Thursday, July 31, 2014

Active-Trader - Fib in NFLX

Welcome back Traders.

At the request of my friends in the Financial Trader chat room, here are Fib levels for NFLX.

The 238% fire line at $432.47 has acted as resistance recently.  The next snow lines for support are at $411.14 and $398.53.  Next major support to the downside after that is the tree line at $376.46.

In fast moving markets sometimes these lines only provide a short term pause, so tread carefully.

Sunday, July 27, 2014

Active-Trader - Sailing the High Seas

Welcome back, Active Traders.

I just got back from 7 days on Royal Caribbeans Freedom of the Seas sailing the ports of the Western Caribbean.  This blog is all about Money and Markets, so why am I talking about Cruise ships?  Because if your play your cards correctly, its an amazing deal. Allow me to explain.

Faced with the idea of how to take a family of four on an amazing vacation, what are your options?  Here are a few as I see it:

- Rent a beach house for $1500-$2500. That gets you lodging and some entertainment from the beach, but entertainment and food is all extra.

- Book a week at an all-inclusive resort in Mexico or the Caribbean. That will set you back about $800-$1000 per person including food (and maybe drinks) but before airfare. Some entertainment is included but it can get old quick.

- Rent a motor home and take a drive or go camping if you are the type to 'rough it' in the woods. This would not work for my family where the girls need clean rooms and their daily shower and enjoy getting cleaned up in the evening.

 So what's the alternative? Pay about $1000 per person and and get yourself on a Cruise ship and get all this: 

- 7 days of nearly unlimited food and non-alcoholic drinks

- World class evening entertainment including Broadway style shows, comedians, acrobats, musicians, you get the picture.

- You get to visit one or more tropical port destinations. No two days are the same and the scenery is always changing.

- Seven days at sea which is a life-changing experience in itself. Go to bed to the gentle rocking of the ship and wake up in a new place in the morning. How cool is that?

So where's the trading angle and why bring it up on this blog?

The simple fact is that the cruise line doesn't make a thin dime on all the basics, food, lodging, entertainment, etc. Their entire profit comes from everything they try to sell you once you get on the ship. And there is not shortage of profit centers once you get on board. So here's my advice for you first time or repeat cruisers:

- Alcohol is one area where they have you in a bind. You can't bring any alcohol on the ship from the ports. Drinks run about $6 for a domestic 16 oz beer or about $8 for frozen drinks. I enjoy a few beers as much as the next guy, so all you can do is keep your consumption down or spring for the $45/day unlimited beer/wine package.

- Gambling is a big profit center. Anyone who has studied the odds knows that gambling can be expensive entertainment. My advice is to avoid the casino. Ditto for bingo which is simply gambling for the less educated. Both of these areas are taxes on people who are bad at math.

- Speciality Restaurants - this might be worth it if you a looking for an extra-special dining experience for an extra $20-$25 per person. For me the regular food was more than adequate.

- Shore Excursions - this is an area where it depends. If you are just looking for a beautiful beach, you can walk or take a cab from many ports. Much of the time the excursions being offered from the ship are overpriced and not worth the cost. We did one excursion (at $87 each) which included 6 hours of beach, water sports, Wi-Fi and unlimited beer, wine and frozen drinks. You can bet I took advantage of the open bar.

- Wi-Fi and communications may be an issue. Once you get out to sea, cell services is charged at international roaming rates. The ship will charge as much as $20/hour or $187 for unlimited Wi-Fi for a week its best to plan to be incommunicado. Advice is to put those phones into airplane mode and keep them there. You may be able to find free or low priced ($10/day) Wi-Fi in the ports.

What are the downsides of cruising?  You know I always tell it like it is, so here goes.

- Crowding can be an issue. There were times when the buffet area was so crowded, it was a challenge to find a table. I don't like crowds, but I just had to tolerate this.

- The same areas that were wall-to-wall people during peak times were beautiful and quiet after hours and waking up for your morning coffee and looking out at the ocean is amazing and well worth it

- Getting on and off the ship can be a hassle with long lines and some patience is required.

- You do have to get a bit dressed up, so bring some khakis, at least one button-down shirt and maybe a blazer.

- Finally health issues can be a concern. The cruise line does a great job here by encouraging frequent hand washing and providing alcohol hand sanitizers outside every dining area.

All told, I paid about $1000 a person each for my family of 4 (not counting airfare) and got away with only about $500 in extra charges. But I came away with some amazing memories, pictures and one very happy family.

So get out there and enjoy the high seas traders. Play your cards right and you will come out way ahead on this trade.

Saturday, July 19, 2014

Active-Trader - Short the VIX

Welcome back Active Traders and Wealth Builders.

One of the great things about investing in the stock market is that it has a positive historical bias.  That means that you can simply buy a broad stock market index and if you hold onto it long enough you are bound to make money.  Throw in dividends and the picture gets even better. It makes me wonder why anyone would bother with any other asset class given how liquid stocks are.

What if we found something to trade that did the exact opposite over time, that is go down or lose value?  Would we be able to take advantage of that persistent trend?  Of course we would.

And such a symbol does exist in the form of VXX - The SP500 VIX Short Term Futures ETF.  There are a number of VIX ETF products, and virtually all of them go down over the long term, but VXX takes the cake as follows.

VXX debuted back in January 30, 2009 at a split adjusted price of $6,918 per share.  Since then the VXX has fallen to a closing value on Friday of $27.89.   On an annualized basis, that is a loss of -66% per year! Over time the long term performance of the stock market is approximately +7% per year.  That means that a short position in VXX would out-perform stocks on a 10 to 1 ratio!   In fact, they need to reverse split the VXX (where you have fewer shares but at a higher price) just to keep the price above zero.

My first idea is to simply short VXX.  Unfortunately, that's not allowed since VXX is not on the "Easy to Borrow" list.  The ability to short VXX is reserved for the issuer, someone much higher up the financial food chain then myself.  The good news is that you can trade options on VXX and the other VXX products.  As for bearish trades, you can either buy puts or sell calls.   Selling calls is preferable since with those positions, we can be on the winning side of theta decay.

VXX seems to do basically the opposite of stock prices.  When stocks rally VXX drops.  When stocks sell off, VXX rallies hard and fast.  This past week was a good case in point and the low of the week in VXX was 27.02.  On Thursday when the market was ugly and the Dow 30 was down about 150 points, VXX rallied hard up to about 30.  I saw this as an opportunity and sold the weekly 30/31 Call Credit Spread on Thursday afternoon for a credit of 0.25. Typically when I sell spreads, I want to take a credit of at least 30% of the width of the spread and this one was only 25%.  But with VXX at a short term high and one day until expiration, I took the trade.

After hours, GOOGL reported good profits and the stock market sell-off came to an end.  The next morning VXX opened at about 28.8 and never looked back.  So I took a max profit on that trade without even requiring a closing transaction.

So keep an eye out for trades as follows.  When things get ugly in the stock market, wait until it gets to a point of maximum pain, when you feel you just have start unloading stocks to ease the pain of loss.  Then sell some VXX calls and wait for the VXX to come back to earth.

The other thing you can do is simply buy VXX if you expect things to get ugly. But don't overstay since the odds are against you holding VXX on the long side.

Have a great week ahead.

Sunday, July 13, 2014

Active-Trader - Trading around FB

Welcome back Active Traders.

As you know one of my favorite stocks in this environment has been Facebook. I am a regular user of the site and a big fan of the stock.

One of the great things about Facebook as both a company and a stock is they are constantly being under estimated.. Recall that after a widely publicized and somewhat disastrous Initial Public Offering back in July of 2012, the stock traded sideways to down and reached a low of about $18. I remember that well because I sold down there once the stock broke $20 and it looked to be on its way to the single digits.

But then something transformative happened on July 24, 2013.  The company reported better than expected earnings that proved the company could provide strong growth on all levels, from monthly users to revenue to profits.  The stock reacted immediately gapping from the $26 level up to about 32 on that news alone.  Since then the company has delivered strong user, revenue and profit growth in every quarter since then.  They even proved they can monetize the important and growing mobile device user segment.

And then news came out that teens who had previously reported that they were no longer using Facebook
because it wasn't cool,  were actually still using the service, just not willing to admit it.  Most teens instead like Instagram, the photo sharing site also owned by Facebook.  Instagram does not yet produce ad revenue, but I expect FB will start to monetize that platform when the timing is right.

As to how I have been trading FB, I was long from a position in early May which I unloaded up the high 67 area.  They I reloaded on a bounce of the voodoo support area at 62.31 and exited for a quick profit just short of the 65 area.   The next day, we got a gap down to the 63.5 area where I once again went long and took profits when it filled the gap later than day at the $65 area.  Since then the stock has moved higher without me and I will be looking to be long the stock into earnings which are expected on Wednesday July 23 after the close.

Have a great trading week ahead.

Friday, July 4, 2014

Active-Trader - Triple Breakout

Welcome back Active Traders and Wealth Builders.

Dr Ivor Royston, cancer researcher and co-founder of Biogen Idec was once quoted as saying:

"There are three types of people in the world: Those who make things happen, those who watch things happen, and those who ask: What happened?"

When it comes to the stock market, I am clearly in the 2nd camp.  I don't have enough capital to move the markets, but I am certainly a keen observer.  So the question is, if a major breakout occurred in the stocks you are following, would you be able to spot it?

I ask because we had major breakouts in all 3 of the US stock market ETF's in the past week.  I think
everyone expected a rally on Monday for end of 2nd quarter window dressing.  Some even could have expected some buying on Tuesday as new money came into the market for 401K and pension funds who have into invest their new monthly fund in-flows.

But I don't think anyone expected the follow through in the major indexes we saw later in the week as the SP-500 and Dow Jones Industrials made new all-time highs. The Nasdaq 100 is approaching its all-time high at 120 set back in the Dot Com boom back in the year 2000 and seems determined to take on that value and join its peer indices in new all-time high territory.  Therefore, if I had to bet on either of these 3 ETF's now, I would say that QQQ has the best upside potential.

All this bullishness of course led to new all-time highs in my net worth, but is that an accomplishment to celebrate?  Don't confuse brains with a bull market I like to say.

Getting back to the point of this blog post, what does this mean for our trading?  Simple as follows:

1) Run the New High, Low PE, High Growth scan as described in my prior post.

2) Run the above scan between 3:30 and 4PM EST on market days.

Its best to run at this time of the day since most of the daily bar has already been formed, but the trading day is not yet closed.  It kind of like waiting for the horses to clear the Clubhouse turn before placing your bets. If you had the change to do that you would right?  Of course and you would since its like placing your best just before the race ends.

3) Buy breakouts to new all-time highs after period of consolidation.

This item gets to the guts of this post.  Look at the charts above.  Notice how there is a single daily bar when the stock or index breaks above recent resistance to a new all-time high.  This is the point at which you want to enter.  Those bars are show above in gold.  Take the time out of your day between 3:30 and 4:00 PM and enter on breakouts.  If you follow this simple method (along with items #1 and #2 above) you will be financially rewarded and then be able to take care of your family, grow your wealth and enjoy the fruits of your labors.

Happy 4th of July to all and God Bless America.

And have a great week ahead.