Intraday News Trading

I usually trade some news events during the week. One of those is the crude inventory release. The number is released every Wednesday at 17:30 (GMT +2) and on US holidays on Thursday at 18:00. This is an exciting news event since it brings a lot of volume into the market. Last Thursday I traded the news only to find myself after a few minutes with a big loss in my account. The news came out as Actual 4.900M Forecast 0.650M Previous -2.976M. That means there is a 7,87 million barrel difference to the previous number. An increase means always more supply and more supply means the price should fall. And so it did for a few minutes. As the first 5 min candle was closed I opened a position at the previous low. Shortly after that the price rapidly increased. I had my stop at 51,64 which is the high of the first candle. The price just kept increasing until my position was closed. Not that I am afraid of losing, but sometimes I have the feeling the market is doing the direct opposite of what it should or at least what I think it should do. I checked that there were no other contradicting news released that could have mixed the sentiments. How on earth did the market analyze the news as bullish for the oil price??!



The price just returned back to its original level like the market would have said "nope you are wrong, I will knock you out!". In my opinion it is not worthy for a single trader like me to enter any trades during the first 5 minute candle: the first 5 minutes tend to be very volatile and entering a trade could be affected by high slippage or an instant stop order. I have also noticed that the market often overreacts and the price will eventually change direction after the first candle like in this case.

Brent Crude Oil

I have been buying crude oil for the last two days. The price has now broken one important level of 51,35. The move was triggered mostly due the inventory report yesterday: A 2,56 million barrel increase was predicted but the actual number came out as a -2,98 million barrel decrease. So that´s a 216% difference and a decrease in supply always works bullish in the demand.

MeetMe Inc. (MEET)

MeetMe, Inc. is a social media technology company that owns and operates the MeetMe mobile applications and meetme.com. The Company is a location-based social network for meeting new people both on the Web and on mobile platforms, including on iPhone, Android, iPad and other tablets that facilitate interactions among users. The Company provides users with access to a menu of resources that promote social interaction, information sharing and other topics of interest. The Company offers online marketing capabilities, which enable marketers to display their advertisements in different formats and in different locations. (google finance)

The stock price is in an accelerating bullish movement well above the 200 day moving average. The price plunged after some director’s offloaded shares in august. This may indicate that the Q3 earnings report will not be as positive as the Q2:

However if the Q3 report is surprisingly positive I am looking forward on buying at 8,20$. 4 analysts have rated the stock as a “buy” and none as “sell” or “underperform”.

Incyte Corporation (INCY)

Incyte Corporation is a biopharmaceutical company. The Company is focused on the discovery, development and commercialization of therapeutics to treat medical needs, primarily in oncology. Forbes listed the company to it´s "Most innovative companies" list. Now the market capitalization is significantly smaller than the other medical giants, but aren´t we looking for growing companies? The company showed this quarter again some really good numbers:

I do not usually follow this kind of patterns, but when the fundamentals and other aspects of my strategy are right, why should I ignore a beautiful trend channel like this. The buy zone starts around 94$ and the first target would be 133$. Of course there is always the chance that the bears might push the stock down so that the channel is broken. Someone might recognize this as a bearish flag.

Update on Sabre Corp. (SABR) 6.9.2016

The stocks price has made a new low and is rising again towards the all-time-high. I am predicting volume increase at levels between 29,66 and 30,60. Buy signal if the price manages to close above 30,60.  

Weekly chart:

Sabre released some solid numbers on the 2nd of August: Quarter over quarter earnings growth 113%, ROE (ttm) 84%, Sales quarter over quarter 19,50%. Despite that the stocks price reacted bearish. Overall the stock is in a bullish cycle.

Daily chart:

Sabre Corporation (SABR)

Sabre is a solution provider in technology for the global travel and tourism industry. The software that the company provides is used by hundreds of airline and hotel companies around the world. Sabre is showing strong earnings, the EPS (quarter over quarter) has grown 85% and annual EPS by 110,40%. Also the sales are up 21%. The ROE is up 93,30% during the trailing twelve months and the stock is also supported by institutions: TBG Group Holdings holds 16,55%, Silver Lake Group 10,83% and Vanguard Group 5,24% etc. The stock is also technically showing a promising pattern (see picture). The stock is recovering  from the previous lows and is near the all-time high about to break through a 1-2-3 pattern. I am excited about the earnings report tomorrow before the market open.

Stock of the week

I am slowly moving away from day trading to swing trading or trend trading, since my daily job does not allow me to follow positions throughout the day. That is why I am working on a strategy which requires me to take a look at the positions after the closing bell. I am not moving away from technical analysis though, but I am increasing the significance of fundamental data. The strategy will follow William O´neill´s strategy and Michael Voigt´s represented "market technique". From this point on I will try to find an interesting stock every week and maybe trade it. I will write a short blog entry about it so that I can in the future look back how my recommended stocks performed. The markets are not good at the moment so I doubt they perform in the near future well.

Dycom Industries Inc. (DY)

Dycom’s business primarily benefits from increased demand for network bandwidth and mobile broadband, given the proliferation of smart phones. The company has been continuously benefiting from extensive deployment of 1-Gigabyte wireline networks by major customers. Most of the telecommunication companies are deploying fiber-to-the-home and fiber-to-the-node technologies to enable video offerings and 1-gigabit high-speed connections, thereby opening up significant opportunities for Dycom. As the picture below shows, the company´s  quarterly and annual numbers look promising. The stock has also a 89% institutional ownership and it´s stock is ranked number one among the competitors according to IBD ( Investors Business Daily).

 The only problem my strategy is facing with this stock is the risk/ reward ratio. Assuming the stock would increase in value by 50% and having a price of 94,98$ the stop order at 46,61$ we get a ratio of 54%. Also considering the order costs, I am risking 46% more than my theoretical profit could be. A good ratio would be above 100%. That is why I am only watching this stock. Maybe the price will form a new bottom soon, so could set the sell stop order on a more reasonable level.

Stress testing your strategy

Unfortunately there are many investors out there who do not appreciate risk management as a crucial part of active investing.  I still often have to count myself in with those people. To succeed in trading it is necessary to pay attention to risk management as much as you do to your entry strategy. I find that value at risk (later abbreviated as VaR) may be one of the very best risk management tools there is by which can calculate your potential loss over a given period at a given confidence interval. This computation tells whether a strategy can survive or not.

How to calculate VaR

To calculate VaR we have to assume the returns of the strategy are normally distributed. 

The returns should be logarithmic returns since we are calculating different instrument´s returns and that are not linked to each other. 

First we need to give the function a confidence level. Usually traders are interested in the bottom 1% of the left hand side of the return distribution. Hence with a 1% probability what is the biggest loss over the given time period?Therefore the confidence level is 99%. Then we need to calculate the standard deviation (STDEV.S) and mean (AVERAGE) return of the strategy. My strategy gave me the numbers 0,188 and 0,045. After that we multiply the portfolio value with the minimum return given by the confidence level (NOMR.INV) and we get an account value of 6072,23€ (with 10K€ starting cap). Subtracting these sums I get a VaR of 3927,76€. That means there is a 1% chance of losing 3927,76€ within one day trading. That is a heck of a lot exposure I´d say. 

When does the music stop?

The right question to ask right now is "when is the bull market going to change into a bear market". Knowing the right answer for this question will make you very profitable or at least it will make you avoid losses. The global GDP´s growth has been slowing down the last 5 years. China´s growth is slowing down. The Eurozone´s debt is increasing year after year. Now take a look at the government debt to GDP charts below.

Chinese government debt/ GDP

EU government debt / GDP

US government debt/ GDP

Everyone understands these graphs can´t keep rising forever...

 Eurozone Debt to GDP %

After Greece comes Italy and then Portugal. Will the same thing that happened to Greece happen to those two last mentioned.  Will the Euro last as a common currency? I would say there is a lot of tension in the air right now and no reason to buy stocks that are following the general market cycle. Stockpicking can still be profitable but I think the time of easy profits and bull market rallies is over. 

This is no investment advice, it is just my opinion. Give it a thought.

Money never sleeps ... even on a saturday night

Lately I have been lazy and lacking inspiration to write about or research the markets.  I have been on a vacation and it is now time to pull myself together and start seriously back testing my new startegy. 

I am working on a strategy that takes into account both fundamental and technical factors. This strategy is a blend O´neills investment philosophy and trend following. Since I have no idea where the markets are heading it is smart to stay outside, observe and research. In Chinese the word "Crisis" means also opportunity, so if we are going to have a period of a bear market I will be then ready when the markets are turning and instruments are undervalued.