Technical Trades

Although this blog is mostly about fundamental trading, I believe technical trading is also important with capitalizing on opportunities. The following are times to make a technical trade, just based on stock price movements.

1. When a stock has trended in one direction for awhile, and looks to be set to burst through its 20,50,100, or 200 day moving average on the upside if it’s has been trending hire, or to the downside if it has been trending lower. The volume has to be well above average, as the stock needs to BURST through this moving average for the trade to have a high success rate.

2. Jump on far price movements and overcorrections. When a stock makes an OMG! movement, and goes far beyond what is expected from the news. I’m not talking about a stock going so far as the remark is: “Interesting, it has gone much higher than I expected.” But the reaction should be more like “WTF is going on? This is amazing! The stock just won’t quit! I gotta tell my friends about this.”

When that happens, then the stock price will likely reverse because other traders are likely thinking the same thing you are. However, before making the trade, make sure it’s just the volatility that is putting the stock so far in that direction, and not some inside reason that hasn’t made the news.

Wide stock movements happen because traders and hypsters are jumping on the bandwagon.

Overcorrections happen because the traders and hypsters are weak-handed, and are quick to sell on the trend reversal, which becomes a self-fulfilling prophesy. Then the overcorrection reverses as new investors get a chance to look at the news later and take longer to analyze and digest it, and they like what they see. Don’t jump onto an overcorrection before it reverses. Wait for that “OMG!” moment.

Trades 8/21

I think VHC’s court loss to AAPL should affect the stock more. I wouldn’t be surprised to see it fall to the $20s today or tomorrow. That’s major that the judge would throw out the patent case against AAPL. Of course VHC is appealing, but it doesn’t look promising. The company is still has very high multiples.

Trades 8/8

Citi’s downgrade of BPI could cause a noteworthy drop in the stock. The fear that BPI will lose its accreditation is a big, genuine fear.:

UPDATE: Citigroup Downgrades Bridgepoint Education to Neutral on Lack of Guidance

Citigroup reduced its rating on Bridgepoint Education (NYSE: BPI) from Buy to Neutral, both High Risk, and cut its price target from $31 to $12.

Citigroup commented, “BPI suspended its guidance citing lack of visibility from recent accreditation developments.

 

2. SPPI looks to be a buy. SPPI had EPS of $0.37, beating the est. $0.32 per share. With the company focused on growth, consistent growing earnings, and a large short interest, SPPI is likely to move up from here.

3. ACHN looks to be a short on the news.

Achillion reports Q2 EPS (16c), consensus (17c)
Reports Q2 revenue $0, consensus $60,000 :theflyonthewall

ACHN now has no form of revenue. Despite continuing to achieve milestones for its HCV portfolio, it’s unlikely the company will be acquired. There is already too much progress being made in the HCV space and time has lapsed too far in the fight against Hep C.

4. JRCC looks to be a short on Imperial Capital underperform rating:

James River Coal initiated with an Underperform at Imperial Capital
Imperial Capital believes the enterprise value of James River resides in its debt, not its equity. The firm started shares with an Underperform rating and $1.00 price target. :theflyonthewall.com

This downgrade could start another bear raid on JRCC.

Trades 8/7

1. News on VVUS looks good:

VIVUS likely to receive longer exclusivity on obesity drug, says JMP Securities
After speaking with experts, JMP Securities believes that the FDA’s requirement for a post-approval cardiovascular trial for VIVUS’ anti-obesity drug, Qsymia will prevent a generic version of the drug from entering the U.S. market until mid-2019. The firm expects the stock to perform well in the near-term and it reiterates an Outperform rating. :theflyonthewall

Lazard also gave VVUS a buy rating.

I don’t have much of an edge in this field, so it would be hard to make a trade here. However VVUS has drifted very low lately and this could be the catalyst to give it another run up. From what I understand, it’s obesity drug, Qsymia, will be sold sooner than ARNA’s obesity drug.

2. QTWW

Quantum reports substantial growth for orders in naturl gas vehicle fuel systems
Quantum announced that during the year-to-date period ending July 31, orders for its CNG fuel systems increased nearly four-fold compared to orders received during the same period in 2011. Quantum received orders from leading natural gas vehicle system integrators and system developers for supplying its industry-leading, ultra-lightweight carbon composite compressed natural gas storage tanks for a variety of transportation applications ranging from Class 1 to Class 8 natural gas trucks. :theflyonthewall.com

This news looks like QTWW could be reaching a new stage in its business cycle. Once it starts becoming commonplace for trucks to start using natural gas, this company could really take off. That looks to be the direction it’s going.

I don’t know enough about the company to make a trade, but it’s worth watching.

3. SKUL

Skullcandy misunderstood and undervalued, says DA Davidson
After visiting Skullcandy’s headquarters and meeting with several of its executives, DA Davidson is more confident that the company has a growing, differentiated lifestyle brand, rather than a commodity consumer electronics product. The firm thinks that the launch of gaming products by the company has significant potential that’s not reflected in the stock. DA Davidson maintains a $26 target and Buy rating on the shares.

After beating top and bottom lines, SKUL has gone on a small run. Sidoti had given it a price target of $33. It’s also important to note the very large short interest in SKUL. If a shift happens to the upside, the short interest covering could push this stock very high. It could grow 10%+ this month on a strong uptrend.

At 1pm: Citrons article on NUS doesn’t seem to be getting too much respect. Shorting Aug 40 puts would be a good play here.

Trades 8/6

Premarket trades:

1. QCOR is a buy. From categories #1 and #5. From this news:

Questcor upgraded to Buy from Neutral at SunTrust
SunTrust believes Street estimates underestimate Questcor nephrotic syndrome sales. Price target is $52. :theflyonthewall.comIt falls into category #1 because now every analyst is bullish on QCOR. Before, Suntrust was the only bearish analyst on the company. Its previous statement was:

Questcor fair value around $38-41, says SunTrust
SunTrust sees fair value of Questcor in the $38-$41 range vs. its current price of $57.64. The firm does not see a pathway for an AB-rated generic of Acthar but said Novartis could use the patient safety experience from Europe and have a competing product approved in 2014. The firm expects Questcor to have a dramatic increase in R&D but will need the clinical data to make in-roads in larger markets. Shares are Neutral rated. :theflyonthewall.comThe buy falls into category #5 because Suntrust’s bullishness was unexpected.Prediction: QCOR will rise 5-10% today, and 10-18% by the end of the week.2. KCG is a short. With the creation of $400 million in convertible bonds at a $1.50 conversion price today, anything above $2.50 is a short. This goes under category #5 and #6. #5 because lots of investors didn’t expect such a big dilution. #6 because one can expect more bad news to happen to KCG. It isn’t “back to business as usual” right now, there will be more issues like loss of clients and the CEO possibly losing his job. The stock will drop below $2 per share by the end of the week.Note at 8/6 9:50am: Am short KCG at $2.70 and holding. I should’ve taken into account the pop warned by Zero Hedge due to short covering. KCG is trading for a higher market cap than it did before the glitch. $3 per share makes a market cap of $1.07 billion.

I’m also long QCOR at $36.85 from the premarket and holding.

Different Types Of Tradable News

Tradable news falls into various categories. Before trading on it, it’s important to know which category it falls into, to help the evaluation. One must read deeply into the news. How solid is it? Can it be misinterpreted? Does it contradict itself in any way? How credible is the source? Will it have a lasting impact on trader’s perception? One must look deeply past the surface of the news, and think about all the different angles it can bring.

1. Paradigm Shift news: If there’s a news story in the morning that causes a paradigm shift in the stock that the market hasn’t realized how big the shift is yet. Join the market in this paradigm shift and exit my position once the shift is fully realized. It has to be something that starts a trend that will continue as it affects more traders.

2. Paradigm shift fake outs: If the market thinks a particular piece of news is a paradigm shift, but it isn’t really that significant. When this happens, do the opposite of what the market does. Eventually, the market will reverse once it realizes that it just got tricked. The stock will often over-correct because there will be a big inventory of followers of the news, who later in the day become disgusted and lose hope.

Paradigm shift fake-outs can be very dangerous to get caught in.

As soon as the market is done reversing and overcorrects, then get out and possibly then take the position the news suggests. You can take a position the news suggests once all the traders that got “faked-out” close the position. You can estimate when they’ve left by looking at the volume when the stock had reached its peak on the news. When most of those traders seem to have left the position, and the stock goes too far in the opposite direction, that’s the time to take the position that the news suggests.

Examples:

-Stock articles that just repeat well known information. Or stock articles that are just one person’s opinion, and it isn’t very widely shared, although there might be some original concern regarding the article.

- News that seems significant but it really isn’t.

-Carefully placed news by the company or those defending the company for their own gain.

- News that isn’t true.

3. Pair trade news: If a stock in a specific sector goes up or down significantly, trade a stock in the same sector before the market realizes the full potential. Beware stocks in a hot sector don’t go up with their brothers. It could be that stock is sick for some unknown reason.

4. Selling on expected news: When news is a slam dunk, an event that everyone knows is going to happen, one should sell on the news. The moment the news breaks, the stock should be shorted. Even the moment right before the news breaks a short is a good idea so you can make sure you beat everyone to it.

In this news-driven era of stock trading, retail investors are trading like the pros. They trade on news coming in advance. They can be beaten to the punch by selling on the news.

5. Buying on unexpected news: The opposite of selling on the news. If news is unexpected, the stock will rip very far in that direction. The more unexpected the news is, the easier it is to get in on the rally – but you have to act fast. On the same note, when a stock acts differently than traders expect, then it rips farther than expected in that direction. Traders tend to drop their positions when they get confused, and they throw in the towel to follow the trend.

6. Predicting a kind of news happening before it does: Sometimes you can expect events to happen that the market hasn’t priced in yet. For example, if a company has been negligent, you can predict lawsuits or an SEC investigation that would hurt the share price. Sometimes when one piece of bad news happens for a company, that opens the floodgate for more bad news. Sometimes firms will try and create news in order to help their cause. For example, if a company is in really bad shape, it will someone create a circumstance where favorable news comes out. One can take a position ahead of that news. But then once the news has been priced in throughout the day, the position should be closed, and then an opposite position should often be taken.

7. Betting on stock news getting closer to the mainstream. The first level is insiders. The next level is insiders telling their inside circle. Then, telling the big traders who first hear public info about all kinds of stocks. Then it goes on the newsstreamers. Then it goes on the financial websites. Finally, it goes on TV such as CNBC and then the non-financial websites and everyone and their grandmother is talking about it. When the final news source gets reached, that’s the time to sell.

The price action of the stock has a lot to do with the news traveling. If the price action doesn’t move much, or reverses, then it won’t advance to the different news sources. If the price reverses large enough once it reaches the later news outlets, then it will reverse more, or it won’t reach the next level of news.

It feels good to make money on news, however, don’t “drink the coolaid”. Once I’ve made my money and the stock made a big move, don’t get too cocky and always keep going. It’s important to be able to be flexible and shift when the market shifts directions.

Remember, trading is always solving a puzzle. If it is too simple or obvious, then it isn’t a good trade because it’s what everyone else is doing. When you get news, it is generally old to a certain extent. Many traders have already traded on it and may look to book a profit on their decision right away. That’s why you have to look one step beyond the what the initial traders see.

Usually trades are profitable if it isn’t very obvious on the surface. That’s what being a contrarian is. Making a decision and expecting that eventually others will see it your way. But most news is simple and therefore not tradable. It’s the tricky news that takes a little while to figure out is when trades are possible. It has to be two levels deep. Just about every failed trade I made, were only 1 level (in the market’s point of view) deep, and they were done impulsively, without much thought.

It’s also important to look at the charts before making the trade, that reduces impulsiveness. Look at the day’s chart, to see the action earlier and if the news that you’re getting has already been acted on quite a bit. Also it’s good to look at the week, 3 month, and 6 month charts.

Trading the News

Hello! I’m a news trader looking to start a new blog on the subject.

With everyone using the internet and the market constantly moving on news, trading the news is a skill worth having. Never before in history have investors been so sensitive to news. News on stocks really affects investor emotions, which in turn whips stocks around like a bucking bronco. That’s why it can be very profitable to learn to trade the news correctly using fundamental and technical analysis.