PLAY LIST: OCTOBER 2018

Here is another edition of my semi-regular playlist. I try and keep these up-to-date on a monthly basis. Some picks may change so try and check back occasionally; not all trades are perfect and more may data develop that changes my view on a particular security.

Risk is high this month for a myriad of reasons. We have Midterms coming in November, another Fed Meeting, and a whole host of geopolitical bullcrap that our self-serving president brought upon us at the height of quantitative tightening. Be cautious. I use what I like to call the 25/10 rule (yah, I made that up myself). You buy 25% of a full position at a time, and a full position cannot exceed 10% of your available trading capital. If it ever does then you look to trim a winning holding or to scale back a loser. Also, place tight but logical stops. You want to limit blowout risk to the downside while not falling victim to market maker price manipulation to the upside.

Without further ado, here is my initial wish list based on valuations, technicals and sentiment:

(1) Spotify (SPOT): It wasn’t too long ago people were selling off their second child for a chunk of this bad boy at $190. Those moon-shotters were right about one thing… its an intriguing company. Just not at $190. Thankfully Mr. Market brought it back down to its IPO price, shook out all the pumpers and then gifted us a delayed TenCent Music IPO (who happens to also be a large investor in Spotify, as well as a competitor). I’m aiming for a $152ish entry here and will hold on a firm trend to the upside. If we get another macro selloff, I will look to add at $138. My price target as of now would be about $165-$168, but I prefer a touch-and-feel approach to trading rather than set firm limits. Options are perfectly designed for setting risk parameters — if you prefer a formulaic approach then look at the option chain tomorrow.

(2) Sonos (SONO): Here’s another IPO that got slammed by the bear brigade back down to the offering price. Aint it funny how IPOs get hyped through the roof, magically appear on your trading platform with a 10-30% premium and a slew of negative news articles? Seems like the underwriters really enjoy an old fashioned bait-and-switch. BUT anyways, this ticker is catching a big flow of bids right now (institutions buying means something is happening… maybe a merger, maybe good earnings, or maybe a holliday run up). I like it below $11.50

(3) Chinese Tech Names (BILI, TCHY, JD, BABA, WB and HUYA… no to MOMO and SINA… meh to BZUN, heavily traded): This group has been slaughtered so hard over the past 10 months that they resemble that pink mush McDonalds calls a chicken nugget. Just pull up the charts and you’ll see a systematic unwind on the scale of a recession. I don’t want to laugh off the risk here — China is a giant ponzi and those fake numbers dont tend to mix well with trade wards. At the same time, China does print a new billionaire daily and since the state only has like 10 real companies who control everything in a walled-garden-economy, that money needs to flow somewhere. I expect a big run up in there in the coming days and a sloth of bubbly news flowing from the oligarchs of our country who love to manipulate prices. Catch a ride on the wave — cautiously — and aim for a couple month hold that takes you to about 75% of the most recent highs on these names.

(4) Here are some others I am watching but think are due for another drop prior to a good entry:

  • CGC — I like the risk-reward here and have a smaLl position, but a drop to $38 is still possible without destroying the bull trend. The pattern is bullish though, and I am assuming you are considering marijuana stocks because you believe in the industry. If you just want to throw money away then go to TLRY)
  • KO (something is up here and I see an inverted H&S. It’s setting itself up for a plunge or surge on any cannabis related news)

(5) Here are some stocks and sectors I will be avoiding in the coming week:

  • SQ — this got too hot and went parabolic. It’ll seem enticing but don’t bite. Just a giant ping pong game for the bears going into 2019. Hold if your basis is below $50, sell on a bounce if its above $50. BUT do you own DD here, I am working with incomplete data since next week hasn’t happened yet.
  • Energy — most of this sector is in a rising wedge pattern. You saw what that did to tech this week. A drop in oil will wake our favorite furry Ursa Majors (latin for bear, I think). However, it does seem some of these rigs are catching a bid and I will continue watching them for merger announcements.
  • Consumer Cyclicals — I hate this sector in general. Malls are in a secular downtrend to the grave, so it’s just dominated by a bunch of makeup companies, wannabe tech companies ran by non-techie millenials, about 15 Oprah-related corporations, and Amazon… who makes up about 50% of the index. Not so coincidentally, Amazon makes up about 50% of every index, so any value you see in these names ebbs and flows for no real reason of their own. I mean, my god, do you really think that price action in Macy’s is because people believe its a growth story? If it’s a value story, then take note of the Sear’s bankruptcy filing being dropped on us next week… that should move some names in here to the downside. Lastly, the Xmas trade happened already — your’e not a genius if you are just putting that on now.
  • Penny Stocks & Microcaps — Outside of some biotech plays, I would avoid these until the large & mid caps jump. The Russell 2000 is in a bear market and these types of companies have a tendency to fail during inflation; something about not making money with a levered balance sheet really kills them off, who-woulda-thunk. It’s a tough trade in general, with sharks at every term and no real barometer for value (most people don’t think that $.01 tick matters until they are in a 10,000+ share position)

(6) UPDATE: Here are some other companies I am considering a postion in based on block trades and favorable long term trends. Don’t buy any of these until a few more days worth of chart data come in (really, a whole week). It is important to determine if the gap ups were due to trend exhaustion or said trend will continue. If confirmation is bullish and the trend resumes, then consider looking into them as a longer-oriented swing trade. If the pattern turns bullish, aim for entry at the onset of next year with an entry 20-30 bucks lower than the current price. Overall, strong tickers and that is why I would recommend putting them on your watch list —

  • Twilio (TWLO)
  • Alteryx (AYX)
  • CyberArk (CYBR)
  • Sendgrip (SEND)
  • Amarin  (AMRN)
  • Viking Therapeutics (VKTX)
  • Wix.com (WIX)
  • Salesforce (CRM; considering options here due to high price per share, will create synthetic long position via calls & puts)
  • Sunrun (RUN)
  • The Trade Desk (TTD; this is a favorite of mine, strong company)
  • EGain (EGAN; this one has been a recurring name in my scans for weeks. Seems someone is acquiring a sizable position)
  • Teladoc (TDOC)

 

I will update this list as next week unfolds. Overall, sentiment is not positive. It’s best to just wait out the storm. But if you have a market addiction like me, then give these names/sectors a glance tomorrow. I like to believe I am always right — narcissism does that to you — BUT you should not. 25% of trades work out for the best traders. Instead, use this list to sort through noise of a bear market and perhaps identify a few decent value plays (and when I say value, I mean in conjunction with the past 3-6 months of price action rather than PE ratio).

Cheers

P. Bateman

 

P.S. Once again, not spell checking. Get over it or volunteer to be my editor for free.

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