Well, well, well, the market “almost” slipped but recovered nicely. Nevertheless, the price momentum based on the weekly chart is flattening out. Take a look at the weekly chart below:
The SP500 started off the rebound rally with a big long green bar ending 07/01/2016. This strong momentum undoubtedly carried enough fire power to fuel the up move for the next few weeks. But the fire power were being depleted as each passing week with the weekly up bars shrinking in size to the point of a doji bar ending this week. Now, some could interpret this as market “catching its breath” before running again. This could very well be the case but a new catalyst is needed to kick off the next up move. Meanwhile, lack of positive market news could also allow the bear to come out and weave havoc by inducing profit-taking by the short-term traders on the long-side.
In summary, I won’t be surprised if next week is a down week.
This has been very much a “hit & miss” week for me; but fortunately, I still ended the week with gain. Let’s start with something light and then a full story on the bigger miss.
Last week, I got out of $MTCH ’cause I didn’t want to gamble on the earnings. But seeing that price did not drop on Monday but holding steadily, I decided to buy a small position to make a “bet”. But then I lost my nerve on Tuesday morning and got out at breakeven before the price rallied to close higher in the last half-hour in anticipation of the earnings report after market close.
In order to hold my position into the earnings, I must feel confident about the prospect of faster growth. The news on the resignation of the CFO in early July put a damper in my confidence as well as adding a layer of uncertainty; thus, I decided to play safe in order to protect the gains I made so far. There is this rule I must remind myself from time to time, I’m here to take a bite out of the market, not to prove that I’m brave or right about anything. Basically, the rule can be summarized as follow:
When in doubt, get out!
Now, just because I’m doubtful doesn’t mean squat that I’m right about being doubtful. It simply means that I don’t have the “mojo” to stay in the position. By getting out, it eases my mind and prepare me for the next battle. In other words, if I miss the rally ’cause I was doubtful or fearful, so be it. From my years of trading, speculating, and investing, I finally understand that the only way to grow your portfolio is to constantly lock in gains as much as you can even at the risk of missing some nice rallies along the way. In return for missing some nice rallies, I’m spared from having to take some major losses along the way. Although I can still be hit with losses, but it will be less frequent than my early days.
I’m sure most of you reading my blog already know that I hold only a “handful” of positions even when I’m close to 100% invested. This fly against the face of proper diversification but not when it is properly managed.
Please do explain what you mean by properly managed?
Here are my rules to counter the risk of swinging for the fences speculation:
- Never use leverage
- Understand the fundamental stories of the stock- the technology as well as the financial
- Only buy the ones that are still growing and likely to survive
- I must “feel” harmony when it comes to my understanding of the future prospect of the stock I’m investing in as well as the technical reading of the charts
- When in doubt, GET OUT!
- Take profit often when price has made significant move in a short-period of time
Regarding #1 above, I solve this problem by using a “cash account” with no margin. The only issue with the cash account is that if I got out of the trades in less than three days, my cash got stuck in the three-days settlement holding period. This is good and bad. Good that it forces me to step back and not rush back in . Bad when I really want to buy another stock but couldn’t.
Most people use leverage so they could maximize the returns on their investment; but it is a double-edge sword, it can also maximize your losses if you’re not careful. I solve this problem by buying only high-beta stocks with no margin. Thus, I can still maximize my gains but cap my maximum losses at the amount I paid for the stocks.
#2 is an art form. My understanding of the fundamental stories- both financial and technology is my personal interpretation of the information. I may or may not get it right but it is my own understanding that formed the foundation of my trading decisions.
While I read the shared opinions of other traders, I tried to filter out the “emotional noises” and look for those opinions that made a lot of senses even if it goes against my position. If someone said something that made a lot of senses which I happened to agree, it may affect my decision in either getting out or adding more to my positions. This is one of the reasons I’m writing this blog, to share my opinions as a way to give back since I’ve benefited from many solid opinions from other good traders out there.
Bottom line, keep an open mind.
#3 is important ’cause I want to buy stocks when they are still on the ground floor with the potential to grow much bigger. Matured stocks are already way up there in price and the potential for downside are much larger when the general market correct. With my swing-for-the-fence trading, large correction is a recipe for disaster.
#2 & #3 are linked together by the hip. Perhaps it should really be 2a and 2b.
#4 is what I’ve become from years of experience trading in the market. I’m a byproduct of all my past mistakes and successes. Thus, my trading style I’m sharing in this blog is unique to me. It may not be right for anyone reading this blog. So, it is no surprise when decisions I shared here might be at times seemed odd to readers of my blog.
Over the years of looking at charts, I think I’m getting good at “sensing” momentum from the chart formations. I also eliminate much of my hesitation once I’ve made a decision to take advantage of “what I think” is a momentum ready to happen. As usual, when I’m wrong, I get out to cut losses.
#5 is tied to #4 above. Once I’m in position, when I’m getting “uncomfortable” due to new information of all kind, I must get out even at the risk of missing a rally. Even if I’m wrong 50% of the time, I still save myself a lot of losses because the other 50% of the time could create huge losses if I’m still in position. This rule is a very important for my portfolio.
#6 is why I’m gaining much this year so far. I took decent profit on $GWPH, $CARA, $AMRN, and $MTCH which helped me to recover all my losses from last year plus more.
Now that I’ve explained my trading rules, it is much easier to understand my actions below regarding the decisions I made.
Let’s start with $AMRN.
I first bought the stock back in late 2010 when it was trading around $3.xx I took profit when price started to correct from the $9 and thought I did good. Then price shot up $17+ after Amarin showed success in their Anchor trial. The rumor of buy-out was quite prevalent with the sound-bite of “not less than $30” being spoken by the former CEO of Amarin that I thought it was a bargain to buy the stock back when price corrected back to the $14 and lower level. I started to accumulate while waiting for FDA to issue the NCE (new chemical entity) designation as well as receiving the “promised” labeling according to the previous agreement with the FDA regarding the SPA agreement.
Needless to say, we all know what transpired and I ended up losing quite a sum holding the position. By 2013, I cut my losses around $4 or $5. Then I watched the stock on the sideline and made some short-term trading when price dropped to near $1.00.
By 2015, price began to bounce from $1.00. And as a trader/speculator, I also evolved and developed the tolerance to buy a much larger block of stocks than four years ago. So, when price started to bounce higher and began to trade above the 79 & 89 MA support, I began to add to my position to build up size. Then the news came out with the China partnership deal and the investment from the Baker Brothers. I forgot which one came first but after the first news, I doubled down on my position ’cause the news was great for the future prospect of the stock. Then the second news came and stock rallied hard to $3.00+. Giving my sizable position, I knew I had to take profit when price began to sell off and dropped below $3.00. This big win more than offset my Amarin losses of the prior years simply ’cause I bought in size. It was a bold and risky move but it put me back in profit with the Amarin trade. From then on, I learned the importance of taking profit quickly when holding size.
Someone asked how I made money trading Amarin as opposed to simply buy and hold. The blue boxes in the weekly chart above showed the profits I made and the red box showed my losses . The chart also showed the profit opportunities I missed as well. In fact, quite recently, I missed the hard run to the upside when FDA finally issued the NCE designation. That was quite a miss ’cause Amarin was my largest position at that point in my port. I got out due to the 79 MA resistance at the time. And this week on Thursday, someone(s) dropped a quarter of million shares in the market which caused price to plummet to $2.19 form $2.39 in less than five minutes. My immediate thought was that someone knew something. So without thinking much, I took the rebound from the drop to start unloading my position as well. Although the price bounced back later in the day, I already used up the available cash to buy $CERS which I’ll explain later.
Because my cash is tied up in the three-days settlement period, I didn’t have the cash to jump back in on Friday at the open. Thus, I missed the Friday rally but that is the price I’ve to pay to play safe which I’ve learned to accept as part of my trading reality.
Missing rallies in my selection of stocks is nothing new here. In fact, I missed the $ARTH rally from 40 cents to over 90 cents after I got out. Sure, I kicked myself but I moved on instead of dwelling on the miss. Here is the silver lining, my picks all have the potential to run. And some run really well. The trick is to stay long enough for the run to happen. But I can tell you that I won’t be holding and “wishing” for the run. I’ll continue to stick to my rules mentioned above and see if that will carry me to see the run. So far, I think I did well for the year. And I like to keep doing well by sticking to my rules.
Now, what happened to $CERS that I used up all the available cash on Thursday such that I didn’t have enough to buy back the Amarin I sold?
I was holding only a small starter position on Cerus ’cause I was expecting some kind of correction to happen. On Wednesday, price was holding steady and even bounced back after taking out Tuesday low early in the morning; yet I wasn’t impressed enough to add more. Then on Thursday, price spiked in the morning to the high of $6.79 and then settled in the $6.7x most of the day. Yet, I didn’t add. Then by afternoon, price began to bounce much higher to the $6.8x area. I started to take notice. But when I was watching the price, it just kept going up with no sign of selling off from profit-taking. Then I read that FDA was suspending blood donation in Florida due to the Zika cases. I knew I’d to jump in despite the fact that I would be paying $6.9x to get in. I started buying as much $CERS in the $6.9x area until I used up all my available cash.
Sidebar: Looking back, this is very much similar to the case of $MTCH when I was adding more share in the $16.9x area expecting a breakout to $17 the next day. The only difference is that $CERS did breakout of the $7 as expected so I hold on to my position. Whereas, $MTCH failed to break out of $17 and I sold.
So far, the weekly chart looks bullish. This is a break out that finally made it after more than two years in waiting. The fact that FDA is involved in suspending blood donations in Florida changed the substance of the relationship b/w Cerus and Zika.
Below is an excerpt from the news: Fears Zika could soon spread to Louisiana and Texas after four patients tested positive for the virus in Florida
Scott’s statement Friday comes a day after the FDA suspended all blood donations in Florida to stop the spread.
The freeze will remain in place until each individual unit of blood collected in the two counties can be tested for Zika.
Meanwhile, blood-taking establishments have been ordered to implement an approved pathogen inactivation technology, to monitor for viruses themselves.
The FDA also said anyone who has traveled to Miami-Dade or Broward county in the past four weeks should be temporarily barred from donating blood.
‘As a prudent measure to help assure the safety of blood and blood products, FDA is requesting that all blood establishments in Miami-Dade County and Broward County cease collecting blood immediately,’ the FDA said in a statement on Thursday.
‘Additionally, FDA recommends that adjacent and nearby counties implement the precautions above to help maintain the safety of the blood supply as soon as possible,’ said the federal agency.
Notice my emphasis (underlined and in blue), “blood-taking establishments have been ordered to implement an approved pathogen inactivation technology.” Who else do you think FDA is referring to when they mentioned “an approved pathogen inactivation technology”?
Now, you know why I’d no problem buying $CERS even when I was late in the day buying at $6.9x area on Thursday.
Here is what I’m thinking, if there is no vaccine develop to fight against the Zika virus for the next foreseeable future, Zika would turn Cerus into a major blood pathogen inactivation technology company the way VisiCalc turned Apple II into a major business personal computer. In other words, there is a possibility that Cerus price climb will continue unabated from here. This reminded me of the weekly chart of $CLDX back in 2013. Take a look at the weekly $CLDX chart below:
Price was trading around $7.xx in mid-January 2013 and then traded higher all year to $38+ by early October. A pretty impressive run. If this Zika issue is not resolved soon and more infections appeared globally (especially after the Olympic event in Brazil), I wouldn’t be surprised if $CERS follows this pattern.
While I missed Amarin run on Friday, I was made partially whole by run on $CERS. Actually, if I had available cash Friday morning, it would be a tough decision for me to decide what to buy since I would be more inclined to buy even more $CERS and it was too early to know if Amarin would run the way it did.
$AKER was also bouncing this week.
Price is now trading above the weekly 79 & 89 MA supports. In fact, recent consolidation is now looking like a handle of a cup & handle formation since October of 2015. A breakout of $3.50 would be a good start and a breakout of $3.91 would really kick off the rally. I expect the coming earnings report in August to be quite revealing in term of market potential for AKER’s line of rapid tests. Perhaps, it is the catalyst that I’m looking for to trigger a run to take out all the resistances from above which included the $5.28 formed in April of last year. I believe this uptrend will be more substantial than last year rally ’cause this will be fueled by revenues from sales of the products.
Don’t forget that if this Zika infections continued to go unabated, it is highly probable that Aker would come out with their own Zika disposable rapid test. Please read Aker’s 1st quarter conference call transcript for the possibility which I also brought up from my previous post two weeks ago in this blog. Unlike the pregnancy test, the Zika test will be a recurring purchases for many would-be mothers to monitor the possibility of Zika infection during the nine-months pregnancy period.
$SEED also bounced higher for the week as well.
Although there was a sudden spike up that frizzled out, price still closed higher for the week and this is still good news to me. I believe when the CEO started to spread the words on $SEED potential, institutional investors will start to come back in to bid the stock back up to reflect its true potential in the unstoppable expansion of GMO seeds in the agricultural world amidst the continued growth of world population.
While the rest of my positions in my port is doing great, $IBIO remained in hibernation mode. In fact, it looks like it rolled off the bed here.
I do not and will not concern myself with this one while watching the other stocks in my port to blossom. I know that eventually, $IBIO would wake up when its fibrosis treatment begin to show legs. Furthermore, its planted-based manufacturer of future vaccines is something that is much needed in the future. I would not know when but I don’t mind holding this for the possibility. Those who are impatient with iBio can have their laugh for all I care. I’m just sitting on my shares until the days the world calls upon iBio for quick and effective vaccine production.
And so my week ended with more gain. Despite more drawdown from $IBIO, gains from $AKER, $CERS, $SEED, $CARA (traded profitably inside the week), and small gain from $AMRN all contributed to my port gaining another few % for the week.
Btw, I posted all my trades within reasonable times in my twitter account. All past trades mentioned can be traced back in my blog as well.
Main port (no margin): IBIO SEED AKER CERS and 25% cash. (up 41.7% YTD)
Trading port (with margin): IBIO down 7% on position only but up YTD on port
My 2 cents
From my camera: