Weekly Update (8/7)

 

Short Term

Every summer, there comes a time when the market doesn't do much, and there doesn't appear to be many favorable set ups presenting themselves. For much of this week, the market did just that, with light see-sawing action that didn't see many gains or losses either way. For an account heavily invested in options, this premium burn can be frustrating, but the end of the week saw some favorable moves that we think can really push us forward in the coming weeks.

We took some COST at the end of the week, as we believe that the run has only begun in that stock. The recent retest after a breakout is a textbook time to buy, so we took our swing. We also picked up some more UEC, as that stock has traded very favorably around this region. We plan to buy lower if it continues to drop, and uranium in general continues to set up beautifully for a multi-year run. We expect to be there when it starts.

China action also continues to be favorable, with BIDU continuing its monstrous run. We expect MOMO and SINA to follow suit, as they are both pushing for a breakout, and a positive earnings report from SINA could send the stock into a full-blown breakout. We'll be following these names very closely this week.

 COST looks fantastic here when you zoom out on the chart. Look at how nicely it's bounced off this trend line over the past several years. How can you not like what you see? 

COST looks fantastic here when you zoom out on the chart. Look at how nicely it's bounced off this trend line over the past several years. How can you not like what you see? 

 

Investment Lesson: Managing Fear

The market moves every single day. Stocks have roared higher for hundreds of years. A lot of investors are currently sitting with their cash on the sidelines, waiting for a pullback so they can enter in. With all of the discussions in the media, you'd think the market was going to crash tomorrow. The only thing is, the pundits have been calling for a crash for the past several years, and if you sold back in last November, you'd have missed out on an intense 20% rally.

The other issue with waiting for a pullback is that when it finally happens, many investors will be too afraid of the panicked selling to enter into the market. Think about how many times you've sold stocks after they've gotten crushed on an earnings report or received bad news. Imagine the entire market taking a 5% hit. You wouldn't want to touch a market like that with our trading account, let alone your own money.

An important part of being a successful investor is understanding yourself and investigating how this fear impacts your decision making process. Why wouldn't you see these dips as opportunities? If you look at the day the market dipped 2% this year, in the grander scheme of things, it would only appear as a small blip on the market's path higher, but millions of shares were sold that day due to fear. If the market starts to slip again, you'll see more panicked selling, and that needs to be the time that you buy.

 

The Trade:

Our advice is that you should never initiate a position on a stock you just learned about, no matter what. You need to study its movement, learn the range it trades in, and understand its momentum. You could never effectively jump into a new game without learning its unique set of rules and principles. At the time you initiate a position, everyone else that is playing in that particular stock has been playing longer than you have, and you stand to lose if you aren't prepared for the way it can move or don't understand the underlying fundamentals of the company.

Stalk your prey like a lion, and only initiate when you have a combination of the following: 

  1. The stock is sitting at support or on a trend line.
  2. The stock is trending upward, or you can see a clear sign of a reversal.
  3. The stock has multiple positive catalysts in its near-term future.
  4. The stock has strong fundamentals and a lot of volume underneath its current position.
  5. There are gaps or volume pockets that can potentially be filled.

If you begin to identify these characteristics in your positions and create strategies based off of them, you will no doubt become a more successful investor, and you will pick better individual stocks as a result.

 

Happy Trading

- The Minotaur Team