Another Example of Swing Trading selection.

Nvidia turned up as successfully passing the better than average Clean Surplus ROE sometime in 2016 when the share price was under $25. As of the close on Friday, November 12, 2021, it was at 303.50. On May 28, 2021, the weekly signaled a purchase under $160. The daily trade trigger signaled a purchase most recently on October 14, 2021, at a price less than $217. NVDA is one of the many high-quality shares that could be in a Swing Trading portfolio. Buy when both the weekly and daily agree. Stay on the sidelines during periods of disagreement.

Swing Trading

Selecting candidates for Swing Trading positions is difficult. I have found that finding moat-type businesses make the best initial candidates. Good financial underpinnings are essential. Joseph Belmonte of Buffett and Beyond has developed a screening tool based on Clean Surplus ROE(Return on Equity). His conclusion is that “portfolios made of stocks with high Clean Surplus ROE’s outperform all other portfolios”. An example is portrayed below. Salesforce (CRM) first qualified with a higher than average Clean Surplus ROE during 2016 when the shares were trading between $70 and $80.                                                                                                                                                                                                                                                                                                                                                                                                                                                         Closing prices are as of the close on Friday, November 5, 2021.                                                                                                                                                First, find the candidates and then use weekly technicals to find the overall trend.  Use the daily as a trend decision trigger. The weekly signaled a buy decision at the end of June 2021. That is, only trade LONG from that date. The daily concurred with a long position on October 13, 2021.

Another PerfectStorm example COST

The following is another example of waiting for the long-term signal, in this case weekly. When that signal is LONG, then if and when the shorter-term time frame is also LONG, jump aboard.

The signal in COST from April 9, 2021, has been LONG only. A corresponding LONG signal was signaled on June 23 and the next day COST opened at 393. A close signal was signaled on September 20, and the opening the next day was 456. Approximately a 16% return in about 3 months.

Please refer to my previous post on REGN for more detail.

 

Regeneron

A few posts back, I discussed ‘echo trades’.

Find a stock in a clearly defined uptrend, wait for a pullback, and when the uptrend shows a continuation, jump on board.

Since that post, I have put into place a better method of trend analysis.

The following graphs of Regeneron (REGN) should be a good illustration.

As in all my illustrations, Green vertical lines indicate Buying points. Red vertical lines indicate Selling points and Blue illustrates Close position.

The weekly graph represents the long-term direction. In this case, REGN since June 2021 has been in an upward trending direction.

The trading decision however should be made in a shorter time frame. In the following picture of REGN DAILY, it should be clear that, although the long-term direction is up, the shorted term direction has been down. The long position created in August was closed in September.

If you would like an analysis of one of your holdings, please email me at rfeit@msn.com or rfeit1941@gmail.com.

 

 

Back to the Beginning

In 2010 when I started this post, I recommended that one of the better methods of selecting equities was to find those sectors that were showing high relative strength with positive momentum. Selecting the highest relative strength sector with positive momentum should outperform.

I chose four sectors as illustrations.

XLE: Energy (Green)

XLY: Consumer Discretionary (Red)

XLU: Utilities (Cyan)

XTN: Transportation (Yellow)

The following chart as of the close of Friday, July 9, 2021, shows the current relative strength of these four sectors.

AMC, one of the “meme” stocks in the news.

There has a lot of news recently regarding so-called “meme’ stocks.

Last Thursday, The Wall Street Journal on B1 stated “Meme Stock Rally Resumes”. The article mentioned GameStop, AMC Entertainment Holdings, and Express Inc.

Meme stocks are those securities that have been discovered by a group of individual investors. The stocks have unusually large short positions, are usually overpriced, and share spikes of rapid growth in a short time period. Actual valuations are not important. The fear of missing out (FOMO) is a large reason to purchase, Volatility increases during times of panic-selling.

One of the most recent mentioned is AMC which recently completed a $230 million capital raise.

The following graphs show the recent price activity of AMC. The last price is as of 12:15 PM on Monday, June 1, 2021.

15 Minutes followed by daily.

Green lines represent times of purchase. Blue lines represent times of closing out positions.

 

Artificial Intelligence and Trading.

In the last few weeks, I have investigated a few AI(Artificial Intelligence) platforms in the hope that one or more vendors of this new technology could enhance my trading results.

The quick answer is maybe, but the research has found a troubling example of what could go wrong.

A new  ETF that is based on AI is was offered on October 17, 2017: AEIQ.

To quote from its informational site:

“The fund applies proprietary algorithms to artificial intelligence (AI) technology which can process over one million pieces of information per day to build predictive financial models on approximately 6,000 U.S. companies. The technology continually analysis data and models in its active stock selection process, and derives an optimal risk adjusted portfolio consisting of companies with high opportunities for capital appreciation. The fund is actively-managed and discloses all portfolio holdings daily.”

The informational information About AEIQ also states that “The system mimics a team of 1,000 research analysts working around the clock analyzing millions of data points each day.”

“Harnesses the power  of IBM Watson.”

The performance of this ETF should answer the basic question that I have had in my investigation; Does AI work?

The answer as it relates to the AEIQ ETF is sometimes yes, sometimes no.

The following graph of the relative performance of AEIQ and the SPY ETF, which represents the S&P 500 index starting in August 2020.

The AEIQ ETF started life on 10/17/2017 at an offering price of $25. On Friday, April 9, 2012, it closed at 39.48, an increase of 57.92%

The S&P 500 on 10/17/2017  was 256.25. It closed on Friday, April 9, 2021, at 411.49, an increase of 60.58%

The above chart, like all the other charts on this bog, has green, blue, and red vertical lines.  Green vertical lines are the place where AEIQ is performing, on a relative strength basis, better than the SPY ETF and AEIQ has positive momentum. Red vertical lines show the times that AEIQ is performing worse than the SPY on a relative strength basis and has negative momentum. Blue lines are the indication to close the current position.

The better way to use the AIEQ ETF would be to invest in  AEIQ  when, on a relative strength basis, it is stronger than the SPY ETF and AEIQ has positive momentum. The basic swing trading method I have been talking about in this blog since day one.

“Echo Trades”

Unless you are in a cloister or on a desert island, most of us have recently been contacted in one way or another by the recent Rob Booker promotion. The latest is about a discovery by an East Tennesee farmer named Jeffrey Turnmile who has generated, in the latest 12 month period, a return in excess of 4000 percent. I have nothing but respect for Rob Booker, who in the past has promoted many such “discovered” traders with outstanding results. Mr. Turnmile has found what they call; Echo Trades.

The reverse engineering of this amazing ‘discovery’ looks very similar to what I have been talking about for the last 10 plus years been discussing in this blog. Identify the trend, then jump in.

The main difference is that Mr. Turnmile, after discovering the trend, waits for a pullback.

He proposes buying trend continuations in an uptrend, wait for a pullback, and at the continuation of the basic trend, trade the continuation.

The continuation becomes the ‘echo trade’.

That’s all folks. Easy Peasy.

An example of what can be accomplished with this basic Echo Trade strategy is the following chart of EPD, Enterprise Products Partners.

One of the scanning services generated this security. Strong buy with analysts price target greater than 20% with a dividend yield greater than 2.5 %.

The weekly chart of EPD shows an uptrend beginning at the end of November 2020.

 

The above, daily chart of EPD. The  Green vertical lines showing BUY. The blue vertical lines showing a CLOSE long position.

Continuing this practice in this security should result in nice continuing profits.

A portfolio of similar securities could possibly replicate Mr. Turnmile’s results.

Please contact me at 516-902-7402 with any questions.

Gates Foundation Shuffles Portfolio

Dow Jones reported that The Bill & Melinda Gates Trust, which manages the funds of the foundation, exited positions in  Alibaba Group and Uber Technologies, halved its stake in Apple, and increased investment in Schrodinger in the fourth quarter.

The following shows the relative performance between APPL and SDGR from June 2020 until the close yesterday, February 22, 2021.

As per all my previous charts, Green vertical lines represent that the top security, in this case, Schrodinger, is, on a relative strength basis, outperforming AAPL. A red vertical line, the Second security (AAPL) is doing better.

Bravo to the trust, so far.

 

 

Houston, We Have A Problem : GameStop

The recent movement in GME (GameStop) has been headline news in almost every financial newspaper and as the lead story on almost every network and cable news channel in the last week.

Whether by individual investors acting through chat rooms or multi-strategy hedge funds acting individually or in concert, or investor trading platforms or clearing and pay for order flow firms, they ALL should have realized that tracking momentum would have prevented the large losses, if short, and given hope to the long side traders.

The four pictures below show the story. The linear scale has been changed to Semi-log for better illustration.

The last sale is as of the close of Friday, January 29, 2021.

Green is GO LONG, Blue is the close position, Red goes short.

Weekly:

Daily:

720 Minutes:

130 Minutes:

It is pretty obvious that only LONG positions should have been established starting the week after September 18, 2020, based on the weekly close. LONG-only once again after December 22, 2020. And so on with the 720 minutes after January 12, 2021, and LONG only after January 13, 2021. with the 130 minute picture.

It makes no sense looking at the above pictures of the trading history of GME over the last few weeks to understand how anyone with a plan would make try to profit from the short side of GME in the last few weeks.