Good Day Traders,
First I want to say that while Mike and I have been pointing out several negative aspects of the current Bull Market over the past several months there has yet to be a convincing move to the downside. This is part and parcel of how topping action work—It tends to be a process and not an event. We are merely pointing out clues that emerging that at some point will be shouting “It’s Time to Correct!” Price action has not reached the shouting point yet. There have been multiple articles in the WSJ and Barron’s this past week calling out what we’ve been saying for several weeks/months.
Today’s Report provides Mike’s Macro Musing providing additional clarification of the clues we’re seeing. The Market Report portion of the Report is provided in Friday’s Market Update Webinar. The link is provided.
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Next Mid-Week Market Sanity Check Aug 12th; Topic: Hidden Secrets of Fibonacci’s
Mikes Macro Market Musings: Topic: It’s Déjà vu All Over Again!
With the recent price action in the Nasdaq being driven by a very small handful of current popular and high flying stocks (note that in the chart below there is an extreme negative divergence between Nasdaq price action making a recent higher high and the percentage of stocks above their 100 day moving average making lower highs and lower lows, demonstrating the lack of breadth in the current rally and therefore the likely unsustainability of this rally for very long), certain Yogi-isms and other humorous sayings have come to my mind. For instance, “it’s hard to make predictions, especially about the future”. And, “it’s deja vu all over again”. Or, “it’s interesting what you can see just by observing”.
In that light, a recent article in USA Today, that veritable pillar of sophisticated financial reporting (yes, that was meant to be sarcastic), reads partly as follows: “Giddy up! The Four Horsemen of Tech — Google, Apple, Amazon, and Facebook — helped push the Nasdaq to an all-time high Friday morning. These Four Horsemen dominate the Nasdaq. They are the tech equivalent of Triple Crown winner American Pharoah. These four are collectively worth nearly $1.7 trillion and are expected to report sales of more than $425 billion this year.” ( As an aside, I would also throw into this mix the stock of Netflix, but “The Five Horsemen of Tech” just doesn’t quite have the same ring to it.)
But here was the most interesting line in the story –
“But for now at least, Apple, Amazon, Facebook and Google are galloping way ahead of the rest of tech.” So, why did this particular story seem so familiar? Simply because I have seen these same headlines in the past. To wit:
“Cramer’s Four Horsemen Of Tech” – September 25, 2007 (CNBC)
“Take Cramer’s ‘Four Horsemen of Tech,’ for instance. Apple, Research in Motion, Google and Amazon.com are up 31% as a group since he recommended them back on June 6. Despite the market being down today, each of these four stocks hit new highs.”
“The Four Horsemen Of The New Economy” – October 2, 2000 (BusinessWeek)
“Meet the new bosses: the Four Horsemen of the New Economy. More than any other collection of companies, Oracle, Sun Microsystems, EMC, and Cisco Systems represent the building blocks of Net business. Chances are, every company moving online will buy a piece of hardware or software from one of these four giants.
But just in case the point escapes you, let me plot these headlines on a price and valuation chart.
I think this chart speaks for itself quite clearly. Is it just coincidence that these articles all discuss the same thing at the previous peaks of “bull market” advances? Probably not. The psychology of market advances, and particularly late stage advances, are all built upon the “exuberance” and “short-sightedness” of investors. As “greed” is fed by a seemingly inexorable rise in asset prices, the belief “this time is different” grows. But this has not been just the case at the previous two major market peaks, but at every peak throughout history whether it was related to railroads, real estate, or stocks.
Does this mean that the markets are going to roll over and crash tomorrow or this week or this month in a repeat of what has happened to the Chinese equity bubble the past few weeks? Could happen, but not likely. I am NOT suggesting that the markets are about to “crash” tomorrow. Nor am I implying that you should sell everything thing and build a bunker. What I am suggesting is there is one prediction about the future that isn’t difficult to make, which is that everything revolves in cycles. There will be a down cycle that follows the up cycle of the U.S. equity markets over the past six years; every bull market is preceded and followed by a bear market. As such, this current investment cycle will end and will likely end rather catastrophically for those that have forgotten that investing is ultimately based on valuations and psychology. As Yogi might say, it doesn’t happen every time, but it happens all the time.
To those who say that “this time is different”, I would respond that since writing articles entitled the “4 Horseman of Technology” has been the “breaking of the seal” that lead to investor destruction twice in the past, maybe this “time should be different.” Maybe this time investors should pay a little heed to history which “never repeats but often rhymes.”
General Market Observation: This weekend’s Market Update can be found at: https://youtu.be/chh_EGPjIkg
The update poses the question: Is the Rally out of Gas?
The Early Warning Alert Service has hit all three major market trading point this year. See this brief update video for more details: https://youtu.be/PRLmPQLHjiI
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Index Returns YTD 2015
ATTS Returns for 2015 through July 31, 2015
Less than 11% Invested
Margin Account = +3.73% (Includes profit in open positions)
Early Warning Alerts = +5.91%
Active Trend Trading’s Yearly Objectives:
- Yearly Return of 40%
- 60% Winning Trades
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/
Updated at the beginning of each month.
Managing Existing Trades: We are long 150 shares of HAWK. T1= $47.40 for 75 shares and then trail a stop based on the 8 day EMA Rule.
Wealth & Income Generation Strategy 3 Trades: Closed out the short side of the IWM Jan 16 127Put trade for a profit of $125 for the week. While this was a profit for the week it fell short of the target cash flow amount necessary to hit 100% profit by January 17, 2016. There are 24 more weeks remaining in this trade and focus will be placed on better timing of the entries to assure parameters are met to reach between 50% – 100% profit target on the $9660 currently invested.
Prior to the closed Friday I sold next Friday’s IWM Aug1 123C for 1.06 and the IWM Aug1 124C for 0.50. Total premium collected = $518 for next week. The target premium is $756 so I will make up the difference with an appropriate Put on the Put leg.
I posted a video about how to choose the weekly options to short for this strategy. It can be viewed at: http://activetrendtrading.com/videos/
Additionally some of these trade may be selling weekly puts on up trending stocks. If you are interested in parallel trading this strategy register at this link: http://forms.aweber.com/form/99/1278533099.htm
Pre-Earnings Trades: Several big names will report this week with the biggest being TSLA. TSLA has been on a nice run lately while staying somewhat under the radar. It reports on 8/5 AMC. Other notables for the week include, AFSI, JAZZ and EPAM. Some stocks that may provide pre-earnings trade opportunities include: CYBR, YY, QIHU, SHAK and LCI.
Potential Set Ups for this week: Not a lot of economic reports that have market moving potential but the ISM MFG Index on Monday and Jobless Claims on Thursday could move the needle after the reports. Currently the Indexes are moving in a trade channel. This directionless action is impacting stock movement also. Our objective until the indexes make up their mind on a direction will be to take profits quickly and keep stops tight. Profits between 5-15% are reasonable in the current market environment.
Upside: PANW, NFLX, AMBA and HAWK are good upside candidates.
Downside: TASR, BIDU, VDSI, NXPI and NXPI lead the list. Great looking Shooting Star on NXPI from Friday’s price action!
Toss Ups: Long list of stocks that could go either way that include: CELG, SWKS, AMZN, AAPL, FEYE, CAVM and ARRS.
Leveraged Index ETFs: EWA alerted last week but no trade trigger except for aggressive traders who traded the open on the initial Alert. The aggressive approach offered an entry in UPRO at 67.84 which is now sitting at 70.50. Currently waiting for entries on TNA or TQQQ.
Outs & Ins: NKE, SSNC and WETF make their debuts on the IBD 50 this week. NKE would have been a great buy mid-June as it was break out. Now it is extended. WETF has just broken out so look for a rest for a potential entry. SSNC has a similar profile as WETF. 17 of the current stocks on the List report earnings this week with the remaining 6 reporting through the rest of August.
The Running List is now up to 156 stocks. This list will be posted to the website as part of the month-end update.
Off the Wall: No Off the Wall this Weekend.
Share Your Success: Many of you have sent me notes regarding the success you are having with the Active Trend Trading System. Please send your stories to me at email@example.com or leave a post on the website. Thanks.