The Shakedown 10/14/18



Back to Basics

More ugliness in the indices this week! We will have to watch and see where the market actually finds support. When the market begins acting like this, you can throw your ideas about what "should" happen out the window. The more irrationality in the market, the more nonsensical price action you will see. If you look back at the February breakdown, we got 'doom & destruction down days', followed by 'face-ripping up days' only to have those abruptly sell off. If you go back and look at Brexit, the way the SPY closed on 9/26/18, you would think the market was going to crash, and we were right back at highs a week later. You can go look at any volatile time in the market and you can see that "expected moves" are few and far between. They want to make things as tricky as possible.

When some volatility comes into the market, everyone wants to become day traders and I have to remind myself the big money is made by sitting in the best ideas when they present themselves. The best part of being a professional trader is being able to step to the side and sit in cash during uncertain times. I sat cash mostly all week and was completely content not frustrating myself over the pennies. I day traded a bit Friday, made some lunch money, and quickly reminded myself why I love swing trading as day trading is 100x more stressful and 100x less profitable (when I'm staring at 5 minute charts dying for 2:1 risk/reward kicks.) 

I would much rather wait on the big ideas, which is why we are blessed to have earnings season come when it does. The best names will disconnect from the market and become market leaders, which is where I will spend all of my focus over the coming weeks.

This will be our first season having the bot in the chat, so I'm very excited about the prospect of it. Normally we're missing 100 trades a week because there is simply too much going on, but the addition of the bot will make things very interesting. 


*There won't be a ton of setups in this newsletter as most charts are being dragged by the market and waiting for earnings, but it will be a very busy week for myself as so many companies report each night

This is when I go to work more than any other time. Being that a company releasing earnings will likely be their biggest catalyst for the next 3 months, there are no better swing trading opportunities in my eyes. I do the same thing every season, focus on the strong stocks that gap up, allow them to digest the move with some sideways action, then look to get involved whether it be a support buy or a breakout to new highs.

Simple simple simple.

After every trading day I go through all the companies that released earnings and make a watchlist of all the stocks that gap up and look for them to eventually give a setup.

The strongest stocks become the market leaders. 

(Click above for full list of companies reporting)


Big week this week as the banks officially kicked off the season Friday with JPM, C, WFC, and PNC reporting. They all sold off pretty hard so it will be interesting to see the rest of the banks report Monday and Tuesday. Tuesday starts the real fun when we have 30 companies reporting, including NFLX after the close.

Some notable names this week are BAC, GS, JNJ, MS, UNH, CSX, IBM, UAL, STLD, BX, DHR, PM, AXP, TEAM, ISRG, PYPL, SKX, SLB, VFC 


This HEAR has been a complete momentum name ever since debuting their stock in the Spring. The gaming headphone's maker sneakily announced a raise in their expected earnings Thursday morning, and the numbers were very good (see article below). While pre-releasing some solid numbers, the stock has a notorious short float upwards in the 70% area according to I am not normally looking at short floats but will always look to it as a potential layer of probability and this is the perfect layer in this scenario. If the stock makes a move higher, theoretically shorts have to buy their stock back to cover, creating that fast momentum move higher. 

Combine those facts with the bullish engulfing week the stock put in at a major support area and I am interested. I will first look to last week's high ($21.15 area) for volume as well as through the $21.50 area. The technicals seem to be lining up with the fundamentals at the perfect time in this one. The trade is a bit trickier because there isn't a clear defined trigger, but more of an area you want to see volume pickup (21.50/22 area).

This name is sneakily wide and consistently moves 10% per day (traded in a 15% range Friday) so nabbing a 50%+ win in this trade wouldn't be out of reach.

Trigger: $21.50 area ($21.15-22)

Stop: $18.49

Target: $30-35+

(Click below for article)

Hope to see you in the chat Monday!

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