em well.

Full disclosure: I'm long

August 01, 2014

Monster bond market top

If you've followed this blog or on twitter, you know for months I've been pointing to this major rounding top in the bond market risk ratios.  These tops are all across the bond risk curve.  For more, refer to this post from Mid-March.  

If you're not familiar the HYG / LQD ratio is simply a measure of junk corporate bonds to quality corporate bonds.  We want to see smart money betting on risk to be bullish (IE this ratio move higher), but that's not the case here.  Simply put, bond market players are starting to walk away from risk at a faster pace.  


I'll admit I've been very early and suggesting it means anything until it does has been very wrong.  This is possibly the most important, blatant inter-market signal I've seen and just couldn't ignore it.

 The current tone seems to be we should brush the market's weakness off as a a mild pullback.  Of course we all feel that way, the market has gone nearly straight up for 20 months now.  We know it never ends up how the majority think it will.

The one year length of this pattern does NOT suggest a run of the mill pullback, it suggests a cyclical bear market is possible with a meaningful de-risking period coming soon.  For comparison, this top is 3x the size of the top in 2011.  



Whether or not that comes to fruition is yet to be seen, we'll all know soon enough.  I'll leave you with a few questions I'd be asking as a reader (w/answers).

Am I looking only at this 1 indicator as I drop the term cyclical bear market in this post?  Not at all..more on that this weekend.

Hey fear monger guy, why come out with this now after the dow was down 300 points?  Because this break down is confirmed after breaking the July low.

Ok asshole, what are you doing with YOUR accounts?  Trading the levered sectors ETF and sector options.  I also own a couple of small cap and china stocks.

Does this mean a lot more for the bond market than stocks?  Possibly, but history suggests they go hand in hand.

Will there be trading opportunities in both directions? You bet.

Reminder:

All ideas shown on this blog represent the authors opinion based on the data available.