The agriculture chemical sector grabbed my interest this week.  The sector saw a modest improvement in its hybrid scoring last week and the charts are set up well.  Also, I’m looking to build a few themes going into 2013, and I like the story in farming.  We had quite the scare last summer with farmers across the breadbasket reporting low yields.  The media ran the story hard, possibly because they saw it as a piece to advance their global warming agenda, possibly because it created buzz and sold advertisements.  There’s no question it pumped up (artificially?) corn and wheat prices.  I’m sure you remember, but check out the respective corn and wheat price charts, via finviz:

If farmers had even average yields, and didn’t hedge down their profits too much, they were able to take their products to market at higher prices, and could be sitting on cash piles.  Irrigation systems are a possible investment, but an easier investment for a farmer is a beefed up nutrient and genetic regiment.

With that story in mind, I also like the sectors seasonality, which according to The PPT, has better than a 60% chance of increased prices in both January and February.  If I’m building a theme going into the New Year, I want something that will hit the ground running.

Before taking to the charts, I wanted to compare a few key fundamental statistics:

My takeaway from the above data is that Monsanto (MON) appear to be you innovator.  They’re the only company pumping a serious R&D budget.  Potash Corporation (POT) although having the lowest beta, is the highest risk stock with the worse cash position.  They need demand to come in, or they could be in trouble.  However, POT has the highest ROE, and although I didn’t do any risk adjustments, any such adjustments would only solidify their ROE out performance considering their beta.

I didn’t put the dividend yield stats on my chart, but POT currently has the highest yield.  I see the yield as a risk.  With their low cash position, they may be pressed to reduce the dividend.  This could affect share price.

Year-to-date, it appears much of the negative news could be baked into the share price of POT, they’re had an abysmal performance this year.  There could certainly be an element of “catch-up” built into the name.

Taking to my precious, the charts, we can see big time innovator MON flirting with annual highs, threatening another big breakout.  Also, both MOS and POT are sitting on key support levels.  Should we see strength in these names, both names have room for us to scale some profits well before swing highs, allowing us to book some gains which would reduce our cost basis should we choose to swing the names for multiple months:

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“Everyone has a plan until they get punched in the face.” – Mike Tyson

In many ways I feel like my accumulation of degenerate OTB names is a result of two events that occurred earlier this week.  First was my showcase of the alcohol sector with a spotlight on BF-B, CEDC, and BEAM.  I’ve been watching CEDC run like a Romanian goat higher unable to buy the name.  Second was Tuesday morning.  I saw all the signs of accumulation and a big run higher coming, so I put over 10% of my portfolio into SKS and SHLD only to watch them sit the massive pump out, opting instead to trade sideways then down.  Thus concludes my recap of time wasted. Mostly I want to remember to stick to the plan so I thought an iteration would serve me well.

What matters now and tomorrow is how we’re going to pirate coin from the market.

We shall see how she looks in the morning.  I see little reason to turn to the profile at this hour because there’s plenty of overnight action ahead.  Let it play out and we’ll take a look bright and early.  I have a feeling I’ll be cutting a few names in the AM, but I will certainly exude patience and let the morning develop.

One important caveat to this unexpected action is receiving no accolades after making a near-perfect top call.  Our good friend The PPT flagged hybrid overbought on the close Tuesday.  Chalk up another win for the algos.

See you in the morning.

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I continue to see a high level of caution among traders on twitter.  The wall of worry is lined with the carcasses of shorts and the volume is low.  Going into Friday, I want you to keep the weekly SPY chart in mind, and everyone’s favorite home intruder, Jolly Saint Nick.  Does this look like a chart you want to short? 

I have 14 longs, zero shorts, and 25% cash.  I want more exposure in fewer names.  Should the markets continue to rise, I will address that matter next week.  Have a holly jolly evening.

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I started writing a post reviewing my new laptop purchase and Windows 8 and was almost done when I got so bored I damned the whole endeavor and went to my nearest grocery to procure a chicken and Toblerone dinner.  What a fucking country where one casually travels a well infrastructured mile (thank you elizamae) to get their protein pilgrim pride pump.

“I’d also like a 12-inch bar of your finest Swiss chocolate.”  I informed the clerk.  “Be swift good sir I have to address the fine people of the Internet.”

For four dollars, I can buy and eat a fully cooked chicken.  Two miles down the road I can get one that lived a better life for ten.  Amen.

I’m so tired of people comparing us to other homo nations and their stupid billy club bobbies.  I haven’t gone SHABL on this bitch yet but I’ve left our country enough to know it’s the best.  Stop.

Just come here, grind so hard your shoes rip then grind some more because you can have whatever you like.

I like PPC, FB, GS, AMZN, BF-B, AN, VHC, RVBD, ATML, GLUU, AWK, and why the fuck not Ford.

Soak it up friends, this month is when Amerika SHINES.  Celebrate what we can, for those who can’t.

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There’s never much discussion or analysis of a winning position on the interwebs.  Mostly we just get the end zone dancing, which is about the only thing I enjoy in football.  That and Mike Vick like five years ago or Barry Sanders in the early nineties. 

Trading psychology books often state as fact (What’s really a fact in psychology?  I mean come’on, I eat brains) that the sting of a loser stays with a trader much longer than a win of equal proportion.  Perhaps that’s why we pour over a loser, or hold memes like “There’s always a lesson in a loser” so tight.  I certainly learn from every trade, all kinds.

With that in mind, let’s take a look at a ten bagger I traded this week, Riverbed Tech — ticker symbol RVBD:

I’ve marked points where I’ve scaled, and I’m still holding a 1/3 position. Going back to psychology, I need to lock in gains along the way. It feeds my craving for instant gratification. Therefore, I always scale out at logical price levels. I figure I can always reenter the trade. HOWEVER, once I get down to my runner, it becomes a matter of conviction in the name and the picture the chart is presenting.

As I noted, the $20.00 level is the next logical scale point and I may sell there. But I may also stick around the name and ride a pullback, eventually reloading my position. If you pull up the weekly chart, you will see a significant amount of price confluence at $20.00. It’s a very logical scale point, perhaps too logical. Therefore, given the magnitude of the pump and the bleeding logic surrounding the “big round” $20.00, I may go for a fill of the above gap.

Study your winners just as much as your losers.  Don’t beat yourself up either way.  Remember, the holidays are about forgiveness.

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I grew tired of the “business man in chair silhouette” avatar I used on iBankCoin, so I grabbed something more true to my trading style, enjoy:

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I’ve been an advocate of the robot revolution ever since I convinced my elementary school teachers I could type my punishment sentences which would improve keyboard speed which would be important as an adult.  Only instead I would type their religous drivel once and copy and paste.  Fools.

Resisting the advancing in technology is futile.  One should instead excerpt themselves to become a robot overlord. The following people (kids) are just a few of the top robot overlords from various corners of the future. Either click here or the below infograph to enlarge:

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After casting his vote for me, one of my favorite all time reads and radio/television sensation Scott Bleier told me to cut out the point and figure crap.  This was in reference to the TPO and volume profile charts I have been posting for the S&P futures.  Seeing as Scott is arguably one of the most seasoned pros on this site, it’s easy to assume a few others are unfamiliar with TPO charts and how they can be interpreted to glean understanding of a contract’s price action.

First let me very quickly cover the P&F chart.  If you desire more background on the charting method, I’ve linked to two detailed sources at the end of this post.

P&F differentiates from most chart styles by not plotting price against time.  Instead it uses Xs and Os to delineate upward and downward movement respectively.  One goal is spotting breakouts and breakdowns.  Below I’ve marked up the SPY chart.  Notice all of 2012 is contained within five strands of Xs and Os.  Writing about this chart every morning would be grounds for banishment, no doubt:

 

TPO charts, and more importantly the volume profile, give us much more actionable data.  TPO stand for time price opportunity and each letter (usually) represents 30 minutes of trading.  As the session progresses, the TPOs build up and take shape.  Remember bell curves?  They show up all the time in a balanced market.  My write ups cover the e-mini S&P future contract.  It’s the most traded financial instrument in the world and is derived from the price of the S&P 500 index.

The more time we spend trading at a specific level, the more TPOs build up, and it tells us the market has “accepted” a price as reasonable and buyers and sellers both find the price as reasonable, balanced.  Balance is good, but imbalance and price discovery are where the opportunity to bank coin reside.  Last Thursday was an example of price discovery which led to the gap fill.  You can see the before and after in my posts here and here.

As volume data became more raw, more pure, we began plotting the volume at price to build similar imagery as the TPOs had in the past.  Most current users of this type of charting consider tracking the volume to be more relevant and actionable.  I agree.  If we know where the most volume has traded, we can watch that level and see how the market reacts when we reach it.  If we blow through the level, something has changed and the participants no longer agree the price is fair.

I could continue on, but let’s instead look at Friday’s auction and what it tells us.  First, I very clearly see from the tight range that there wasn’t much action on Friday and the market found balance.  The purple box I plot is the range where 70% of the transactions occurred for the day, using volume at price.  It’s called the value area and people make a living trading around these levels alone.  We closed right near the middle of the value area, but not before the bears attempted an afternoon push lower.  Buyers showed up and price quickly returned to the midpoint.  Overall Friday was a balanced day of market stabilization:

 

In my next post I’ll cover price areas of interest going into Monday’s trade.  Levels where we could expect the market to pause or explore.

 

PnF Links:

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:pnf_charts

http://en.wikipedia.org/wiki/Point_and_figure_chart

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The halls are decked with holly and wreathed succulents are paring with the aromas of the fire to create a lovely woodsman scent in my home. The animals are lounging and I couldn’t imagine a better way to spend my evening than at home opening Fly’s toolbox, The PPT. The unfettered celebration last night, which brought out the best/worst of my normally politically correct co-workers, was fun and dare I say outlandish. Pare that with the excitement of getting an interim position here, in the hallowed halls, and let us just say I’m just now returning to my senses.

The first time firing up The PPT is like stepping into a formula one racecar. Mario Andretti could configure a car to his exact specs, but you can’t expect to hop in and win the Grand Prix.

I look for a very specific chart pattern when I enter a stock. It doesn’t always look the same but the methodology is simple. There are two steps. Define a stock’s trend, and trade the pullbacks in the directions of the trend. That’s it, momentum trading. Sometimes I wrap a thesis into my positions, other times I seek diversification of industries.

The PPT clearly can increase the odds in trading with one data set alone, seasonality. I’m thrilled to build my understanding of The PPT scoring systems and building their probabilities into my trades, but I built my first screen to build the seasonality edge into my momentum trading.  Thus the “Comeback Kids” was born, and I like what I’m seeing.

I built the screener to give me stocks that have underperformed their seasonality this month and tossed in a few fundamental ratios and volume thresholds to ensure I’m not getting any garbagio. The idea is mean reversion to seasonality. If any of the results fit a trading picture I like, I’ll stalk come Monday.

Several of the 37 stocks look ready to make a comeback. I really like Cooper Tire & Rubber (CTB). It has the look I like and a thorough seasonality dataset:

It has over 3% of mean reversion seasonality built into it, which coincides with the first logical scale out point, prior swing highs. Getting that first scale means I’ve done my job, and pumps thereafter are the cream (no homo).

 

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“We are what we repeatedly do.  Excellence, therefore, is not an act but a habit.” – Aristotle

The allure of buying a stock that has been crushed in anticipation of a juicy mean reversion is enough to zero out many traders accounts.  On the charts, the positions always look magnificent and take almost no heat.  But the nature of a stock cascading lower is much different than what one finds in a pullback of a prevailing uptrend or even a flat liner.  The stock is falling rapidly in value because there are more sellers than buyers, and the price is exploring lower for interested buyers.  It won’t stop until it’s met with a buying force stronger than the sellers so knowing “where you’re wrong” is vital to preventing portfolio devastation.

Setting a stop is something traders always hammer home, but in my experience the essence of success is more than setting a stop, it’s consistently setting a stop in a methodical manner.  I’ll demonstrate my method with my current knife catch, which is drawing blood from both my palms, MLNX:

The levels I’ve drawn are Fibonacci extensions of the prior swing higher.  The idea is participants who successfully caught the knife the first time will have stops placed below their entries.  Often times the market will go on the hunt for these stops and the next move lower is an artificial lowering of price that will be resolved once the hunt is over.  Of course if price continues lower even more selling could be triggered so get out of the way. 

By defining the setup and repeating the methodology over-and-over, I can build statistics on the trade and based on the win-rate I can determine position sizing.  These types of trades aren’t as high a win rate, but the reward much higher, I usually max out at ½ the size of my normal position.

 

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