Trading Diary: Sept 28th to Oct 2nd

by Dan October 4, 2015 8:25 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Sept 28th – Oct 2nd:  

A quick note on our activity: We have the fewest amount of trades on now than at any point in the last year.  We think there is some funky stuff going on in global markets and that specifically in the U.S. the uptrend that had been in place for U.S. stocks, and the conditions that made it possible have been broken.  But the volatility has had little rhyme or reason as was evidenced by Friday’s reversal of almost 3% from its lows in the morning following the weak Sept Jobs data.

It is our strong view that there will be better times in the near future to add long exposure for those who have built a cash position, and possibly soon.  On the flip side, if the S&P were to re-test, 1950/2000 that could be a great opportunity to once again lighten up on equity exposure, and for traders to re-short U.S. equities to play for a break of the August 24th lows and quite possibly the October 2014 lows.  The main point here is that we are trying to be patient, with little interest in pressing shorts, or adding longs before we feel specific stocks/sectors are too oversold with overly negative sentiment.  So we will continue to do work on both long and short ideas, and have a few ready to go at any point when we think the broad market gives us opportunities.

Here were some thoughts I had on the trading environment this week:

MorningWord 9/28/15: The Investment Landscape Is Moving Beneath Our Feet

MorningWord 9/30/15: What We’ve Got Here is A Failure to Communicate

MorningWord 10/1/15: Confluence of Events

MorningWord 10/2/15: The Fed forgot to return those tools they borrowed tools



Monday Sept 28th:

Name That Trade – Netflix ($NFLX): Wet Hot American Bummer?

We have been little impressed by the S&P500s ability to hold the August 24th lows and fully expect a break to occur in the coming weeks. It is also our believe that the rolling liquidation in past leadership stocks/sectors like Apple, Media, Biotech and financials will ultimately find its way to what we deem to be very crowded high growth/ high valuation tech stocks like AMZN, FB, and NFLX.  NFLX appears to be the most vulnerable in our opinion,  We think the set up into their Q3 earnings appears to be quite dangerous no matter what your directional view given the stock’s violent post earnings movement.

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Tuesday Sept 29th:

MorningWord 9/29/15: $AAPL Turnover

We succinctly laid out what we deem to be the bear case in AAPL. Not a suggestion that the stock is about to crash but more likely that it will be dead money for at least the next few quarters.

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Name That Trade – $F: Autos Asphyxiating

We detailed some call buying in Ford prior to the company’s September auto sales data due out on Oct 1st.  While the call options that were bought looked to be dollar cheap, we explained why they were actually quite expensive in vol terms.

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Name That Trade – $JPM: Bank Shot

With JPM very near its August 24th lows there was an opening outright buyer of October puts in good size that might have been protection for a long position into the company’s Q3 results due in mid October.  The poor relative strength of late should be a tad more disturbing to investors in our minds.

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Wednesday Sept 30th:

Chart of the Day – $ADSK: Oh Barron’s

Barron’s made a bullish case last weekend for the company’s transition to cloud based software for the construction and design business. But highlighted in the near term this transition could be a bit painful as the company is in the midst of an earnings decline. The stock looks to us as a good short candidate on rallies

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Name That Trade – $WDAY: No Longer Working

There is little valuation support for WDAY, the technicals are deteriorating, the analyst community is very mixed with 19 Buy ratings, 18 Holds and 1 Sell and the investor sentiment seems to be taking a dim view towards the stocks of companies that are purely priced for sales growth. WDAY is the sort of stock that should be sold on rallies, likely pressed on poor fundamental news and avoided for those looking to catch a falling knife. We have seen this movie before in bubbles past, and just as this stock overshot on the upside in 2014, it is likely to do so on the downside, and in the latter scenario you don’t want to be early.

This stock, and the sector is kind of on our hit list and we will look to be opportunistic on the short side.

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Name That Trade – $COST Conscious

With the earnings news out of the way, which was clearly mixed, the stock’s fairly tepid reaction, and headwinds that are not likely to be abate, we like the set up for playing for the move back to trend. COST is an expensive stock that probably reflects a lot of good news in the near term. However, we need to see how today’s bounce in the broader market plays out. If the bounce continues, a short delta trade would make more sense at $147 in COST (the highs from this Summer that also failed a few days ago). We want to be patient and wait for either a reversal in the broader market or that ideal entry closer to $147. At that level we’d likely look to do the Nov 145/135 put spread. Currently at 3.00 this would be under 2.50 at those levels. If the market looks like it will roll over we’d likely look to buy a put outright and leg into a put spread with the stock lower

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Thursday Oct 1st:

Name That Trade – $DD: Activist Foxcatcher

Since DD was the losing target of a proxy by famed Activist investor Nelson Peltz last year and early 2015, the stock has been in a free-fall as the company’s exposure to the dollar strength and emerging markets is weighing sales and earnings.  Peltz may soon have a better case to make with investors if the stock continues its decline.  We are inclined to play from the long side in the early $40s.

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Chart of the Day – Pick-up $STX?

Its out view that the company’s that make the PC supply chain face multiple headwinds as the PC market may be in the midst of the sort of correction and/or secular shift that will cause the sort of consolidation that will not be kind to equity holders.  IN the near term the technicals for stocks like STX seem to be deteriorating very quickly.

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Friday Oct 2nd:

New Trade – $XLP: Your Best Offense Could be Defensive

Trade: XLP ($47.45) Buy to Open Nov 47 call for $1.45

Break-Even on Nov expiration:

Profits: above $48.45, up 2%

Rationale: Near term we think it makes sense to diversify out of high valuation growth, or economically sensitive areas like transports and industrials and start to think defensive. Consumer staples which have been hard hit from their highs, have strong balance sheets, high capital returns and deemed to be defensive could be the place to be.

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