shooting the moon

B

billyjoerob

For the amusement and entertainment of the Elite Traders, a journal to record some of my set ups. I'm a stock trader, generally take large positions, and trade infrequently. I generally go for high-probability trades with large position sizes (as a % of my account), usually lasting for days or a few weeks. Low churn and high conviction trades result in the best returns, but that will be for the market to judge.
 
First set up is Blyth (BTH) which is following the three and one pattern, as seen in GRPN and JEF.

Compare the charts.

BTH

http://stockcharts.com/h-sc/ui?s=BTH&p=W&yr=0&mn=6&dy=0&id=p15842670716

Compare GRPN in August 2012

http://stockcharts.com/h-sc/ui?s=GRPN&p=W&yr=0&mn=6&dy=0&id=p09132370327

Compare JEF in November 2011

http://stockcharts.com/h-sc/ui?s=JEF&p=W&yr=2&mn=0&dy=0&id=p34611933336

Three high volume weekly declines, followed by Monday open at new low and weekly close above Monday open.
 
Quote from billyjoerob:

First set up is Blyth (BTH) which is following the three and one pattern, as seen in GRPN and JEF.

Compare the charts.

BTH

http://stockcharts.com/h-sc/ui?s=BTH&p=W&yr=0&mn=6&dy=0&id=p15842670716

Compare GRPN in August 2012

http://stockcharts.com/h-sc/ui?s=GRPN&p=W&yr=0&mn=6&dy=0&id=p09132370327

Compare JEF in November 2011

http://stockcharts.com/h-sc/ui?s=JEF&p=W&yr=2&mn=0&dy=0&id=p34611933336

Three high volume weekly declines, followed by Monday open at new low and weekly close above Monday open.
More...

This trade hasn't worked as planned . . . so far. Avg price is about $26, price today is $24. I would normally sell out of a chart this ugly once I had losses, but this is what I think is happening (always dangerous, lol): there is a big buyer/s, perhaps the company itself, sopping up a flood of stock. Over the last month, short interest is up by 3 million shares - the float is only around 10m shares. An amazing 40% of the float is now short, up 300% in the last month, and yet the stock has barely moved.

http://online.wsj.com/mdc/public/page/2_3062-nyseshort-highlites.html

On top of that, the company probably enrolled 220000 people in the month of September. That's about 1/1000 of every US adult. (I get that number this way: a tweet on Sept 26 stated growth of 129% over the prior Sept. Prior Sept. was 81000 enrollments, so 81000*2.29 + (daily avg*5 remaining days in the month, so 185000 + 7000*5 = 220000).

What's amazing is the sheer size of the short interest, over 4 million shares. I don't think the shorts know anything I don't, in fact I'm pretty sure of that. If you look at the chart and all of the gaps following earnings, they've been wrong about pretty much every earnings report so far. This is an amazing company that's grown from zero to over a 1.5 million members in the span of about 18 months. That's the power of social media, and the company is trading at a 20% fcf yield. Put the growth, the cash flow and the short interest together, and I think we are talking about a short squeeze of epic proportions. The shorts seem to think this a ponzi scheme and fad, and they might be right - but when? Shorting this kind of 150% growth and a huge societal phenomena is a recipe for massive pain.

Or I could be wrong. That's always possible.
 
I get the FCF yield this way. $315 EV/$65 free cash, growing at 150%. Earnings should be coming in early Nov.

Edit: To be clear, the company is Visalus, owned by Blyth (BTH).
 
This trading (longer term swing trading) journal probably deserves a quick death, but in the interest of journal honesty, my last two listed trades were duds. After a big gain on LPR, I gave back the gains and ended flat. As for BTH, I took my biggest loss in years on that position.

So after the losses, I did this post-mortem:

a) posting the trades publicly clouded my thinking, big time.
b) the positions were far too large.
c) fell into the rookie trap of predicting a move
d) worse, which I don't want to go into

Utlimately, the strategy that worked well in 2009 and 2010 (large, high conviction positions) stopped working. Opportunity costs and real losses. Change with the times. The good news is, I took the big loss, it didn't bother me much, and changed strategy for 2013.

Strategy is ultimately take advantage of largest advantage, small size. I can get in and out of positions very quickly, which is the advantage of the retail trader. Why not take advantage of that? Second, precommitment, using only buy and sell stops, no discretionary entries and exits. Selection criteria essentally the same - breakouts with bases with some fundamental criteria.

Current portfoliot:

BONT
DK
IDT
MBND
NUGT
REXI
TRT
TPOU.L

http://www.finviz.com/screener.ashx?v=211&t=BILLLYJOEROBPORT,BONT,DK,IDT,MBND,NUGT,REXI,TRT&ta=0&p=w
 
Among my somewhat nutty charting hunches is the idea that dojis appear right before news or major turns in a stock (not just as bottoms or tops). I've posted on this before, but TRT is a good example.

http://stockcharts.com/h-sc/ui?s=TRT&p=W&yr=2&mn=0&dy=0&id=p60732108272

TRT is very thinly traded, so it's not hard to control the closing price (I'm guessing). So my unfounded hunch is that a doji is a way for a big buyer to signal to other buyers "OK time to get moving." This is a testable prediction, so we'll see what happens.
 
Quote from billyjoerob:

I generally go for high-probability trades...
More...

Counter-trend swing trading was the worst thing I ever did in my trading life. The losses were awful.

When news causes a price shock (gap) and price doesn't recover right away, it's likely to continue in the direction of the initial move until a major S/R level is reached. Same applies when price is grinding higher or lower in a trend.

The reason for this is the institutional trading that drives price doesn't want to be holding big losers and not holding big gainers when compared to their peers in the industry. That's why stocks can keep on moving to fundamentally ridiculous highs and lows. Weakness attracts selling and strength attracts buying. For small retail swing traders (who lose, they just do!) weakness attracts buying and strength attracts selling. (Intraday traders can easily profit either way if they're experienced.)

Small traders do best using technical price action analysis to latch on to the institutional trading that drives price. There are common patterns around S/R levels that tip the hand of the big money more often than not. Large positions can't be distributed or accumulated in a day, making swing trading in the direction of a trend the high probability scenario. You need a confirmed reversal pattern before the opposite side starts to get more aggressive and the trend-followers start taking profits instead of adding to the winner.

When I look at all my swing trades during my early trading, the only one that produced a large profit (25K) was the one where I bought a stock at new all-time highs after price jumped on raised guidance. It ran another 40% higher over the next couple of months.
 
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