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Chart of Day: How to Trade Peak Fear

Apr 09, 2018

After a great deal of trade war fear, it appears much of that has been fully priced into the market.

Using the latest crisis, we can jump in when others are far too fearful, as Buffett would advise.

Or, as Sir John Templeton would tell you, “Buy at the point of maximum pessimism.” 
 
Or, even as Baron Rothschild would tell you, “Buy the blood in the streets, even if the blood is your own.”
 
That’s because crisis breeds opportunity and money.

After catching support just above its 200-day moving average, the Dow Jones Industrials, it would appear that traders are jumping back into the markets.  

What we’d like to see from here is a potential test of the 50-day moving average around 24,813.  

One way to trade the potential for higher highs is by buying to open the DIA May 18, 2018 243 calls at market.

Chart of Day: Tech Selling Exhausted

Apr 04, 2018

We believe a good deal of negativity has been priced into tech stocks, like Micron (MU)

Notice what has happened historically when MU hits its lower Bollinger Band (2,20) and Williams’ %R (W%R) dips below its 80-line. Not long after the stock begins to pivot and move in the opposite direction.

Of the tech stocks mentioned, we like Micron Technology (MU).

Trading with a PEG ratio of just 0.15, Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; lower power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 DRAM and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, and automotive and industrial applications, as well as for computer memory upgrades; and hybrid memory cube semiconductor memory devices.

In its latest quarter, the company posted revenues of $7.35 billion, up 58% since the same period last year. Analysts had forecast $7.28 billion, so Micron beat by $70 million. With EPS analysts expected $2.74. The company posted $2.82.

Despite such positive news, the stock pulled back.

And many analysts have had mixed opinion. Citigroup for example downgraded the stock from a buy rating to a neutral rating, suggesting that they had “some concern on Micron stock for a few months” and is particularly nervous that NAND demand may be ‘rolling over.”

However, Cowen analyst rejected that idea, raising its target price on MU from $55 to $65.

There are two ways to trade MU here.

One, buy the stock at market prices… And, or buy to open the MU May 18, 2018 55 calls.

 

Chart of Day: What the...?

Apr 03, 2018

You’d have to see it to believe it.

One day after losing 750 points to trade war fears, the Dow tacked on more than 330 points on Tuesday, as tech stocks come roaring back. Netflix for example was up more than $3.40. Amazon recovered $20.

"So far, this is a reaction to an oversold condition," said Bruce Bittles, chief investment strategist at Baird, as quoted by CNBC. "What we're looking for now is an upside volume explosion" of nine stocks rising for every declining stock to confirm a new upward trend is starting out. "Unless we get that, all rallies are suspect."

In short, we’re not out of the woods just yet. Don’t unload short hedges or start thinking a market rally is restarting. Until we see confirmation of new uptrend, be safe.

One way to protect your money is to continue hedging for the potential for downside.

The second we break below the 200-day moving average, things could get messy fast.

 

 

Chart of Day: We're Heading another 1,000 Points Lower

Apr 02, 2018

What’s very concerning is that the Dow just broke its 200-day moving average, which has held since July 2016.  Unless some one steps in and diffuses this ticking time bomb of a trade war, the Dow could easily slip back to support at 22,000.
That’s a drop of more than 1,000 points from here.To protect for further downside, we’re also recommending that you buy the Pro Shares Ultra VIX Short-Term Futures ETF (UVXY).  It last trade at $21.66.  We have a near-term price target of $30.

We can also hedge with the following trades, including the VIX July 18, 2018 22 calls, the VXX ETF and the VIXY ETF.

Chart of Day: Why Amazon.com is a Buy on Trump Effect

Mar 28, 2018

Amazon is always an interesting trade, especially after President Trump bashes the stock.  Each time he does, however, the stock races back stronger than ever.  In June 2017, Trump noted that Amazon was getting away with not paying taxes.  Shortly after, the stock fell from $990 to $951.  It would recover to $1,083 not long after.  In August 2017, Trump tweeted that the company was doing great damage to tax paying retailers.  The stock would lose $6 billion in minutes after that.  However, it would also go on to recover that and add even more value.  Today, Trump noted that he wanted to go after the company because it’s hurting retailers and is costing the U.S. many jobs.  That stripped $60 from Amazon’s stock.  However, as we’ve seen many times in the past, Amazon prices in the concern and moves aggressively higher.

 

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