MAY 25, 2020

Link to the Real.  It Pays.

Taking

your money on a pandemic stroll is stone crazy. Cash is nice. But doing nothing’s smart for only so long. Statues can afford it. We’re not made of stone, nor is our market. In fact, the market’s the very definition of dynamic change. And now?

Our market’s a train track. It’s tech and healthcare. That’s it. Nine of eleven sectors are in reverse YTD. Fixed income’s a sick joke. So what’s an investor to do? Patiently look to slowly reposition part of your portfolio for a wider recovery. Think about trading what’s been working. Is that “Day Trade Crazy?”

 

 

 

Investing

is about making money.  It’s even better if one enjoys the process and the challenge.  We love it or wouldn’t bother to write about it.  Markets are dynamic moving targets.  No one doubts that the 11 year bull market is over.  It was far easier then.  New dynamic.  Jobs have dried up.  Income rules.  The only things keeping our economy upright are direct government payments, programs such as the “PPP,” and reassurances from the Federal Reserve and its’ massive balance sheet.  But our current market has been offering trades, for those able and willing.

 

We’re learning those skills–quick trading specifically.  In and out is good.  We’ve learned that long-term investors can trade too.  Markets are dynamic and so are people.  We’ve strictly been long-term investors, but that’s the old.  Our view has been forever changed by a veteran investor out in Seattle.  He poked holes in our thinking and proved that short-term trading has been working in this market.  We picked up that ball.

 

 

Three weeks ago we made one trade for a $114 gain.  Two weeks back we returned $363.83 on seven trades, a 319% increase week over week.  Last week we returned $743.20, on ten trades.  That’s a 104.2% increase over the week previous.  We’ve locked in zero losses, but sit on two unsold positions from this week; COF down $61.22 and TTWO down $177.40.

 

 

 

Take what the market offers, in every market and time frame.  The kindness of a veteran investor brought us to that realization.  He didn’t have to tell us.  He didn’t have to explain it.  It took hours.  But he did, and we’re sharing that here.  What kind of butt-munch simply sits on the good stuff?  We Fa King love investing and want to share what we learn with others who also love it.

 

 

The mega-five along with the secular growth stories of tech and healthcare tech are driving this market.  Most have racked up huge gains and are now too hot to handle.  Yet absolutely no one knows what’s next.  Below is the weekly chart of Teledoc displaying the last year.  It’s a perfect example of pandemic market growth now.  Notice the growth  spikes since mid-February. 

 

 

Teledoc Health Inc. TDOC: NYSE

Teledoc

is the perfect example of this extreme market.  TDOC has run 108% YTD.  That’s extreme by any measure.  It’s also unsustainable.  It’s also not alone.  “Broad” market moves are defined by majority participation.  Broad markets mean most economic sectors are moving.

 

Our market now is as narrow as it gets.  Again, only the five mega-caps, along with secular growth in tech and healthcare are driving.  Year-to-date only the IT and Healthcare sectors are positive.  That leaves nine economic sectors in the red.  At the very bottom are Financials, down 28.3%, and below that Energy, down 34.9%.

 

 

Many

understand and rely on J. Welles Wilder’s RSI tool.  Standard readings are based on a daily chart, with Overbought and Oversold levels set at 70 and 30 respectively.  Yet in short-term trading many find it useful to use an hourly or even 1-minute chart reading, using 80 as Overbought, and 20 as Oversold.  Traders choice.

 

Buys are executed on Oversold readings, as the price-action is likely going up.  Short-term trades are routinely sold off when readings hit 70 or 80, depending on a trader’s willingness to hold for a possibly higher price.  The RSI is designed to indicate when a stock is reaching the top and bottom of a demonstrated trading range.  Working established trading ranges is what pattern trading is about.

 

 

A

zillion notions exist concerning trading’s best practices.  Yet an abiding reality remains.  Greed  and junk stock will get you killed.  The highway is littered with the bodies of those picking up the last pennies, or buying the stocks of companies without a future.  The majority of stocks not working now represent companies with questionable futures.  Buying the cheap or attempting to strike absolute highs or lows is a fools game no one survives.

 

 

Who have we been trading?  Alphabet(GOOG), Alteryx(AYX), AT&T(T), Nvidia(NVDA), Southern Company(SO), Kirkland Lake Gold(KL).  We foolishly bought Beyond Meat(BYND).  We managed a $53.89 return in two days.  We also got a chunk of Zoom(ZM) and managed another small gain of $24.72, also in two days.  Yet small quick gains add up.  For example, we love to day trade GOOG for $20-$35.  We’ve done it four times over the last nine sessions. 

 

 

 

Trading

ranges shift often and without warning.  Standing in the pouring rain isn’t typically joyous.  Thus we set a reasonable target return or range before setting our trades.  The price-action displays the range.  Several rules of thumb make sense:

 

 

1. Trade an established repeating pattern. 

2.  Trade what you know, not simply what’s moving.

3.  Trade what you’re willing to hold.  Trades routinely fail.  We like dividend payers, secular growth, and lately, gold miners.

4.  Don’t be greedy.  A reasonable gain completed is far better than a failed trade you’re left sitting on.  Such locks your cash in.

5.  Set a specific price range or percent gain, before placing a trade and stick to it.  The RSI will signal the range, bottom and top.

 

 

The best trade is the one that ends with a respectable gain, even if the share price climbs further.  You can’t pay for dinner if your cash is locked in, and you can’t take a gain if the price plummets.  Take what the range offers.  As always, good luck and good investing.