Bflakaz Weekend Review
April 12, 2014
Recap of Previous Week's Trades
Management of Current Trades
There are no current positions.
Trade Setups for the Upcoming Week
Let's start this week with a little bit of a broader market outlook, rather than in individual stocks. The indices (SPX, NDX, DJIA) have all taken a beating this past week, and it appears that this "long awaited" correction that everyone has been warning of since 2012 is coming. Traders and investors are finally realizing that 2014 is not 2013; you can't just buy the dips and watch the market scream higher. With the end of QE possibly on its way, interest rates will also rise, and nobody really knows if the economy can handle that. Well, the economy can't take higher rates, but that's another topic of discussion. Right now what's getting hammered the most is the inflated NASDAQ. P/E ratios are very high in names that actually turn a profit, and Price:Sales ratios are extravagant in names that make no profit at all! It's all reminiscent of what happened in the NASDAQ in 1999/2000, although I don't think that level of pump and dump is going to happen.
Now, what I'm expecting in the coming weeks are choppy trading, increase in volatility (VIX), and an overall downtrend correction; buying dips and selling rips, lower lows and lower highs. To turn the market around at this point would require a big time catalyst: earnings of a bell-weather companies beating estimates and offering solid outlook, better economic data, news from the Fed, etc. That being said, let's look at a short term chart of the S&P 500 (SPX)
Going in to Monday I think we'll see a bounce based on that huge oversold candle on Friday. The whole thing is basically outside that bottom bollinger band. Friday was just a fear sell off day as investors were probably readjusting portfolios and whatnot. But here's why I think THIS is the 'big' correction everyone's been waiting for:
As I've said before, trend lines aren't the most accurate of technical tools, but they let you get the gist of it. Next stop for SPX will be around 1800, with a continued slide to the 200MA, which hasn't been touched since 2012. A retreat to there from the all time high of 1897 would be a -7.31% pullback, which I'd consider a correction. The NASDAQ is already within striking distance of the 200MA, and if that's broken, then the bottom just might fall out if there's a bad news catalyst.
Bottom Line: The market is going lower in the short term. When this passes, as it always does, I think investors will be hungrier for conservative dividend names over momos. The hot money is flying out of names like TSLA, NFLX, GOOG(L), PCLN, IBB, etc, and the momentum is completely gone. Investors will be weighing the Fed's decisions over all else as we chug through 2014. I think this correction will finally knock some sense into this frothy market. In addition, it's worth noting that even though the Fed has been tapering its bond purchases, the Treasury market has remained calm. I expect that to change soon.
Trade of the Week
SPX
I mentioned on Monday that the OI in MAY14 1825 puts on the SPX was rather high, and that a move to the 100MA (1825ish) was probably coming. During that unjustified non-news Fed rally after 2pm on Wednesday, I went with my gut and decided to buy a put at the 1825 strike, as well as go short GMCR and QQQ. What a day Thursday! Buy for $1,650 and sell for $3,000 the next day for an 82% gain overnight.
Every time you make a great trade, it's like an entire stadium is cheering for you, but only you can hear it. Lately I've been hearing a lot of that applause!
Profits:
- Week 1 (March 22): $1,144 (AAPL, Z)
- Week 2 (March 28): $6,424 (NFLX, GILD, DDD, TWTR)
- Week 3 (April 4): $3,136 (STX, SPX, GMCRx2, QQQ)
Total = $10,704
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