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Trader Notes: Trading the Volatility. Part 2

The VIX and its inverse relationship with the markets. The VIX , as a contrarian indicator, is an incredible weapon for technical tr...

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Breakout Sectors for next X'mas Rally (if happens...)




It all depends on Trump-Xi decisions in the next weeks. Let's check some popular sectors with its shares near to make a breakout:

1. Semiconductors ETF SOXX, $234.74


Since May, the popular Semiconductors sector (really a subsector, not properly a GICS sector), followed by the ETF SOXX, was ranging forming an ascending triangle with a strong resistance that finally breakouts last week at $221.40. And was a successful breakout as you verify its daily chart, with its three phases clearly distinguish: action, reaction, and resolution, all of them with its volume requirements. Technically, its shares may begin to rise, despite being in all-time-highs, as all technicals signals are very bullish now. Shares are above the three main SMA averages, above the Ichimoku cloud and its pivot line at $219.26.
But be careful with two details: as usual, the Trade War developments (a bad or no agreement will be devastating for Wall Street), and next Qualcomm QCOM and Nvidia NVDA earnings, two giants of this sector that could reverse the chart if its reports don't satisfy investors. I wait for a little pullback, due the stock is overbought now, and then enter long.




2. Biotechnology sector XBI, $83.14


The biotechs, follow by the popular ETF XBI, seems to be a great bet for these months. Now trading at the same levels of November 2018. Since April its shares were trading in a bearish downtrend channel as shown. Finally, last week overcome the key SMA200 average, and the upper channel line, but needs to retest it or could be a false breakout. On my radar: there is a long bullish road to go here for this industry.





3. Russell 2000 Index ETF IWM, $159.15


Not properly a sector, but an index, the small caps stocks are followed by the Russell 2000 index and its  ETF IWM, and of course the popular, and very volatile, ETFs TNA and TZA. Technically, its daily chart shows the same patterns as the XBI chart above: a bearish downtrend channel, with a recent breakout of the upper channel that needs to be confirmed in this days. Also, this ETF is on my radar, waiting for a long trade. If Trump and Xi decide to finish their war, the sky is the limit for all the markets and especially for this index.


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My Stock Watchlist for November 2019


November 2019


On my Thinkorswim trading platform, I manage several watchlists, differentiating them according to the instruments it contains. There are stocks, futures, ETFs, sectors, and indices.

My different ETFs watchlists (not shown below) usually keep the same symbols in time, diversified by sectors, industries, countries, commodities, both at 1X normal speed and 3X triple speed, combining long and short positions. My indexes, sectors, and futures watchlists (also not shown) are also fixed, covering the main index and commodities in Wall Street and major foreign exchanges, the usual managed by all traders.

Those that do change, usually weekly, are the symbols of my Main watchlist, shown below, 18 stocks which I follow on a daily basis, due to my own research, that consider both fundamental and technical analysis, news topics or popularity. Over time, appears in the list a new stock, disappear other, according to the importance they are acquiring, in my opinion.




Keep in mind, it's a watchlist (longs and shorts), not a "Buy" Lists. My suggestions, charts, and ideas regarding these stocks, in which I'm long, short or neutral, I do in the blog posts. And more fresh data and news in my daily tweets through Twitter or StockTwits, which are much more friendly and dynamic platforms for a chat and get feedback from traders.

Image was taken on November 3rd, 14:22 EST.
Favorite 18 stocks that I'm following during November 2019.
Important notes: https://www.xgreedandfear.com/p/disclaimer.html



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Trader Notes: Are Buybacks driven the Stock Market Rally?



Definitely, YES. And they have the main credit for the stock market's rally since the 2009 crisis, and especially the latest years as they been reinforced during Trump's government due to the Tax Reform. It is enough to watch buyback' charts prepared by investment analysts to verify it, I add some of them below. 

Briefly, let's define the stock buyback. And what a better way to explain it that Investopedia, which defines that "a buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market. Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake." In days of a struggling economy, where get growth and profit increases are difficult, buybacks seem a good reason for companies to artificially inflate their share price.




Example of a Buyback


A simple numeric example, the best way to understand this, also taken from Investopedia: "A company's stock price has underperformed its competitor's stock even though it has had a solid year financially. To reward investors and provide a return to them, the company announces a share buyback program to repurchase 10 percent of its outstanding shares at the current market price."

Continue: "The company had $1 million in earnings and 1 million outstanding shares before the buyback, equating to earnings per share (EPS) of $1. Trading at a $20 per share stock price, its P/E ratio is 20. With all else being equal, 100,000 shares would be repurchased and the new EPS would be $1.11, or $1 million in earnings spread out over 900,000 shares. To keep the same P/E ratio of 20, shares would need to trade up 11 percent, to $22.22"

That's the reason:  no pay dividends, I prefer a share repurchase, which artificially raises the stock price. Great earnings season forever. Abnormally high levels of buybacks in the latest years generate an SP500 rising every year, despite real macroeconomic problems behind (incoming recession, Trade War and Brexit with no solution, inverted yield curve, manufacturing+services sector' contraction, negative interest rates, bond bubble, and so on). Investors, traders, people, Trump, and all Wall Street living a false illusion today, happy and carefree, hovering around its historical all-time highs. 



This 2019 was especially aggressive in stock repurchase (yellow columns) above the 2010-2018 average (black columns). But, the year 2020 seems unpredictable. Probably the next US recession halts this situation as this can't hold forever.





Let's watch more crazy charts


1. Ned Davis Research measures the impact of share repurchase over the last nine years and found a significant effect. One of its four scenarios "buyback funds used to pay dividends" is shown above: watch that the SP500 would have been 10% lower. Given that growth stocks with high momentum have powered market gains since 2010, buybacks have been a particularly efficient strategy for creating shareholder return during this period.


2. In this chart, Goldman Sachs compares the accumulated flows for different cases since the subprime mortgage crisis. Amazing the spread: yellow line shows money from SP500 stock repurchases (now $5 trillion!) growing every year since 2009, while other instruments as households, foreigners, and funds exhibit disappointing numbers. But, be careful, a recent report from the same Goldman Sachs warns that corporate buybacks are “plummeting” as companies tighten their purse strings, and it could have a big impact on the market. The boom may begin to slow in 2020: time for look for high-dividend stocks? Is the end of the bull market?





And last week finished the Buyback Blackout...


It is a usual theory on Wall Street that the market indexes dip during the days in which companies can't buyback its shares (usually a few weeks prior to reporting earnings and ends a few days after it). That period is called the blackout. It's incredible how the SP500 chart really whipsaws or corrects during the blackout periods, creating so a great key for well-informed traders.  




For short-term investors and swing-traders this chart is gold: shows that the buyback blackout period began to ease since mid-October, and today many companies are ready to repurchase its shares. And matches wi
th October 26th, according to Seasonax, the historically day when begins the usual Christmas rally (if this year comes) and,  seasonally, the best bullish weeks in Wall Street.


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Gilead, Illumina and Twitter Q3 Earnings this week



Three companies from my stock watchlist report Q3 earnings this week, all on Thursday 25 at the close of Wall Street's session: Gilead, Illumina, and the popular Twitter.

Traders love earnings' days. It's the right moment in which stocks get momentum and volatility, ideal for a quick day trade or a swing trade. One of the first rules of risk management in stock trading is don't traded longs or shorts before the ER, because it's just as gambling. Don't hurt your portfolio with bets. In that case, better use option spreads like the popular straddle ATM or buy a cheap call (or put) OTM, risking little capital with minimal, but existing, chances of a great profit.

The other way is taken by cautious traders: previously check chart trends, latest news of the company for key data, recent earnings surprise, insider trading, volatility, market sentiment, short-interest, and so. When earnings are published, checks and analyze quickly the main lines of the report (EPS, sales and guidance, if they beat or miss the estimates), buybacks and sensible data of the particular stock. Look at the trend in a tick-chart, read traders sentiment through chats (like Twitter or StockTwits) and wait for the conference call, usually an hour after the report, for more key information. A conference call could easily revert the stock trend and liquidate a hurried trade. The next day at the opening is a good idea to wait for analysts' reports and ratings: upgrade, downgrade, price targets, based on results. With all this information in our hands, it is more simple get a profitable trade.

Technical analysis seems unnecessary before an earnings report, but that's not true. Traders, investors, and smart-money always are looking at the charts for the previous levels and trendlines as a guide to limit the upside move ahead a good report, and similar for the downside. Let's review these three stocks:




1. Gilead Science GILD, $65.86




What an amazing and "clean" chart! The support at $61.40 is really strong, near six touches in this year. And above a clear resistance in its uptrend line. And today the price touching it again for 4th time in the year, and also at its SMA200 average! Depending on earnings, the price could explode and break any of the levels of this year-descendant-triangle pattern, easily $70, only in case of a positive report.



2. Illumina Inc. ILMN, $309.05




Since reach year lows in September at $263, Illumina began a decent technical recovery and now is t$309, the same level at which its huge gap closes in mid-July. Near $70 to fill that and its Q3 earnings could be the way for. The stock is gaining momentum last two weeks since the recent partnership with Qiagen QGEN to deliver in-vitro diagnostic tests. Take note that the biotechnology sector (followed by IBB ETF), saw some strength last week. Positive clinical readouts, a couple of M&A deals and hopes of drug companies clinching a broader opioid settlement worked in favor of the sector. A good earnings report could send this stock to $325-335, above the 50% of Fibonacci retracement.



3. Twitter Inc TWTR, $38.81




Ambiguous sentiment is perceived in this stock before its earnings report tomorrow, despite today is breaking down its strong support in the uptrend line shown, with increasing volume. I'm expecting great volatility, and prefer to wait tomorrow for deciding a trade. Usually, many analysts publish their ratings on this popular stock that finally decide the stock trend. Bad earnings report could send the stock to $36.90, its SMA200 average.


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