Stockstalk Thinking Out Loud April 3, 2017

StocksTalk
Hi, and welcome to Stockstalk. We’ve gotten some feedback (both good and bad) on some of the changes that Steven and I have tried and we appreciate it. I’ll be sending out an anonymous survey in the next couple days to gauge interest on different aspects of the market and this newsletter, any honest opinions would be helpful.

But in the meantime we had a few market events, which we need to be aware of only as they affect underlying sentiment. Do Brexit, US Fed interest hikes, Trump tweets, or whatever really affect the bottom line of Precision Drilling, Microsoft, Apple, Birchcliff, or Franco-Nevada? If life were fair probably not. Technically option prices are directly affected by interest rate changes (an interest rate hike would make the Black-Scholes model increase the value of call options out of the money, and decrease the value of puts… Not much for shorter term expiries, more noticeable on LEAPs). But the news helps create the mood traders are in, for better or for worse. Even it we see a stock with great fundamentals, fantastic chart, sector in season, and even like it, if the whole market is fluctuating it can have an effect on any one stock/ETF. And until the past week, the general direction was gradual uptrend, which most people don’t seem to mind.

There was more Brexit news last week. Article 50 was officially triggered and the clock is ticking until March 2019 for all the trade agreements to settle. Euro and pound dropped a bit, the rest of the market seemed to have it priced in. It’s getting harder to “buy the rumour, sell the news” with a faster-paced INDU/SPY, but the reversals have been just as quick. Fed meeting minutes will come out Wednesday and US employment is expected to stay at 4.7% on Friday (well, ShadowStats still has unemployment over 22%, but that’s not tradable news).

So it should be a relatively quiet week for selling calls.

MSFT was down $0.31 today, so it was a decent day to buy back any weekly options for 07 April 2017. The $65 strike dropped a third in value, so depending on the entry point saving the assignment commission can be a strategy. My Dad was a big fan of rolling options over right away. Buying back this Fridays $65 for 60 cents and selling next weeks for 90 cents could be worth it with at least several contracts. I’m more of a limit-order-guy when it comes to covered calls. Most of the time in a market with a bit of choppiness it’s possible to make another 10% on a rolling over trade by picking sell price above market and waiting a bit to see if it gets filled. Then I’ll put in a good-til-day limit sell and see how it goes. The benefit to rolling over the options quickly is to keep the time factor money deposited into the account. Five days away on a stock like MSFT there’s about 3 cents worth of time decay today. Going out till next Friday there’s about 5 cents of time decay for tomorrow. So if the call is rolled out until next week and the spread between the limit prices can be filled at more than a nickel more, it does pay to be a little more patient. Or at least covers the commission anyway.

Precision Drilling (PD.TO) also bounced around a bit. Seems to be basing out a bottom and kept off it’s 10-day moving average. It looks decent and it’s certainly possible to sell a 21 May 2017 call for 45 cents and pick up 6.5% after commissions for six weeks. Not bad for a days work. As I mentioned last time it is moving into a period of seasonal strength though, so one might be tempted to roll up a call just as the sell-in-May-fever comes around. The 21 July 2017 $6 is around 70 cents for 2 extra months, but there’s probably time on this one. Good to watch.

Franco-Nevada (FNV.TO) had a good upswing today. It’s also coming into it’s seasonal period and almost reached it’s short-term resistance at $90 today. My Dad was selling calls on this in his RRIF for income and that was working. FNV is slightly more volatile so it does need more attention. The more volatile the higher the premiums go so there is a benefit for the effort. The options are quite liquid, so the decisions are always reversible.

Just a note on one of the Chinese companies Steven mentioned the other day. Tencent just bought a 5% stake in Tesla, and there was a news release last week that one of the patched VMWare bugs was found by them. They may not be listed on any NY exchange, but they certainly are playing a part in some of the other companies there. Even our new Trudeau is buddying-up. Steven’s a lot more familiar with China, just seems there will continue to be more news on that front than less.

For those interested in technical analysis we’ll be having a meeting at the library on Wednesday. I still have to confirm the speaker tomorrow, but we will be there. I also live stream the meetings so if you happen to be interested in the CSTA but can’t physically make it, let me know and I can send you a link.

On a sadder note Lee Walker passed away last week. I’d only known him for the past few years through the CSTA, but we lived very close so my Dad would pick the two of us up and we’d go to the meetings together. He was a funny guy. At the service on Sunday I saw pictures of the young Lee… quite a handsome fellow. That means he married in spite of his humour. Everyone had a funny story about Lee. I saw firsthand how he could lighten a room. And he did like his Point & Figure charts. He will be missed.

Trump Launches Missiles, Oil and GOLD Go Up

In a move that the Twittersphere says is a ‘wag the dog’ distraction from the rest of his presidency, US President Trump has ordered his army to fire a few missiles into Syria after the gas attack a few days ago. Apparently Russia was supposed to have secured and captured this gas and its makers a few years ago but failed to do so, and so Trump has stepped in. And Hey, what happened to the concern about Ukraine?

Today’s events have roiled markets and have now given us the pullback that is needed to reset things. Further, both WTIC and GOLD have jumped, the one because of the uncertainty of Middle East oil, the other because it’s a safe haven trade. Both commodites have moved despite the USD staying relatively stable.

We wonder how US arms manufacturers will do tomorrow. Same with BANKS as they have been precariously perched for the last little while.

We don’t have the charts in front of us but there is research out there that shows markets can drop suddenly because of events like these but also tend to rebound in sharp ‘V’ patterns.

In terms of our Portfolio, we got rid of LABU a few days ago, luckily before its big drop, and entered into another position of NUGT. We still hold PD.to and BIR.to and a couple CALLs on DGC.to.

These events in Syria should roil the markets. How will Russia react both militarily and in terms of its markets? How long will this conflict last in an area already decimated by turmoil? Is this Trump’s answer to Bush’s Iraq invasion? Lots of questions, few answers.

Trading Idea: GOLD STOCKS at support/resistance

If there’s one thing that we can agree, it’s that time flies and magically we seem to have come to the end of the month of February. All that really means is that we are now entering into the “sweet spot” of market trading: the so-called “Super 8 days” during which stocks (and markets) tend to do better because money managers re-jig their portfolios by selling losers and buying some winners. Anyway, one trade idea we are considering is playing some options on GOLD STOCKS because many of them have come down to the support/resistance areas. Look below at the chart of AEM.to:

RSI is turning up, MACD is turning up, but price has poked through its 50 DMA. Looks good! Looks bad! And that’s where we might be able to play this trade using two different option strategies, a STRADDLE(buy one CALL and one PUT at the same strike price) or a STRANGLE (one CALL at a higher strike price and one PUT at a lower strike price). We’ll lose on one, gain on the other… unless the stock price just moves sideways in which we’d lose both.

To test this out, we’ll PRETEND to buy a CALL at 60.00 for 1.36 and the PUT at 58.00 for 1.31, both for March 17. We’ll see how these play out over the next few days and track our progress.

Just heard that Warren Buffet bought some more AAPL and some SPX fund. Something to watch.

Resources for Investors

If you’re looking to getting started investing or perhaps you’ve already traded your first few shares, you’ll need a good source of information from a variety of sources. Below are some of the better resources for investors all over the world.

**Information Overload!!**

All of the information below needs to come with a word of caution. Having so much information at your fingertips is great but you must be aware of just how much of it can be (and is) “noise”. It’s a good thing to keep learning, but when it comes to your investments it doesn’t matter what the rest of the world is doing. The only thing that matters is how your investments are doing.

Economic Announcements

  • Econoday – Great for finding out about all of those “important” government reports and announcements. Has an option to see US or Global events.
  • Your trading account or brokerage. – Many trading accounts also allow you, the trader, to access various streams of information, be it S&P reports, analyst ratings, or news about the companies you own. Some require payment but there is still a lot of free information out there (which can be a problem sometimes!)

Seasonality

  • Equity Clock – A seasonality-focused website, good for understanding what sectors are in or out of favour with a focus on the Canadian markets.
  • Stock Traders Almanac – A favourite and one of the original folks to begin tracking the seasonality of the markets. Yale Hirsch founded the Stock Traders Almanac way back in 1967 and its been published annually ever since then. Their free site has lots of useful information on it, especially as it pertains to the USA markets.
  • The UK Stock Market Almanac – As the title suggests, this almanac focuses on the UK markets (the FTSE and its brother and sisters) while also touching on European markets. Annual Publication or see the website for some info.
  • Alpha Mountain / Brooke Thackray – The Canadian “seasonality” guy who publishes an annual “Investment Guide” that tracks both Canadian and US markets. Offers some trading ideas in his annual publication (which you could probably find on your own) but the website is also useful.

Newspapers

Some are good, some are so-so, some can be skimmed if they’re given for free before you board an airplane. Investors typically need to do a lot of reading but it doesn’t always come in the form of the newspaper. Read these for some ideas but don’t be beholden to them. Oftentimes, once the news has hit the papers, the major part of the trade is done and over so just be aware of what role these papers play in your own information intake. The major newspapers include:

Magazines

The great thing about magazines is that they often offer more in-depth coverage of financial matters than newspapers or TV broadcasts. However, print magazines are often out of date before you even receive them so it might be better to check their websites instead. The one problem you’ll have with these publications, however, is that these guys often don’t do as they say. In other words, you may read a very good article about what such and such firm or analyst recommends, but it doesn’t mean that they themselves are investing in it. Be careful and research your investment carefully before committing any money because it could save you a lot of agony down the road.

  • The Economist
  • Newsweek
  • Bloomberg Businessweek
  • Time
  • Investor’s Business Daily
  • Forbes
  • Barron’s
  • One other idea you might want to consider with magazines and newspapers is to find something COMPLETELY UNRELATED TO STOCKS AND INVESTING, such as a science magazine, nature, or what have you. By reading these other magazines you’ll start to develop an idea of what products are being developed and what sort of companies to look for. Then begins the massive search of the GOOD and PROFITABLE companies. When reading, it helps to jot down some ideas in a notebook or on your cell phone.

News Feed Websites

Oh do be careful with these because you’ll quickly get absorbed and lose track of your life. It’s very easy to keep reading just one more article but, really, how much do you need? But if you want to scan the headlines, the following sites will be helpful:

  • Finviz – a news aggregator that tracks articles from a variety of other websites
  • Kitco – aggregator for the metals and mining sector
  • Market Watch

Twitter

Twitter is the new news feed despite what some conservative social media folks will tell you. Donald Trump goes right to Twitter because there’s no interference from the US press. Find some accounts to follow (including the above mentioned news sites, etc.) and then let the news come to you instead of you chasing it.

Charts

If you want to trade successfully you’re going to need to looks at charts. Charts simply provide the best snapshot of price history. Although you can buy charting software, you can save yourself a few pennies in the beginning stages and use some of the free resources online:

Options

This is a strategy we focus on here at Stocks Talk and it’s proved useful. It pays to do your research about this strategy, however, because there can be a lot of moving parts. Moreover, there are a lot of options available both on the Canadian and US side of markets, not to mention global options!

Newsletters

In addition to our own offering here at Stocks Talk, there is no better way to learn how to think than from those who have been doing it for years. Stock market newsletters can help give some idea for what to look for and even offer some background information that may not be readily available in the general news. Some newsletters are free and then offer separate paid services while others will cost a few hundred dollars or more for their information. Newsletters to check out include:

TV

Probably the most commonly used medium for business information, there are numerous news outlets that provide everything from breaking news to in depth special Reports. Some outlets even have YouTube channels.

Podcasts & Webinars

Good for something to listen to when on the tractor or at the gym, or maybe just in front of your charting software, podcasts are timely and often offer different perspective with interviews from industrial professionals and people who do manage money for a living. Many of the major news outlets have podcasts, but the more insightful ones are the individual podcasts run by financial managers or analysts who have no allegiance to anybody but their clients. Some that we like include:

Reference

Sometimes you’ll need to look something up, be it a population, a geographic location, statistic or simply “What is X?”

  • Stockcharts.com – Probably one of the best places to learn all about charting. You can subscribe for more features or just use their free charts to get an idea of what’s going on.
  • Wikinvest.com
  • Investopedia.com
  • ETF Encyclopedia
  • Wikipedia – This should almost go without saying that you can use this site to find out lots of information about just about anything. A great place for background or historical research.

Portfolio February 20-24, 2017

So we begin anew. With the passing of Andrew Sirski, the “farm” is passed on to his sons, Jon and Steven. Please find below the latest of our portfolio and some of the ideas we’re pursuing.

First, we need to start with a disclaimer.

We do not offer any financial advice nor are we recommending to buy or sell any of the securities we mention. The following information is provided strictly for educational purposes. Before placing any trade, please consult a qualified financial professional. Some of the ideas we are considering are not for everybody. Further, by using this site and its contents, you understand that StocksTalk and its contributers WILL NOT BE HELD RESPONSIBLE, LIABLE, OR ACCOUNTABLE for any loss incurred as a result of the information provided. Our goal is only to provide financial education and are by no means recommending buying or selling any of the stocks, options, etc. that we write about. We provide our own thoughts on what we will do with our money inside of our portfolios and bear no responsibility to report every transaction. We will do our best to provide up to date information on our trades for educational purposes only and, with that, all information provided is believed to be true and accurate at the time of its transmission.

All that is to say: Be smart about your money. Do your own research and consult a qualified financial professional before making any trades. It is your money and your responsibility, not ours.

With that, let’s get down to what’s been going on.

A few changes. We’re hoping to release this newsletter both in text format and online so that we can post charts and label them accordingly. Moreover, we want you to be able to see them right away instead of waiting for your charting site to load up or whatever you’re using. Second, we’re looking for your feedback for what you would like see covered and maybe added or subtracted to the website. Third and lastly, we’re hoping to post a few more informational articles on what to look for in the markets instead of focusing just on the trades themselves.

Now, onto trading.

The first thing to notice is that GOLD jumped this past week and teased us into thinking that it might bring up all of its related stocks but you can see from the charts. Currently, we hold NUGT, DGC.to, and MUX.to. Andy held SLW.to just before his death and had sold CALLs on his shares which were all exercised a few weeks back.

NUGT. We hold 400 shares of this leveraged ETF and have been doing alright with it since we purchased the majority of them around $10-11. I sold WEEKLY CALLs on Tuesday or Wednesday thinking that the ETF would drop with the price of GOLD. However, the trade must’ve triggered a reaction in New York as shortly thereafter, the price jumped. As a result, I bought those CALLs back on Friday thinking that, despite the loss, I could sell another CALL next week or, better yet, wait for the ETF to go up and try to sell at a higher strike price. This is, of course, very speculative.

On the technical side of things, we can see that the price has sliced through the 20 EMA and has since traded along that line. Will it drop further or will it do its “normal” end-of-month/beginning-of-month rally? The play we have in mind is to wait and see how this ETF acts around the end of month and then possibly selling another series of WEEKLY CALLs.

We should point out that you should be very careful with these leveraged ETFs because they can move very fast in either direction. The smiles are fast to evaporate when the numbers turn from green to red and then the deadly thought of “It’ll go back up again” or, even worse, “I’ll wait for it to go back up and then sell.” Yeaa…. right. So, be careful! If you’re not comfortable holding these things then don’t buy them. They are good for a few days and often move very quickly but they’re not unpredictable. The best thing to do with these leveraged ETFs is to watch two things: first, the underlying ETF that they track, the so-called “regular” ETF. Next, watch the range within which these ETFs trade. For instance, many of these ETFs will jump $7-10 before pulling back a little. By studying this price movement you can gauge and create a reasonable point of entry or, even better, know when to possibly stay out. This can be tricky because sometimes they can continue to go up despite indications that they should go down.

That being the case, I suspect that NUGT will actually test its 50 DMA or possibly drop just below it before making another surge. It’s just an idea.

Next, DGC.to. This stock has basically traded sideways for the last few months but I’m not altogether bearish on it. Maybe I’m an optimist but is that some sort of basing pattern I see? I don’t know. This past week we sold 2 CALLs for an $18 strike price for March 17. Why? Because when we did sell them the stock price dipped and so the premium was quite low. Our purchase price is around $18.23 and we only got $0.29 for the CALLs so this is one that we might buy back or simply let get exercised. Andy never liked buying back CALLs but I do because I hate seeing that loss on the underlying stocks. At least with CALLs you can “re-do” the trade and basically erase whatever loss you might have incurred from buying them back. It’s your choice.

Now, let’s step back and look at the technicals of DGC.to. On the daily chart we see a rising RSI, which is a good thing. All the way back from October of last year we see that the RSI has been rising despite the price FALLING and now trading sideways. Full Stochastics has basically been in synch with the price movement so it might be a good indication of when to get in and out of the stock right at this moment. MACD, also rising. The technicals look good-ish, good enough to warrant watching the stock and/or selling options on it to bring in an income.

One last note about DGC.to. It is a stock that we watch pretty closely because it is often a good barometer of how the rest of the GOLD STOCKS might act. If DGC.to goes up or down while another stock like AEM.to barely moves, that is often a telling sign that something is amiss in the GOLD STOCK sector and caution is warranted. We point this out mainly because DGC.to can offer some nice rewards (especially by way of WEEKLY CALLs) but it often can jump around quite a bit which may make you swing from joy to despair pretty quickly.

Next, MUX.to. We bought this basically because we heard it mantioned on one odf the podcasts we listen to and thought, well, they’ve done well before so why not now? They mentioned it back a year ago, we bought it a couple of months aaaaand… it’s down so far. It does have monthly options available but since our account is mainly tied up with DGC.to, we don’t have enough room to add any more to this position nor to sell a reasonable about of CALLs to bring in any sort of profit. We may end up selling this one and just take the loss. Take a look at the charts below and see for yourself.

Onto PD.to. Andy never bought this stock but never had anything bad to say about it. Instead, he chose Birchcliff Resources which, to me, seems a bit more volatile. Looking at the charts for PD.to, I see that the RSI is hitting oversold territory, the Full Stochastics is declining but turning up, and the MACD basically is down. So too, the price is down but reaching its 200 DMA which may act as support. If we take a longer view of this stock, the longer term trend is up and this may be in fact a good time to add to our position. We’ve sold CALLs on this before since we’ve held it for a few months now and have made enough money to keep it going. Our purchase price is around $6.50 per share so, with this fall to the 200 DMA, we’re basically even on the stock. Should we have sold at the top a few months ago? Should we have bought a PUT? We did buy a PUT back in December for the January $7 expiry and guess what happened? The stock ran up just in time to take our PUT OPTION MONEY! Just look at the stock price from January 16-23! Grr! But that’s the risk with PUT options. At the same time, we had sold a CALL at the same strike price ($7) and actually bought that one back at the same time, so we made money on the CALL at least. We then sold another CALL for February 17 and that expired worthless. So, overall, we seem to be making money with PD.to.

One other trade we’re watching with some interest is India.  

We play India by using the INDL leveraged ETF. We made money on it a few weeks back and, looking at the chart, its showing some signs of life. Again, with these leveraged ETFs, it pays to watch and study the price movement, including the typical amount it can jump PER SWING/RALLY and the typical amount it can fall PER DECLINE. We don’t mean OVERALL, we mean per RALLY, how much does this ETF move? From what we can see, it moves about $6-8 per rally and then drops $2-3. This isn’t an exact science and you’ll need to watch it yourself to see where you’d be comfortable entering into such a trade (if at all) but with that in mind, we might see this ETF pull back to its 20 EMA before making another surge. Should it fall through its 20 EMA, then we’d expect a 50 DMA test or a 200 DMA test. Now it’s good to note how the RSI has been going up since November and might be making a lower high despite the price going up. Full Stochastics have been overbought for a while but the MACD looks good, as do the moving averages. Overall, we might see this ETF temper its rally and trade sideways for a few weeks before it makes up its mind whether or not to break through its previous high (around $60). Consider the 5-year chart below:

Sadly, this ETF is a little more expensive than NUGT so it prevents us from building a larger position with which we could sell CALLs (probably not a bad thing considering how volatile these things can be) but, the upshot is that if you use an ebrokerage such as Questrade, then BUYING these ETFs is free but selling can be done all under one commission. So that’s something to think about.

Listening to the Talking Heads & Bloggers, GOLD should go down… or up, depending who you listen to, and ENERGY should go up… or down, depending who you listen to. Markets should go up… or down, depending who you listen to and so, overall, all we know is that things should go up… or down, depending on who we listen to and which way we hold the chart. There is a famous quote that goes something like “If you torture the data long enough, it will confess” (Ronald Coase). And so it goes with our trading!

That’s it for this week’s portfolio. We have a few other posts we’d like to put up in the meantime so we’ll get at those right now. As always, we’re available to answer any questions you might have. **The phone number Andy used will no longer be in service so it’s strictly through email for the time being until we figure out another method of communication.

Happy trading!