Tuesday, November 25, 2014

Active-Trader - PANW Fiblines revisited

Welcome back Active Traders and Wealth Builders.

Recall in my prior post here, I ended up on the wrong end of an Iron Condor trade after PANW reported earnings back in early September

At that point, I put the top of wave 1 (the 100% line) at just under $80 and the $161.5% line at about $102 and change.  Since then, look how beautifully PANW has held up against these levels:

1) Bounced back to the lower treeline at $87.65, almost to the tick.

2) Rallied up from that point and found resistance just above the lower snow line, then got caught in a congestion zone between the 161.5% fire line and the above snow line.

3) Next it rallied up to the upper snow line and got caught in another congestion zone between 2 upper snow lines

4) Finally yesterday (the day before earnings) it broke the upper snow line and tipped through the next upper tree line.

As to how I played it, I have been long the stock since the low $100's.  Going into earnings, I sold the 105/107 119/121 condor for a credit of 0.75.  At this point, my short strike at 119 is underwater, but I'm going to give it until Friday and look for a close below $119 to bring in max profit on the trade.

Now you may look at the above chart and make the point that any arbitrary lines drawn on chart might also show the same relationships.  You may be right about that, however keep in mind these levels were know in advance.  Similarly, the chart shows we have important resistance overhead at $125.6 and $140.11, levels at which the stock has not yet traded.  So (unlike at lot of technical analysis) voodoo is a forward-looking indicator.

Nobody can predict the future, but Voodoo comes about as close as anything I can find.

Happy Thanksgiving to all of my loyal blog readers.  Enjoy the fruits of your labors, you deserve it!

Wednesday, November 12, 2014

Active-Trader - BABA Fib lines

Welcome back traders.

Here is my first crack at Fib levels for BABA.

It's a bit early in the life cycle of this stock to declare fib levels, after all its been less that 2 months.  But when a stock is as fresh out of the gate and into new all-time high territory, its about all we have to go on.

If we clear this recent high, next resistance is at the 261% red line at 125.63.

Saturday, November 8, 2014

Active-Trader - BABA Breakout

Welcome back Active Traders.

Its been an incredible few weeks in the financial markets with new all-time highs in the Dow-30 and SP-500 on an almost daily basis.  It was a great week for earnings as well and none tells the story as well as Alibaba, symbol BABA.

Recall that BABA recently went public in the largest ever tech IPO and covered in my prior post Swallowing BABA  The company reported earnings for the first time this past Wednesday 11/5 after the close.  I approached the trade in my usual fashion, selling an Iron Condor outside the expected move.  Specifically, I sold the 92/94 108/110 condor for a credit of 0.8.

To collect the entire 0.8, all the stock had to do was remain within the short strikes which are the red lines shown on the chart.  The earnings day is shown as the orange candle on the left side of the chart.

Things went well at the outset and the stock moved mildly higher on the day after the report.  But it continued relentlessly higher and was soon beyond my short strike at 108.  I was not too concerned as sometimes the stock can challenge the short strike and even go beyond the long strike, just to give it all back and close within the expected move.

But BABA was different and started to push beyond my long strike at 110.  I was tempted to close out the short 108 call and stay long the 110 call, but experience has shown this is a sure way to lose more than the max loss on the trade which is the difference between the credit received (0.8) and the spread (2.0) or 1.2.  So I closed the 108/110 leg out for a debit of 1.55 which was a loss of 0.75 on the trade.  But I turned around and went long the stock at about 110.40.

From there it was onward and upward and the stock really took off to the upside.  I looked at this chart in the context of many other big winners in the Internet space such as GOOG, LNKD, PCLN and NFLX,  It occurred to me that nearly all of the other stocks had broken charts - in other words they were well off their highs and in the state of repair.  BABA on the other hand was fresh out of the gate, reaching new all-time highs and potentially much earlier in its life cycle and setting up to be the next great Internet stock.

So I did the only logical thing and bought more and went out long on Friday as the stock crossed 114.30.  The shares continued to rally and closed at a new all-time high at even higher in the after hours session.  I am expecting a gap up on Monday before the stock takes a rest in the $120 area.

Have a great week ahead.