Early Warning Indicator

SHOPify in news

SHOP has been in the news lately regarding the acquisition of a logistic company.

Prices are as of the close of Friday, May 6, 2022.

As in all previous illustrations, Green lines are periods of LONG, Red lines show periods of SHORT, and Blue lines are periods of NO POSITION.

The weekly is the dominant signal. So in this example, the only possible daily position in the year 2022 is SHORT.

 

ARK Innovation ETF ARKK

Like many investors, I was impressed by the incredible upside performance of Cathie Wood’s ETF  ARKK  in 2020.

The holdings include Tesla, Zoom, Roku, Teledoc Health, and Coinbase Global.

With the exception of Telsa, most are down a considerable amount this year.

Despite the large underperformance of ARKK, many investors are staying the course, according to Monday’s (April 25, 2022)  Wall Street Journal.

The following Monthly and Daily chart of ARKK portrays the recent price decline.

Price is as of the close today, Tuesday, April 26, 2022.

AbbVie Earnings coming next week.

“Wall Street expects a year-over-year increase in earnings on higher revenues when AbbVie (ABBV) reports results for the quarter ended March 2022. While this widely-known consensus outlook is important in gauging the company’s earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.

The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on April 29. On the other hand, if they miss, the stock may move lower.” Zacks Equity Research, April 22, 2022

The following pictures of ABBV Daily and Weekly show that some expect lower results than projected. Prices are as of the close of Friday, April 22, 2022.

The weekly chart is the dominant position.  The green line indicates BUY. The RED line indicates SELL, and the BLUE line indicates CLOSE position.

As in all past posts, When and only when the Weekly indicates BUY, then if the daily is also Green, the position should be long. The BLUE line indicates CLOSE position.

SHW revisited. Swing Trading at its best.

As many of my readers know, I have been following Sherwin Williams for many years. It qualifies in most metrics as a solid company financially and has been an outstanding holding in many portfolios.

The caveat is that if you have the ability to adjust your potfolio when certain stocks are not gaining at price but declining, then SHW has been in and out of your portfolio many times in the past few years.

Using the weekly price action as the guide and the daily price action as your trigger, the following charts are a good example of good timing in SHW.

As usual, green lines represent the time of being long on the weekly, if only the daily agrees.

 

Long-only from April of 2020 until the end of January 2021. Then long-only from April of 2021 until Mid January 2022. Short only from February 11, 2022.

The daily charts are the actual trade trigger.

 

This is an example of how swing trading is supposed to work. Prices are as of the close on Friday, March 11, 2022.

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.

 

Relative Strength

In the many past posts, I have recommended that to be successful in swing trading, one has to be aware of the individual securities relative strength as it compares to some index of its peers.

The following chart is an example of  OIH which is the oil VanEck oil services ETF. I have compared this ETF to SPY, which represents the Standard & Poors 500 index.

 

The prices are as of the close yesterday, January 12, 2021.

The rules are very simple, and the action indicated by the up and down arrows reflects the result of following the rules.

  1. Buy when the target security is stronger, on a relative strength basis than the index.
  2. Buy ONLY when the target is stronger, has positive momentum, and the index is also going up.
  3. Close the position when any condition is violated. Shown by blue vertical lines.
  4. The rules apply to shorting when the actions are the opposite of the buy rules.

High Volatility versus Low Volatility

There is a fascinating article in today’s Wall Street Journal in its quarterly “Investing In Funds & ETFs on page R3.: The Time to High-Beta?

Once a Quarter.

The thesis is that new research conducted says that: “high -beta stocks tend to outperform in just one week per quarter. Only in that week, therefore, does it make sense that traders bet on high-beta stocks. That week occurs in the quarterly earnings season.

The article goes on to that to test the theory, one would invest, during the first week of earnings season in a high-beta stock ETF while shorting an equal dollar amount of a low ETF.

Their example in the article regarding a high-beta fund is the Invesco High Beta ETF. (SPHV) That ETF  contains the 100 highest beta stocks of the S&P 500 index. The 100 selected have the “highest sensitivity to market movements, or beta, over the past 12 months. The fund and the index are rebalanced and reconstituted quarterly in February, May, August, and November.”

The example of low beta is the Invesco S&P Low Volatility ETF(SPLV) which contains 100 S&P 500 stocks with the lowest realized volatility over the past 12 months. It then weighs each stock based on its volatility(well, lack thereof).

I assume it is rebalanced every month, but was unable to speak to anyone at Invesco to give me that information.

The article begs the question of whether a strategy of ALWAYS having a position in being long/short SPHV versus the reverse in SPLV would be successful?

The following illustration says YES!

The green vertical lines indicate long SPHB and short SPLV. The red vertical lines indicate long SPLV and short SPHB.

 

Swingtrader Suite for Day Trading

Many times I have been asked if the PerfectStorm strategy that works so well for swing trading has any use for the thousands of traders who day trade. Perhaps the following illustrations will be helpful. All graphs are as of the close of business of Friday, June 5, 2020.

The above picture is the daily results of BA versus SPY.

The top is BA, and the next security is SPY. The next line represents the relative strength of BA versus SPY. When the line is going up and GREEN, BA is stronger than SPY. When the line is going down and RED, SPY is stronger than BA.

The Vertical lines represent, when GREEN, that BA should be bought. When the vertical line is BLUE, the trade should be closed. When the vertical line is RED, BA should be short. Many hedge funds, when the trade indicates, will be short the opposite security, that is, when indicated long BA, they will be short SPY and vice versa.

 

The next picture is of BA versus SPY on a twenty-minute basis. I have left off the vertical signal lines, but a careful analysis will dictate the long/short position.

The next picture is of BA versus SPY on a two-minute chart.

There are thousands of “pairs” that can be traded in the same manner. Just ask Medallion Fund, or Citadel, or World Quant or the many other Quant funds.

I can be reached for further information at rfeit@msn.com or (516) 902-7402