I find myself in an unusual position. For the first time that I know of, I see things from the exact opposite perspective as the Option Addict.. And with conviction. I purchased some LNKD today near the end of the day on a day where option addict was selling his calls. Going forward is my TOP idea right now.
I say this with a tremendous amount of respect. I really do look up to “OA” and 80% of what I do is because of him. Much of what I do differently than him is still because of “OA”. What I mean by that the approach of slicing up the market in multiple layers and identifying a good risk/reward among other things I got from him. So even if I am using different criteria and specific techniques to analyze are different, a lot of my ability to sort through it all and come up with a highly actionable setup can only be because I learned the majority of the process from him.
Betting against “a great” is not something that I like to do, and betting against the Fly or a tabbed blogger typically will get you nowhere fast. Yet I truly believe I am in a position where I have an edge on this trade. Even if I am wrong, I have learned that sometimes the only way you can learn to develop a strong intuition is going with your gut when your eyes confirm what you feel. I’ve watched great trades pass me by as a result of not trusting my gut but both my gut and eyes have been fine-tuned to being very productive. In this case, BOTH are signalling to me that going forward there is or will be tremendous opportunity in LNKD for at least a setup with profitable expectation.
Here is what I am looking at.
Item 1)The longer term rotation by the big money creates long term trends. Here I am comparing LNKD with another social media giant FB and using the GOOG/BIDU relationship to show how it works. daily and weekly chart. Although there is often an overlap and pretty significant correlation being in the same space, in terms of trends you can tell what’s in favor and how it rotates. You can often anticipate who is the next to lead and which is next to lag.Jeff of course has talked about the risk cycle in a slightly more advanced way for more of a swing trader’s perspective, but I believe in many cases when the stocks are similar enough in size and type of company you can look at a longer term cycle of multiweek/multimonth moves. Eventually based upon this analysis, I believe a multimonth move is coming in LNKD eventually.
The first one to bottom or breakout typically leads with stronger trends upwards. The first one to peak typically begins to consolidate first and the other follows.
To emphasize what I see.
GOOG starts with a stronger trend while bidu consolidates. Bidu then forms a relative low while GOOG is having troubles showing strength and as bidu rips higher IT then begins to catch up aggressively and thus becomes a leader for the time being. THEN the rate of ascent slows as GOOG continues consolidating. Now GOOG makes an initiative move and the rate of ascent favors GOOGLE as a leader confirmed as BIDU is the first to top out which at some point may be good for BIDU as at some point it will consolidate again while GOOG then is late to decline and BIDU will at some point in the future likely take off another leg higher while GOOG continues to consolidate again and the cycle continues.
Now FB/LNKD. LNKD was strong while FB lagged. There are some subtle differences in the relationship as to the nature of how they lead and lag. As FB peaked in feb 2013 suggesting LNKD may follow and eventually it did, but LNKD remained very strong and actually even began the leg up first before FB, actually continuing a second leg of leadership. FB followed late, midway through LNKD’s advance and then continued as LNKD sputtered, then continued again but this time the rate of decline slowed as basically FB consolidated and made it’s next leg up as LNKD continued to tighten much like GOOG did to BIDU as BIDU still advanced, but as soon as GOOG broke out, it’s rate of ascent was much higher.
LNKD initially peaked first, suggesting it would consolidate but on FB’s next major high LNKD actually took out that high on October 21st while FB failed to do so suggesting that a subtle rotation may be beginning. Even though FB defiantly continued another leg higher this time while LNKD continued it’s long consolidation, LNKD continued to set up with a tighter consolidation readying for a multiweek or multimonth advance to take the baton from FB. While FB is still technically leading, it is on it’s 2nd leg higher. The last time LNKD did that it spent a lot of time consolidating.
So right now I see LNKD as having been largely ignored by the big money which create the trends and in my mind, that creates opportunity of greater value for lnkd than it does for FB at SOME point. Based upon technical analysis I think that will cause LNKD to lead SOON, the question is only WHEN.
Now let’s isolate LNKD as a stock and do some more specific technical work with today’s closing chart.
Item 2)Chart 1:
LNKD has about 80% of it’s outstanding shares floating. That means it is heavily traded but not necessarily owned heavily by management types. That means I am more likely to interpret the volume as simply temporary action as opposed to permanent “value” investor positions. Therefore, I think those who bought 150-180 probably took some profits above $220. The aggressive buying everytime you think the stock is breaking down to a lower low tells me they want their shares back badly at lower prices. The smart money to me has been slapping the dumb money around who comes in late and chases the rips higher and panics late lower. Even if that interpretation is incorrect, I think the 150-180 volume will be able to “shoulder” the selling, and possibly even create that one rip higher where the dumb money learns there lesson so they stop chasing higher the next time or two around and suddenly they find themselves missing out and the stock at new highs. At SOME point I think that will happen. Regardless, EVERYTIME you had a new low, you saw an eventual rejection of that low and a very sharp up move from that new low that carried on into the following week.
Item 3)”Bullish Divergence” The RSI and Slow Stochastic have a large degree of overlap which means they essentially are measuring many of the same things (momentum). So I won’t call it a “quadruple divergence. However, on MULTIPLE timeframes (using OA’s triple oversold indicator) the RSI on the daily chart is showing a clear picture of HIGHER relative strength lows even as the stock goes lower. That signals strengthening momentum even as stock is available at lower prices which tends to be bullish.
I believe we are near levels of support however you look at it. If we get a fast down, I think there will be a quick flush , capitulation and a chase higher and the support as we near 180 will be very aggressively ready to buy. Even if we do not, we may still be at the levels where the consolidation pattern is in a state of support and we could still rip higher once more. If we do not flush lower and reverse we still could see that eventually happen and I may be early, but I like my odds here on multiple timeframes for multiple reasons.
HIGH conviction name. I am not saying it might not flush first and reject. Short it if you wish, but to me looking forward there is tremendous potential. I may be far too early in the trade, but nevertheless I like it here even though many will see it as “crazy”.
Finally: For future consideration and what will eventually be described in more details in my 2014 outlook I would like you all to consider that there are generational trends driven by the relationship between bond prices, interest rates and pension funds having to reach certain thresholds of earnings to stay solvent. That these trends are only just starting to potentially become relevant with regard to stock prices. As a consequence these trends along with how the smart money anticipates and capital reacts, create a “liquidity cycle” that potentially change whether or not we are in a stock market or market of stocks and which in turn drives the “risk cycle”.
Disclaimer: I grabbed some LNKD near the end of the day today (2/12)If you enjoy the content at iBankCoin, please follow us on Twitter