Next Phase of Risk: Dash for Trash

If you haven’t noticed yet, the current risk theme in equities is locating the stocks that are heavily shorted and buying them in hopes of squeezing the shorts. In each market cycle, there are changes in risk appetite, and recognizing this and knowing the template is the key to successful stock picking; anticipating what the next stock is to be in demand and why.

Fly is all over the short covering theme. Listen up. It could last for weeks. However, when the shorts have all been murdered and are laying dead in the streets, the last and final phase of risk is what is otherwise known as a “dash for trash.” Start planning ahead.

Take FNMA for example. FNMA is up nearly 60% in the last 3 trading days. Why? No idea. In fact, I don’t care. What I do know is that soon there will be epic demand for stocks like this. I’ve been building positions in several stocks like this, because soon, these types of stocks will be flying off the shelves. Take NBG as another example. I’ve built a sizeable position in this at $0.78. I am celebrating better than 100% in that stock in less than a month.

It will be this final stage of risk appetite that will be the last phase of risk before the market starts to put in its top.

I will be sharing a screen for these types of stocks later today, granted my free trial of PPT is approved.

OA

One of the things I fancy most about initiating BIDU longs at these prices is the longer term technical pattern on the chart. It seems every year there is a predominant trading pattern that most stock form based on the trend and conditions of the overall market. Over the last year, the falling wedge has been that pattern.

On the monthly chart above, prices have formed this technical pattern over the last 2 years. If you were to dial this pattern down to a daily chart, the multi-month base is starting to show momentum to the upside, which should signal an upcoming breakout.

As discussed in my trading room Monday afternoon, I mentioned that BIDU would be lower today, and to buy weakness near $90. I opted for 3 week expirys, OTM, looking for prices to hit $105 within that timeframe.

More importantly, the next time BIDU clears $100, the stock will resume its long term uptrend.

I loaded up on 3 week dated BIDU calls a few minutes ago.

More on this later…

Here are a few thoughts I have heading into tomorrow, based on my post-game prep work for Tuesday.

Summer driving season is here, and while I am not red-hot on the fundamentals, the refiners are in good locations from a technical perspective.  I loved these as shorts back in March, and like the fact that they’ve lagged the market rally to an extent. It makes them more attractive as a theme at these prices.

Most of these stocks are near some decent levels of support within the context of their trends. I like energy as a theme and the biggest names in this space share similar technical set-ups. For the record, I like when that happens.

Tomorrow morning I am looking for moves back into materials. My top picks are WLT and ANR.

From the watchlist, keep eyes on FB, BBG, and LQDT.

While we are in the “dash for trash” mode, I’ve got buy stops in DEJ, ONTY, HIMX, and JOEZ.

Til Tomorrow,

OA

I’m going to add to the excitement around here.

One of the best components of trading in my opinion is understanding your trading style to the point where you recognize market conditions that are optimal to your approach.

Please note the Spooz are +1, the Dow is -30, and my account is up nearly 15% today.

Premium is cheap and correlations are down, which means we are in a market of stocks…not a stock market.

I am holding calls in FSLR, WFR, VHC, YOKU, BBRY as well as a few others…with longs in CZR, NBG, PPHM, ZNGA, GRPN…and a few others.

Trade individual stocks and forget about market direction and relevance.

Life is good.