Follow Us on Stocktwits
  •               Home
  • Watchlist Update
  • Economic Calendar
  • Trader Notes

Stocks to Watch: Blackberry Ltd. $BB

Blackberry BB, $7.30.

Some years ago, it was usual to see the image of Obama president using his Blackberry BB smartphone, following the daily events. In times when the first iphone governed sales, the Blackberry with keyboard, web and email included became synonymous with excellence and, above all, security. Research in Motion, the Canadian company that manufactured it was a penny stock, which was trading at $2 in 2003 to reach $150 in 2008, the year of its biggest boom. Everything changed in 2011 when the competition grew (Android, Samsung, Chinese smartphones) and RIM did not know how to renew itself, its technology and keyboard became obsolete, not very attractive for the young sector, which led to an epic fall in its stock and almost extinction of the company.

What better than the 15-year graphic of your stock to see the rise, fall and today's stability Blackberry: while the Nasdaq (in gray) went up, BBRY sank, until Chen arrived in 2013.

In those years, another iconic and dear manufacturer of PDAs and smartphones, Palm, had disappeared for the same reasons. Forgotten by Wall Street, RIM seemed to be the next victim, until in 2013 John Chen enters as CEO and in a few years gives a total turn to the company, from the symbolic fact of changing the name of RIM to Blackberry, to give new business approaches, including leaving some hardware to focus on the software, in a new and very future area: artificial intelligence AI. From these developments derives its novel software QNX for autonomous driving of vehicles, recognized as the safest in the market. Today it is installed in 60 million vehicles of almost 20 brands such as Audi, Ford, Honda, Toyota, BMW and Volkswagen, among others. The following video illustrates the comments.

This subsector, I believe, is going to become one of the attractive and lucrative sectors of the coming years. And Intel INTC knows, that is why it acquired 3 months ago the Israeli company Mobileye MBLY leader in the development of anti-collision systems and autonomous driving, for $15.3B. And he did it to compete directly in this area with his rival Qualcomm QCOM, which in 2016 had acquired NXP Semiconductor NXPI, manufacturer of vehicle chips. A third and important member in this fight is Nvidia Corp. NVDA, which I have dealt with recently. And it is known that Google GOOG and Apple AAPL also plan to enter this sector with their own operating systems, even at zero.

In this competition, I particularly like Blackberry, not only because "sentiment trading". For its growth potential (stock near $10.50 and with a long road to recover), the prestige gained from its brand, having its own software in development for many years and that legacy of digital security, vital for a niche such as autonomous driving. And if we add that they have an almost healthy balance with $940M, product of their recent and significant legal victory over Qualcomm for royalties paid in excess, we have the ideal framework for the development and appreciation of BB to continue.

As for trading, we still have to wait for a good moment, such as the end of the current Nasdaq correction (5 of the last 6 sessions down). Also keep in mind that is next its earnings report. After these events, if they are positive, enter to invest long in this stock taking advantage of its low price, or in options a leap until December 2019 it looks attractive.
Read more »

Stocks to Watch: Blue Apron $APRN

(Update form July 2017 post)

Blue Apron APRN, $8.27.

Expanding the recent post about the unicorn companies and their future, it does not stop calling attention the terrible performance that the recent IPO of the Unicorn Blue Apron APRN is having, almost 20% below its starting price. Comparisons, in this sense, with Snapchat SNAP, Fitbit FIT or Groupon GRPN are immediate: all very original, very  technological, with many followers, but in a few years have seen their stock sink to negligible levels. And, while it is premature to draw conclusions by similarities, there are already several interpretations of the market: are these technological companies really worth so much? Are they part of a slow and different bubble dot-com 2.0? Is the influence of its new competitor Amazon AMZN, after its purchase of Whole Foods WFM? Was not it more comfortable to continue as a private company?

Think that Blue Apron thought to leave to the market with an IPO of $ 17 ... excess of confidence?

Already since I wrote about Snapchat I expressed my doubts about these fashion technology companies, and more for intuitive reasons as I wrote there. Excessive optimism and overvaluation can play against them. Blue Apron, a company dedicated to the new item of programmed delivery of food kits to prepare and that only operates in the USA, is of almost family origin, its sales growth since its creation in 2012 was exponential, it uses sophisticated refrigeration systems, control of quality, packaging, shipping, all supported by advanced technology. As a concept, all very interesting, but the market seems to show another face: its distrust in these new ventures (or will it be the exhaustion of the model?). My reading is as follows: Wall Street often fixes a lot on the details, and therefore interpreted the tremendous downturn in its IPO price from $ 17 to $ 10 the attitude of a company too ambitious (or arrogant) that thought was very astute, until they made her 'step on land'. Sentiment trading, what they say ...

Personally I see it as a stock only for speculation, that is to say buy the dip when a technical indicator indicates me (as in these moments) or some brief dead cut bounce (temporary recovery after a long fall of the stock) also like in these moments, but never as a long-term investment. Too much risk as described above, in addition to belonging to a sector saturated and super regulated such as Health.

As an additional, this good report in The Motley Fools gives a better idea of the history of Blue Apron and its projections -unicorn-to-pursue-an.aspx

>>> Update:

In this case, an updated chart of APRN shows that my 2017 idea from this stock was correct. Despite inverse split, the stock never rose consistently, but its fine for scalping. Just sentiment trading...

Read more »

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 traders to determine extreme conditions of bullish or bearishness of the market, using its inverse relationship: when the market is rallying, the VIX tends to drop; when the market is tanking the VIX tends to rise. Smart and serious investors use it to bet against the crowd when its greed (or fear) levels are high. And mainly, they use it as protection or hedge for their investments.

The VIX, also known as the 'fear gauge', measures the frequency and intensity of changes in the SP500 in the short-term (30 days), through the implied volatility IV of its at-the-money call and put options. A level below 20 generally indicates a bearish or complacent market, while reads above 30 are generally associated with a large amount of volatility, and mean that investor fears are taking place.

Smart traders usually "buy bargains" when volatility is high, taking advantage that the crowd is panicking closing positions: in a market sell-off, they are more inclined to buy VXX (the ETN that replicates the VIX behavior) puts or SPY calls as protection or as a speculative position without too much concern for the prices they have to pay. On the other side, with low volatility, and as long implied volatility is low, seems a good opportunity to buy VXX calls or SPY puts at reasonable prices as a protection for our portfolio. Investors who want to trade the VIX should keep in mind that VIX-linked products are short-term trading instruments, only for traders who know the risks.

How to play the VIX

First of all, is important to tell that isn't easy to trade the VIX: it's like an art. Experienced traders know that. It special behavior forces you to take jealous control of your trade. That's why is best make VIX trades only in the short-term. And, after trying in different timeframes, I get better and more clear results in the daily chart.

There is a chart that I always have visible on my Thinkorswim platform: the daily of the VIX with just two studies: the Bohlinger Bands and its moving average SMA200. As we know, the Bollinger Bands is a popular technical indicator to determine overbought and oversold conditions. In a range-bound market (as VIX accustoms) the BB works even better as prices travel between its two "rubber bands". On the other hand, the Simple Moving Average 200 is probably the most used and reliable average used by traders and investors, including smart investors. An example of its power and influence in the markets could be observed recently last year in December when a falling SPX index touches its SMA200 and originated an amazing rebound that lasts until today.

The candles represent the VIX daily price action, the grey line is the SP500, always in opposition. In purple, the upper and lower bands of the BB. The blue-sky dashed line is the SMA200. The VIX behavior with these two indicators is typical, so is a good idea take advantage of it in our trades.

Look at the chart above, taken from the past year 2018. First, verify the inverse correlation between the VIX and the SP500 index SPX. It happens all the time, like a mirror image. Second: as the VIX trades, its value raises or falls, as it bounces off the upper or lower band of the Bohlinger Bands. So:
- Go long in VXX when the VIX falls to the lower band of the BB. At that moment the market is at a peak and began a pullback, as you see in the chart.
- The same idea, but contrary, is used for the upper band of the BB: go short in VXX, and verify the SP500 began to rebound.

There are many more complex option strategies (spreads) to take advantage of this situation, that I will analyze in a future post.

Now, check the SMA200. Last year was a very difficult resistance (then support) for the VIX to overcome. Review other years and verify that its a typical behavior of the VIX with its SMA200. Since August it rebound many times in that level (in the yellow circles). Finally, after three attempts, in early October the VIX breached its SMA200, and the SP500 now reversed dramatically. These breakouts are very attractive entry points for a disciplined trader. Notice that in early November and December, with the SMA200, now as support, had two new failed attempts to crossover it. And today, with the VIX in 16.14, is in its third attempt, so pay attention with the volatility behavior this week.

Strategy using the VIX spikes

This simple strategy is focused on the VIX daily chart. I suggest in this case, when trading, forget the SPX chart because, although they are inverse, this moves in a tendential way, different from the VIX that does it in very marked ranges, and can create confusion and anxiety for the novice trader. Even sometimes there are divergences between the two that can complicate more the analysis.

More than a strategy, its a tip when trading the VIX. In its daily chart notice the clear difference between its relative tops and bottoms: tops are spikes, like an inverted V, while bottoms are more rounded.
- In the tops, this is because fear is the predominant feeling, that very fast becomes in panic. This rapid rise is usually followed by a bearish candle when the smart investors decide to start trading.
- On the other hand, in the bottoms of the VIX chart, the market is more complacent, greed is in charge of the traders' feelings and so the SPX costs more to fall, that's why bottoms are slower and full of false signals.

The diligent trader has already grasped the idea of this strategy: trade in the spikes of the VIX daily chart, operating shorts or puts. To find an acceptable entry point, the Bohlinger Bands are useful: waiting for the moment when the bullish candle leaves the upper band with some slack. Then expect a next bearish candle that wraps it completely (or almost) the previous bullish. This candlestick is known as engulfing. The open of the next candle is my entry point. Everything very simple. However, there are a couple of undefined points in this strategy. One of them is not being clear about the exit. Perhaps the best idea is to set in advance a risk-reward, like the popular 1: 3 used by many traders, to determine the exit.

The other complicated point of this strategy is the location of the stop loss. The usual is that the VIX continues its fall the following days and is difficult it returns above the engulfing candle, however, it can happen. A double top would be formed, the most reliable figure in the technical analysis according to Alexander Elder, where we could confidently sell the VIX. The best plan is to trial daily the stop loss to a safe level.

The "VIX spike strategy" works best in its daily chart. Every year happens, few but powerful. In this chart, taken from 2015, we noticed two big spikes overcoming the upper band of the Bohlinger Bands (mid-October and mid-December, in the yellow circle), both followed by an engulfing candle that generates the quick and important reverse. Two more spikes happen in January and February 2016 (also in a yellow circle) but in both cases, its price didn't overcome the BB, so its reverse isn't as powerful as the 2015 spikes. Finally, in the pink circles, we had two spikes that haven't an engulfing candle enveloping them, so the reverse seems very unclear.

Read more »