Trading Ideas for the Week Ahead: August 6

investing chart, good investments, going higher, up arrow, investing performanceBy Alex Salomon
When starting this column a couple of weeks ago, I was not entirely sure what to do with it: was I going to offer objective trade ideas for the week ahead or was I going to share my own subjective trading plan as the week unfolded? The first alternative would lead to only sharing ideas where I may not take positions, while the second choice was to share insights into my personal trading account for the week.

Well, this column settles it: Since I have found it (so far) impossible to offer advice on stocks I do not trade or at least consider trading if the signals are right, this column is officially becoming my trading plan for the week ahead and you can follow most of the real-time updates on Twitter @Alex__Salomon where I post real moves (entry, risk, target, stops, % gains and losses) for most of the stocks covered in this weekly plan.

Before we attack the week ahead, let’s review the previous week’s performance and metrics:

1) iShares Semiconductor Sector (SOXX) – In the Semiconductor world of SOXX (and INTC and the riskier 3x ETF associated to the sector, SOXL), I still think that SOXX could have double-bottomed at $48 around June 1 and July 15 just like it did around November 25 and December 20, 2011. The first target of $52 has been reached, but since there is a ways to go before $56 and $60, late-comers to SOXX may consider entering at $53.00, with a $1.00 trailing stop to start, taking profits at $54 (loosening to $2.00 trailing stop) and then $56 and $60. It is not the greatest trade idea out there, but it does offer a decent risk/reward ratio. And should the rally continue, the semiconductors will likely provide early fuel.

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2) 3D Systems (DDD) – In last week’s review of DDD, I let you all know that I missed out on my own idea (so I don’t currently own this name). However, I also in my plan to take profits at 7.5% and 12.5%. As such, if I were still in the name, I’d keep the final third on with a long leash trailing stop of 15% = $5.7 leeway (roughly $32.30). Note that one of DDD’s main competitors, SSYS, announced results that initially spooked the market and dropped DDD to $34. But it’s still above the trailing stop and thus, I’d keep it rolling and keep that trailing stop on for as long as possible!

3) Apple (AAPL) – Of course, AAPL was the illustration of the roller-coaster of the week but my position is still alive, untouched, and I am still waiting to take profits at $621.50 and $640 with a $40 trailing stop. We’re on!

4) Russell 2000 iShares (IWM) – The trade is still pending from last week, so just repeating: “patiently wait for a break above $80, make a failure ($79) your floor and be prepared to take incremental profits, $1.00 level at a time (profits at $81, then $82 and then a $2.00 trailing stop until it is taken out)” …it never unfolded and thus is still valid and on watch.

5) Small Cap Bull 3X (TNA) – As disclosed last week, TNA is a much riskier 3x ETF vehicle mirroring IWM and not recommended for early, amateur or inactive investors. TNA is a very speculative position and only for those who can consider wild swings, big losses and commensurate risk. With this disclosure, I still bought in the middle of the doom and gloom after Mario Draghi’s press conference: bought at $47.75 with a stop at $46.10, profits at $49.85 (taken, with a stop raised to entry) and next target at $52.50, trailing the last third for $2.50;

6) LeapFrog Enterprises (LF) – My first trade of the week (on Monday at the open) offered some great returns followed by heart breaking failure. The plan was “on a tight leash… try to get in at $11.00, use $10.50 as risk(stop) and $11.50, $12.00 as my bullish targets (then trail the rest $1.50 for as long as possible). On a longer term leash (but a bigger risk, too), I would get in now, use $10.00 as a floor (that is a very risky 12% loss profile so be very careful if you consider it), then use $12 and $13.50 as bullish targets, and then trailing for 15%.” LF started like a total champion and gave me the $12.00 profit target that same Monday! But then it announced earnings, broke completely down, took all my trailing stops and I had to move on. I cannot insist enough: LF is yet another example of why we use trailing stops at ALL times!!

7) “Short” ProShares UltraShort Euro (EUO) – I cannot recommend this position but since I am now focusing on real trading, it is on, and “working.” I got in on Friday July 27 at $22.14; I have a $1 risk ($23), first target at $21, then $20. I would liquidate the last tier (final 1/3) at $18 no matter what. This position is a long-term play associated with leveraged calls and unless stopped or meeting targets, could stay on until January 2013. EUO went from $22.60 to $21.72 during the week and the position is on.

8) Potash (POT) – Mentioned last week but nothing unfolded. It is still on my list, but I don’t know whether the $42.50 price level that provided so much support (in January, then March, April, and again in June) will form a base for a move up, or a ceiling for a short position?

9) Teradata Corp (TDC) – I am finishing this week’s review with the star of my week! As announced, I bought TDC pre-earnings and tweeted real-time about booking 6% gains in pre-hours on 50% of the position and then, after Mr. Draghi spooked the market, I closed out the rest of the position for 1.5% gain. The same day, I reloaded “TDC here at $68 and change, trailing to $66.10 (previous close), targeting a fill of the earnings gap ($71.50)” which got hit again on Friday and thus, I now have 50% of the position with a $3.00 trailing stop and will keep it on as long as possible (until the trail is stopped).

OK, here comes the tricky part: what am I looking at for the week ahead? It is a bit trickier now that the column reflects my real trades. Thus, I have 2 more of my rules to share (please find the earlier rules here and here):

#1  I do not believe in holding too many stocks in my portfolio: I try to stick to 5 to 10 stocks at all times (closer to 5 than 10). Anything above that and I might as well end up picking broader indices. I am willing to take risks to maximize returns and a portion of that philosophy goes to allocating big chunks of capital to fewer names.

#2  The second rule hurts the most, but if I am going to share a real trading plan, I have a “real” limit of funds in my account and as much as I would like it to be infinite, it is not (yet!!!), so I cannot shoot all over the map to cover scores of ideas: if I am not going to allocate capital to the idea, it is going to be a waste of time and focus to spread myself too far, too thin.

With these rules in mind (refraining from always investing, have stops and targets and discipline, limiting the amount of holdings), my week is starting to dry up.

Indeed, we have had a huge advance and real headwinds are in front of us (can the S&P 500 overcome 1400? can the Nasdaq re-take 3000?). As well, possible targets (S&P 1425 and 1440, then Nasdaq 3100-3130) carry stiff resistance. So I would like to stick to my earlier idea of seeing how the IWM will handle this week (see the Chartology here). Additionally, my main concern for the week ahead remains that we might rally a little bit more but face a period of profit taking, making it difficult to commit to new positions.

Relying once again on Andy’s Chartology, the Bank Index should provide us with clues for the direction of the market. In summary, we need the semis to lead the way, IWM to confirm, and Bank Stocks to power through! If the Bank Index pushes higher, I will consider Lazard Freres (LAZ) as a potential “out-of-the-box” idea as well as Bank Index related ETFs (and they are riskier, leveraged versions).

It is August, the previous weeks have been volatile, we are in bullish territory and I am very invested. So for me, it’s time to focus in, preserve gains, and add some powder!

Disclosure: At the time of writing I own Apple common stock and calls; I own TNA, a 3x ETF based on IWM as well as SOXL, a 3x ETF based on SOXX — 3x ETFs are riskier vehicles and investors considering them should carefully read the risk disclosures written by each leveraged ETF underwriter; I am short EUO and could be adding to my position in the next 3 trading days; I own TDC calls and common stocks; I am considering buying or shorting POT in the next 3 trading days; I am considering buying LAZ common stocks in the next 3 trading days.


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Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of his employer or any other person or entity.