Thursday, July 24, 2014

Confidence and mastery come from hard work and experience

Today's motivational trading quote comes from Dr. Brett Steenbarger (Hat tip: Kirk Report). 

Confidence mastery work experience failure motivation Brett Steenbarger
Image (borrowed + repurposed) via Bruceelkin.com.


True confidence comes from within. It cannot be bought, it must be earned. As Dr. Brett points out, confidence and mastery are the byproducts of effort, failure, and learning along the way. 

Self-knowledge may be another aspect of confidence. Is it tied together?

Have you achieved mastery in your field or in an area of life you are passionate about? What did you have to go through along the way? Are you still working towards your goals or expanding your "limits"? 

Monday, June 16, 2014

Tesla gets its groove back: Electric car market broadens

Tesla (TSLA) closed up 9 percent today on strong volume, with over 12 million shares transacted (almost twice its recent daily average volume). 

The move above $220 and the 50 day moving average signals a bullish emergence from TSLA's recent base pattern. Are we seeing the start of a new uptrend in Tesla's stock price?

Here's an updated TSLA chart with today's closing price at $224.61. The stock closed near the high of its daily range, another indication of strength.



Elon Musk recently announced that Tesla would "open source" its patent portfolio, which should help fuel innovation in the EV market and encourage further build out of the needed electric charging infrastructure. Traders seem to have digested the patents strategy and decided in its favor. 

More on Tesla's patent strategy and Musk's vision for electric cars from Wired:


" ...Asked what Tesla shareholders thought of the company’s move, Musk downplayed the importance of owning patents, saying it was more important for a company to be constantly creating new technologies than to doggedly pursue lawsuits against other companies doing similar things.
“You see a lot of these battles going on with giant companies firing massive patent lawsuits against one another, the obvious example being Apple and Samsung,” he said. “You wonder who’s really benefiting there. And it seems like neither one. It doesn’t seem like it’s actually serving shareholders.”

Musk points out that electric cars still account for less than one percent of all auto sales. At this point, it’s far more important for Tesla to help drive adoption of electric cars, regardless of what company makes them. Most consumers must be convinced that the idea makes sense. They need to know that the infrastructure, including charging stations, is in place.

The hope is that, by opening up its patents, Tesla will help make this happen, since many companies will be able to focus on making better cars instead of making sure that all their patents are in the clear. It could also help with the development of charging stations that work with many different brands of electric car, since companies will be able to use the same technologies for charging without having to pay patent licensing fees.

Musk also thinks the move will help attract more top notch engineers to Tesla–and help retain the ones it already has. “Putting in long hours for a corporation is hard,” he says. “But putting in long hours for a cause is easy. I think it’s quite motivating for people."

You can read some of our prior posts on Tesla and Elon Musk in the links below.

Related posts:

1. Tesla vs. GM stock performance (it's not even close).

2. Tesla hits new all-time high: do androids dream of electric cars?

Disclosure: I have no position in TSLA stock. I may choose to initiate a long or short position at any time in the future. Posts are educational material. No buy or sell recommendations or personalized investment advice are offered to readers.
Posts are strictly educational material. No buy or sell recommendations on securities or personalized investment advice are offered to readers of this blog.   - See more at: http://financetrends.blogspot.com/#sthash.5iFdyXLO.dpuf
Posts are strictly educational material. No buy or sell recommendations on securities or personalized investment advice are offered to readers of this blog.   - See more at: http://financetrends.blogspot.com/#sthash.5iFdyXLO.dpuf
Posts are strictly educational material. No buy or sell recommendations on securities or personalized investment advice are offered to readers of this blog.   - See more at: http://financetrends.blogspot.com/#sthash.5iFdyXLO.dpuf

Tuesday, June 03, 2014

Jazz Pharmaceuticals: Market leader chart review

When reviewing charts and stocks in my watchlists, I sometimes look at long-term charts of leading stocks. 

I like to step back to the weekly charts and try to understand how the bigger price moves unfold. To try and answer the question, "what signals the emergence of a potential super-performance stock?". 

Which brings me to today's prime example of a market leader and super-performance stock in this ongoing bull market. Below is the chart of JAZZ, aka Jazz Pharmaceuticals, from 2008 to 2014. 



Note the performance figures from the chart: JAZZ is now up 4,100% from its mid-2009 surge to the $3.50 level. If you had bought JAZZ at $0.80 as the market was bottoming in March 2009 and held to the present, you'd be sitting on a gain of 18,000%. 

The biotech ETF, IBB has had a sixfold advance over the same time frame. So in this particular instance, you were well compensated for assuming single stock risk in a rather volatile sector. 



Enough of the backward-looking hypotheticals. Let's quickly examine some of JAZZ's key chart points and market leading traits.  

1. The S+P 500 and IBB both bottomed in March '09. JAZZ actually went on to make a lower low in April - May '09, then inched higher before surging in June '09 on massive volume. 

2. JAZZ surged higher ahead of presentations and phase 3 data on its new drug (new product catalyst). The stock continued to rise as revenues and earnings estimates grew and as the company consistently beat earnings estimates. 

3. After consolidating the initial price surge, JAZZ continued higher in the summer of 2009. Despite some 40% - 50% pullbacks and shakeouts the following year, JAZZ went on to make new highs in late 2010. As you'll see in the chart above, the entire uptrend was supported by the long-term 80 weekly moving average. 

Some traders may prefer to trade smaller parts of these larger trends, weaving in and out to capture respectable profits along the way. Some may prefer to identify, buy, and hold key leading stocks (such as JAZZ) for longer durations. Either approach is fine, as long as you can define and follow your method

Disclosure: I have no current positions in any of the securities mentioned here.

Related posts:

1. Leading stocks: Tesla (TSLA) vs. GM chart review.

2. Mark Minervini: define and refine your approach.

Sunday, May 04, 2014

Nicolas Darvas on stops: "no loss-free Nirvana"

I was just rereading Nicolas Darvas' How I Made $2,000,000 in the Stock Market and came across this interesting summary of his trading method and risk management approach in the author's intro. I'd like to share it with you.

Quoth Darvas: 

"I built a fortune with serenity by avoiding premature selling yet making an exodus from most of my stocks with the use of a single tool: the trailing stop-loss. 

I have discovered no loss-free Nirvana. But I have been able to limit my losses to less than 10 percent wherever possible. My stop loss method had two effects. It got me out of the wrong stock and into the right one."

Full passage in the image below:

Nicolas Darvas stops trading losses stocks


Sounds a bit like William O'Neil's philosophy on taking losses, doesn't it? Well, as O'Neil points out, his trading style and risk management philosophy was influenced by (among others) Nicolas Darvas and famed speculator and author, Gerald Loeb. Loeb advised speculators to cut all losses at 10% and he aimed to exit his own losing positions before they reached that mark. 

You will have losses at some point in your trading career. That is certain. This holds true for those saving and investing their own money in stocks and mutual funds/ETFs. Losses are an inevitable part of speculation. How you handle those losses (do you cut them quickly or let them run?) will make all the difference in your results.

We'll have more on controlling trading losses in a future post. In the meantime, check out Darvas' and O'Neil's books on trading. They will give you some serious food for thought on stock selection and risk management. If you take the time to read and apply their lessons, you may see some improvement in your trading (or "investing") results.

Thursday, May 01, 2014

Sell in May and go away?

Sell in May and go away? Let's take a quick look at the figures behind this well-known market adage. Charting the market's seasonal returns below.

Here's a look at the S&P 500 and its seasonal returns, November - April vs. May - October,  from 1950 to 2014. This chart comes to us via Chartoftheday.com

Stocks Sell in May


As you can see, the bulk of the market's gains since 1950 came during the "good period" of November through April. The seasonal period covered in the "sell in May" mantra is not nearly as strong. Returns in this summer period have been subpar, as Chart of the Day points out. 

Here's a look at the seasonal period in the SPY (S&P 500 ETF) from the financial crisis of 2008 to today. 



Since 2008, we find an even mix of upward moves and market corrections in this May - October period. The initial "sell in May" period shown here coincides with the selling panic of 2008. The bull market of 2009 - 2014 has been far more supportive of the seasonal pattern. However, the nasty correction of 2011 began with 8 consecutive down weeks in May - June. 

We don't know what the 2014 May - October period holds, but we're not off to a very strong start given the recent divergence between the major indices and the weakness in growth and momentum stocks. Some traders have noted that recent upward moves in the Dow and S&P, weighted towards large cap names, are masking a breakdown in the broader market. 

In Joe Fahmy's latest video update, he says the market needs time to digest its recent moves. Fahmy feels the market is healthy and supportive of long trades 2-3 times a year. When it's not as supportive, you lighten up your positions or go to cash and take a break.  You'll note that this is his last scheduled video until the fall, so at least one trader I follow is taking some time out for travel during this "sell in May" period. 

Wednesday, April 16, 2014

Round trip stocks: momentum booms and busts

"No tree grows to Heaven." - Old proverb adopted by Wall Street.

What happens to hot momentum stocks when their rocket fuel runs out? How long can they continue to fly before they come crashing back down to earth? Why is the stock that you paid $100 a share for now trading at $39?

These are questions that many novice traders and investors may be struggling with in the wake of the most recent market correction. Momentum stocks have been hit hard as the Nasdaq 100 and Russell 2000 indices have moved lower in recent weeks. Caught unaware by the recent slide, some traders may be wondering when their beaten-down stocks will snap back and allow them to exit with smaller losses (or even reach the mythical "break even" point). 

While growth stocks still firmly within their uptrends may form constructive technical bases and move higher after this correction, others may experience sharper pullbacks or break down into full "stage 4" declines (see chart below). Story stocks built on lighter foundations can have very quick momentum-fueled boom and bust cycles. 

Stan Weinstein stage analysis chart.

So what can you expect to see during a high-flying momentum stock's boom and bust cycle? We'll start with a prime example from the dot com bubble days: InfoSpace. 

InfoSpace bubble stock chart dot com
InfoSpace boom and bust via Seattle Times.

Here is a chart of former high-flyer, InfoSpace during its runaway advance in 1999-2000. You'll note that what went high soon topped and came down hard as the bubble burst in 2000-2001. 

Anyone remember the stock's meteoric rise from under $100 to $1,300 a share? Well, the subsequent bust took the stock back down below its adjusted $25 base price. There were some bear rallies during the downtrend, but each snap back rally made successively lower highs. For hapless "buy and hope" speculators, there was no break-even point. 

This is why, as a trader or self-directed investor, you need to manage your risk. When an uptrend eventually fizzles and tops out, the downtrend always follows. We don't know how far the decline will go, but it's best not to stick around and find out. No tree grows to the sky and no stock goes up forever, especially those story stocks for which real earnings growth and sound fundamentals are lacking. So take profits or cut your losses before they become unmanageable.

Here are a few more recent charts of momentum stocks in the tech and cannabis industries. I've annotated these to highlight the magnificent rises and quick declines you can expect to find with "round-trip" momo stocks. 

1). CANV - Cannabis stock which participated in the "green rush" of early 2014. The hot trend surrounding marijuana legalization has fueled big moves in some OTC weed stocks. CANV rose from $30 to $180 in just 2 months. Just as quickly as it rose, it has fallen back below the $30 level in recent days.




2). UNXL -  From $6.50 to $40 in 6 months. A year-long decline has taken the stock back down to $7. It will likely decline back to, and below, its prior $5 - $6 base.




3). BVSN -  Rising out of its base, BVSN had a 500% rise fueled by a "pump and dump" stock promo scheme. The price bars became increasingly large and volatile as the stock topped out and subsequently declined below the $30 level. A new base has formed, completing the cycle.


Note: Thanks to Olivier Tischendorf for recently discussing round-trip momentum stocks and sharing charts with me. His insights helped influence this post. Check out his website and Twitter for more on trading high potential stocks.

Monday, April 07, 2014

Jesse Livermore on being wrong: "Cut your losses quickly"

Legendary trader, Jesse Livermore on being wrong in the markets and how to get yourself right. "Cut your losses quickly, without hesitation." 

Jesse Livermore quote cut losses


A timeless lesson for tough markets and the inevitable losses that will come your way (in good markets and bad) in the course of speculation. Manage your risk, don't let your ego's need to be proven "right" take over your trading.

Related posts:

1. Jesse Livermore on trading (quotes).

2. Marty Schwartz ("Pit Bull", trader) speaks at Amherst College.