By Alex Salomon
Ever since I went “all in” bearish in my trading column on October 1, 2012, it has been challenging to offer weekly setups. So I decided to take a break. Again, in the spirit of writing a column that matches a realistic swing portfolio (aside from my daily trading), the last two weeks have offered non-professional traders a good chance to regroup and protect their cash while waiting on the sidelines for better entries. Furthermore, I believe we will soon see a good opportunity to put our cash back to work.
In this week’s column, I also want to layer in some quick random thoughts on investing and Europe. So here we go…
1) Waiting and not investing is a luxury… You can read about it. Seeitmarket.com has several entries on this axiomatic truth of non-professional investing (for instance, see the latest by Ross Heart, “Understanding when Cash is King“). It’s a very important point that bears repeating: if you don’t have a boss or stockholders breathing down your neck for daily performance or action, sometimes, not investing or trading is the best thing to do. It is good for the mind, it is refreshing, it is relaxing and it is a luxury, not a flaw.
2) Tuning out the noise vs. being deaf… another major piece of advice is to tune out the noise and try to remain focused on discipline, levels, trade set ups and one’s core strategy, without being affected by “mainstream views.” But at the same time this advice does not mean being deaf! I write this because I experienced this first hand earlier this month. I chose to follow, read, respect other investors’ columns and analysis which had provided detailed and thorough advice on Sarepta Therapeutics (SRPT). The stock exploded by as much as 200% and I deliberately chose not to invest in it. It bothered me, because I became deaf to the thread I meticulously chose to follow.
The missed opportunity annoyed me, but not as much as not respecting the views of investors I carefully selected as “value-adders.”
3) The depressing pace of Europe… The European Union remains the bad news that keeps on giving and I find it depressing that we are almost 4 years into the crisis and yet, no ambitious plans for growth and societal rethinking has emerged. While I believe that the banking and debt parts of the crisis are being funneled and controlled, it is depressing to see how little progress has been made by Europeans to re-invent themselves, out of the tricks and habits that have failed to fuel real, ambitious growth since the ’90s (at best) and ’70s (in some countries like France). Brilliant minds and ideas abound, yet Europe is stuck in its snail pace. Where are my Euro-Project Bonds for Energetic Independence?!
4) On to Trading Ideas!
The Semi-Conductor ETFs (SMH & SOXX) are showing extreme signs of oversold readings. Picking a bottom is always difficult, but I am looking at initiating a long position in the semi-conductor sector as early as Monday October 15 or the week of October 15-20. My risk is the $48.00 level (indicative of an extremely bearish triple bottom), so about 3.5% lower. My initial target will be a reclaim of the 10d SMA and then, any significant strength.
China ETFs (GXC, but also MCHI, YAO, FXI and the much riskier 3x ETF, YINN) are seasonally appealing (as highlighted by Sheldon McIntyre via “China: Potential for a Meaningful Rally“) as well on valuation studies. Even more so, I base a lot of my Chinese case on the fact that Chinese data is whatever the Central Politburo wants it to be and I cannot see their brand new Premier not being welcomed with strong data. The Chinese Politburo will need to give strong endorsement to its new leader and that is all the conspiracy theory I need.
Therefore, China is one of my favorite investments into the end of the year. For GXC, I would welcome a small bit of softness and a kiss back to its 10d SMA, around 66. The risk / leash on GXC is quite large (about 6% trailing stop) but I would target new yearly highs. I am waiting a bit more for this entry, maybe into the last week of October.
Apple & QQQ: the time to be bearish on Apple has probably passed. While it is too early to call the bottom (maybe around 615, so we are getting close), it makes the appeal to re-invest in Apple and the QQQ strong. I am planning on buying the common stock, calls as well as the riskier TQQQ, 3x ETF based on QQQ (because of Apple’s weight in the ETF). Any entry around $620 for Apple (with a risk defined at $600 for the time being) and a bit of weakness on QQQ ($66.50 with risk defined at $65.75) will trigger my positions. I don’t know when it will happen, but it is getting closer.
Emerging Markets (EEM): on purely TA aspect, the chart remains very healthy, in an uptrend channel and basing nicely. It is at the top of my list into year’s end performance. In fairness, for investors with a decent tolerance to risk (again, about 5%, defined by $40), any entry is good at this juncture. I believe we will see new 12-month highs in this sector by the end of the year.
Thanks again for your time. I hope the next week will give us finalized set ups and earnings play for more trading ideas. Stay tuned!