Weekly Update (7/24/2017)

Last week we were hit by some unexpected burrito news, which hurt our small weekly CMG position. Thankfully, we were able to book big wins in YY (+507%), CLF (+110%), GILD (+100%), and UEC (+21% common stock) to make up for that.

Not much to say about the market here besides the usual; we're in trend mode. Let's dive right in.

 Despite numerous dips, the market has continued an upward trajectory each time it has dropped. We see this continuing for the rest of the year.

Despite numerous dips, the market has continued an upward trajectory each time it has dropped. We see this continuing for the rest of the year.

 

Short Term

This week, we expect a lot of the sectors that broke out last week to continue their run. In materials, X finally broke out of the range it had been trading in the past couple weeks, and we like it, AKS, and FCX most in this industry.  With earnings coming up, we don't plan on adding to our positions here, but we will hold our options through the report.

Biotech also continues to be a big winner for us, with massive wins in ONCE, GILD, and more.  Although the threat of more healthcare related news could throw these stocks off their recent gains, we continue to love this sector. GBT broke out on Friday, and the gains there could be huge if the stock can keep its run going. Our platinum members got in before the breakout. 

We're really watching earnings this week and seeing how stocks react. We want to buy some weakness in strong names, and we think this earnings season will definitely present us with some fantastic long-term options. We're looking at AMD, CRM, and DATA, and might initiate some positions this week. We also are thinking about possibly jumping back into DDD for the first time since our last successful trade with that company.

 

Strategy: Buying with the Trend

When you trade stocks, your goal isn't just to be right about a certain company; Your goal is to make money, simple as that. When the goal is to make money, you should be doing everything in your power to maximize the success of each trade, and one of the best ways to do that is to trade within the trend.  

It's faster and easier to get somewhere going downhill than it is going uphill because you have momentum behind you instead of resistance. Think of stocks the same way. In general, if a stock is headed up, it's far more likely to continue to doing so than suddenly reverse downward. If a stock is getting pounded, it's unlikely that that trend will reverse until there is some sort of news or earnings report that triggers a reversal.  

Because of this momentum, you should seek to get into favorable long-term positions based on momentum. For example, think of the momentum behind the large tech stocks the past 5 years. While there were certainly periods where they didn't go up, they generally have been roaring steadily higher throughout this time. It's a lot easier to make money following trends than seeking to fight them; imagine the millions of dollars that have been lost from people trying to short TSLA.

Don't confuse trend-following with buying elevated positions, however. Chasing a FANG (Facebook, Amazon, Netflix, or Google) stock after a big run is recipe for disaster. Stocks are like athletes; if they sprint on a certain day, they typically need a little time to rest before continuing their run. You should almost never initiate a position when the stock is up 3-4% in a day. We will teach you more how to trade using this strategy below.

 

The Trade:

What we're looking at here is the opportunity to buy stocks with strong long-term momentum in times of weakness. The commonly used phrase is "buy the dip."  If you look at the market as a whole, it has steadily been going up since the beginning of time. Sure, there were months, even years, where stocks declined, but if you held throughout it all you'd see that you are better off today than you were when you started. The market making all-time highs certainly generates a lot of fear that it will come back down, but how many "all-time highs" have been recorded throughout history, and continue to do so?

A large 2-5% pullback (if it does occur like many are predicting) will be the time to buy your favorite stocks on sale. Buying stocks during market corrections is one of the hardest things to do from an emotional standpoint, but usually pays off the most. 

Happy Trading

- The Minotaur Team