Modern Israeli Plumbers Plug Old Gap

Anyone who embraces modern computing understands we create a gigantic amount of data through our daily internet interactions. As traders, we have intimate knowledge of big data, the more the better. Market stats, performance stats, fundamentals, volume footprints; the list is endless. If you’re serious about trading, you love data, period. I’ll stick to letting my gut decide what’s for lunch.

Also, we’re ushering in the age of small devices accessing the cloud. Gone are the days of needing all your memory in one place. RAX is my favorite cloud storage play, and they’re approaching their busiest time of the year as they ramp up service to sites like AMZN for the madness of Cyber Monday.

Late to the game as I usually am, Mellanox (MLNX) came to my attention after smashing earnings last July. I was immediately intrigued by the Israeli firm’s product line: the pipes that make the cloud hum. Since then I wanted to build a position in the name. However, it never pulled back and offered me entry during its late summer ramp. The gap left behind troubled me also, as nature abhors a gap. Unnatural as today’s markets may seem, they’re the purest place left in the world. Gaps left below have two forces, nature’s desire to fill gaps and gravity, working against them.

I’ve kept the name on my radar, and have watched as it spent the remainder of the year in no man’s land until finally falling back into the gap. What we’ve seen since returning to the gap is a healthy auction. At this point, price has auctioned the area well, and buyers and sellers appear to be in agreement where the value of this stock resides. Now we have some well-defined goal posts as I’ve noted below.

And traders should practice one of our better traits at this point, waiting for price to tip its hand, and let us know where we head next.

May you have a warm Thanksgiving, spending your time exactly how you see fit

The morning commentary from Twitter and blog traders has identical sentiment from bulls and bears alike: this is a relief rally and may last a few days but will eventually run out of steam.  This sentiment is echoed by some of the more noble people I read.  Actually, it’s echoed by too many traders.

I see the following two scenarios most likely as we enter Monday afternoon:

All short-timeframe traders will begin front running each other and we’ll have a weak close

or

We close firm, with markets closing above their midpoint on the day

I’ll use today’s close as a hand tip, and my expectation is we see one of these scenarios play out, listed respectively to the above outcomes:

A Weak close leads to weakness throughout the short week, and then we go higher

or

We go mildly higher this week, than much higher the week after

I know and accept that markets rarely give such binary outcomes and I keep an open mind to the possibility of a sharp clawed bear market. Many trader’s favorite charts are broken.  However, I currently hold a portfolio of strong charts, and they look ready for another leg higher.  Have a look:

…I implore you to keep two names on your radar, both of which I’m long:

The chicken don, aka, MACHO TACO, Pilgrim’s Pride chicken manufacturing PPC

and

The royalist, a Gint special, Royal Gold RGLD

These are my top picks, and I do believe the gods of rally will elevate both names into the grandest feast of the year, if only for a stock picker’s benefit.  We will eat birds from golden forks, friends.  I’ve made my sacrifice to the gods, selling out of WFM, which is death spiraling.

Should the turkey gods besmirch me by taking the year off, ordering Chinese food instead like a COMMIE, I will sell said positions and use the proceeds to buy bulk quantities of soap, firewood, and ammunition (RGR).

On a personal note, I will be attending the local gun and knife show this weekend, popcorn in hand, to enjoy the crazies.

BACK TO BUSINESS, how I see it:

Trade’em well.

The morning has been kind to my longs and I used the opportunity to take scales in a variety of names.  I have not entirely closed any positions since I would then be without my stocks.

Cash at 15% and may go much higher if I sell TBT.  A directional bet in TLT is 50/50 at this juncture.  If it stays firm, I’m closing the position out which will bring my cash north of 25%.

I did initiate a long in VHC early on.  It’s a very small, riverboat position. The chart picture is tantalizing, albeit irrelevant to the actual fate of price.

Our populace really loves polarizing events and happenings.  Be it football rivalries, films like Footloose, elections, or chilled NYC residents inundated first by waters and now by trite “26.2” tourists.  These events put the spotlight on how fucking stupid an extreme opinion is.  You stand for nothing, except the desire to bring attention to your otherwise anonymous life by joining an argument.

I’ve run marathons, they’re spirited, sure.  In Detroit, we run over to Canada for a brief reprieve, then it’s back to running past piles of burning tires and shit.  I kid, slightly.

As for NYC and its diverting of “precious public resources” to having a marathon, I don’t go extreme and you shouldn’t either.  Wouldn’t it be frustrating to cancel and rework travel itineraries?  Marathoners also spend months in a training regimen that “peaks” on race day.  It would get their spandex in a bunch to waste such efforts.

If there was a tree shoved up my Brooklyn home’s ass, it would be modestly entertaining to toss firecrackers at the runners while huddling over a barrel of burning garbage.  If I was a resident, I’d certainly make lemonade from the situation; perhaps setting up a small card table and offering the runners a refreshing drink, that’s actually a shot of cinnamon.  Poof CINNAMONED FOOL!  Or maybe some locally sourced (from the subway tunnel) water.  Get creative and really have fun with it.

And although you won’t because life’s one big internet popularity contest, calm the fuck down.  Most of us are just sort of meandering down the opinion road, like water, living our lives.

STOCKS…TOP PICK: WFM — they’re coming for you.

I’ve been positioned short long term treasuries for many weeks via TBT, riding through a reverse split and three gyrations of waning momentum to the downside.  The correction beginning in the late summer had two very promising rotations downward, but since then has failed to make new lows.  Worse yet, when we take our view out to a weekly chart, it looks like we may have experienced a false breakdown.  Oftentimes the most violent moves occur after a highly visible chart pattern fails to fruit.

There have been calls for a generational trade in shorting the risk averse bonds.  A short bias has even been touted as the trade of the decade.  Many of the methods for obtaining bearish positioning on bonds contain elements of decay.  This decay has been eating away at the bears for quite some time.  Looking at the zoomed out weekly chart, you can see the correction has been mostly time-based.  This is die slow action for any decaying bearish position:

Be prepared for the possibility of new highs in the bonds.

The downtrodden chicken manufacturing machine, Pilgrim Pride, in the face of “fucked up expensive corn and shit” has decided to turn a profit. Chicken Arise!

I want to very quickly share with you why I decided earlier today to sell half of my DDD position. After riding through the downdraft in the name, the pump occurring over the last few days offered reprieve and put the position back in positive territory. DDD is a company I want to hold intermediate-long term, but I would like to get my cost basis lower. By selling half today, I locked in around 2.5% gains on the position, and now feel in a position of strength to buy any pullbacks in the name. The stock could continue to run higher without pulling back in any significant way. However, ignoring my charts and what they are telling me would be a greater frustration than riding the name higher with a half position ONLY.

I’ve highlighted two divergences occurring on the DDD chart. The first is a momentum divergence, with my CCI not confirming price’s new swing high, and the second is a volume divergence from the previous swing high:

I interpret the price action to suggest a weak handed short getting squeezed, which has the market for DDD stock getting a bit ahead of itself in the short term. The scenario I’m envisioning is either a time or price based consolidation occurring, which will allow me to put my full sized position back on.

The Euro dollar future contract is trading north of the key $1.3000 price level highlighted last month, and bonds are adding to the case for an increased risk appetite:

Whether or not you consider our current market to be weak is heavily dependent on the individual names making up your portfolio.  For example, the relative strength of the finance sector continues, but high flying tech longs are getting their clocks cleaned.  The energy complex was strong yesterday, but refiners are getting lit up today.  We’re operating in a mixed bag of sorts.  I highlighted 1.3000 in the Euro dollar future a few weeks back and the price level is also still a place where I lean on my bias.

Taking to the S&P via the SPY ETF, we see the financials buoying the market decently, and looking at the momentum divergence on my CCI, if we see buyers begin to assert themselves later into this week, they could really get things moving to the upside:

As for the NASDAQ via the QQQs, the index is trading below the 33 EMA, and although it’s sporting a similar CCI divergence as the SPY, the “wormed apple” and other names have put the QQQ bulls on their heels, and they have much work ahead of them if they want to regain the edge:

Finally, the demand for risk free Treasuries remains high.  The short duration (3 year) auction that took place yesterday pushed yields below 40 basis points.  The longer duration Treasury ETF TLT could be forming a right shoulder here, and bond bears could be backing off a bit:

All these cross currents have me considering raising cash, but I’m waiting for one of the above instruments to “tip their hand” and confirm.  Until then, I will practice patience and eating sandwiches.

SIDE NOTE: COST showing us how you really do the $100.00 dollar roll.