Thursday, June 26, 2014

New position: Short GDXJ

GDXJ was a stock (actually an etf of the junior minors) that got my year off to  a great start.
 Although that move failed, I got out with great profits.   It sank back down and has recently rallied.   This time I'm playing the fade.

Short $40.76.   The news that sparked the rally was overblown in my opinion.  My sources tell me that it was short covering and that the smart money was selling into the rally.   I think it is likely that it will fade again.

Stop @ 44 R. 1.5

Closed Trades: BHI, HERO

I'm two days behind in my log.  I closed BHI.  This trade was very similar to my  GBX trade.  Great entry, great breakout and then a fade which I sold into.  I need to define exit parameters better.

Summary:
Long 70.73 May 29
Sold 72.89  + 2.16 2.96%

I could have stayed in as there was no reason to sell other than to protect my profits, which in itself is a reason to sell.  I think I would have done better to sell off a portion of the trade into the rally.





HERO:

Hero got slammed after revealing that it had forgone a contract in Angola and one of its rigs was out of operation, which is too bad because things had looked like they were turning around and a multi-week - month upside move would begin.  Anyway I went long after the carnage at 4.07 as it looked like HERO had bounced and was beginning a reversal move.  I thought a 10 % move or more to the upside in a day was likely.  It didn't happen the bounce got faded as the boarder markets sold off.  I kept my risk minimal selling at 3.95. for less than .5 R.  When trying to catch a falling knife, you can get cut just don't get stabbed.

This may be worth another look as multiple insiders were buying around 4 in an attempt to stop the drop.


Monday, June 23, 2014

New Buy: VRNS

I have found that IPOs a few months later can present some great setups. VRNS is one such stock bought at $25.56 Stop below 20.


Summary
VRNS is a software company that has mapping technology that allows categorization of unstructured data.  The IPO was successful until a week later  when it wasn't.  I like the bottoming consolidation, which I feel presents a good risk to reward ratio here.  The obvious stop is 20, which is  a 25% move.  Such a move requires smaller position sizing but I feel that's okay because this trade presents good upside.  This stock got everyone excited when it first came out and IPO trades often present a second kick at the cat.


Positives: Revenue growth has been impressive
                 $5.00  Cash in the Bank
                   Backed by EMC
                  Huge corporate client base,  Phillip Morris, EMC, Juniper etc..

I never take a trade on buyout rumors or speculation, but if it happens great.  VRNS has been reported in acquisition talks with IBM. Buyout target: 
"Varonis was in acquisition talks a year ago with IBM Corporation (NYSE: IBM) at a company value of $450 million. Although no deal was reached, no one will be surprised if Varonis, like other companies in its field, ultimately ends up as part of IBM or another computer giant."


Negatives: 25% stop does not permit big size on trade as I would like.








Dynamic:

RBCN: Partial close

Here's one from a few days ago that I have not updated.  Shame on me because that would be a rule break.  It's a partial sale of the position so I'll give myself a pass.


Entry June 4: $7.52 June 4.
Exit June 19:  $8.43 +.91 cents   12 %  (sold off 1/3 of position moving stop on remainder to $8.00)

Summary:  I got a great entry on this trade, I loved the consolidation higher than than the may lows, which I felt gave a great risk to reward entry. Breakout traders would have waited and would be sitting on losses.  I took a big position and took partial profits.  I'm hopeful the bottoming process continues but if not I have moved my stop up to 8.00 as that will ensure this has been a profitable trade if it turns out not to be a great trade.

Friday, June 20, 2014

Rule Changes


When I started this trade diary my rules were as follows:

I shall:
3. Use Hard Stops only
4. Calculate VaR Daily
5. Use Stop limits for Offense and Stop orders for defense.
6. Scale into positions.
7. Keep a Dairy of all positions
8. Continue to refine rules.

Pursuant to Rule 8.  I have changed several of my rules:

#3 Hard stops only.   I have recently read David Dreman's book as well as several trading blogs by people I greatly respect.  They have cautioned against hard stops with the advent of high frequency trading programs that are designed to search and destroy stops. I agree.  I have witnessed several flash crashes and cannot continue to recommend hard stops. 

 I now  believe that mental stops is the way to go. To ensure discipline, stops must be written out.  The difficulty is whether to execute immediatly upon breach or to wait if there is a close below that price.  I have seen mixed answers.  And for me it will remain discretionary.  In a highly liquid stock, a breach of the stop is more significant and should be sold immediatly.   In a thinly traded position, it is more susceptible for a flash crash unless news driven (which would require an immediate sale).  In Corn, for example, I witnessed  a big and furious sell off in the etf although the physical commodity that it tracks remained constant.  People that had hard stops got their pockets picked after the ETF recovered within 2 minutes. 

As a corollary to this rule, I believe stops should be set at the level where the theory for the trade would be disproven.  If the theory is a breakout and a breakout retreates in to consolidation the theory is disproven.  If I buy an anticipation set up and the stock trades the wrong way out of the consolidation, the theory is disproven.  No hopes, no justification, just get out. 

#5 Use Stop limits for Offense and Stop orders for defense.
If a stock is worth getting in get in via market.  If it is worth getting out get out via market.  trying to get top dollar on a limit order can get expensive if it misses. 

To track price set mobile alerts and then react 



Closed: GBX

I got a great breakout out of the consolidation.    The catalyst was a huge order for rail cars worth  $960 million.  I  bought at 56.38  and Sold at 58.92.  Although I made a good profit this was not a good trade on the exit side.

I hate it when my stocks gap up because it forces a quick decision and I made the wrong one.  This stock gapped up over 3 points up to $62.96 That type of move is something I typically want to sell and I tried but it sold off the gap fast. I  had a  limit order at 51.95.  Had I hit market I could have gotten out at .90  that .05 cost nearly $2.00.  I sold today as the gap was filled as I did not want risk giving back all my profits.  





Trade summary bought 56.38  and Sold at 58.92.  + 2.54 for 4%
Holding: 14 days

There is a decent chance that support will be found here and the move will resume but it will do so without me.

Friday, June 6, 2014

New Buy: GBX

So the Railroads are chugging along , UNP, CP, CNI  But I'm not long the trains on this trip. So If you don't get the engine I'd figure I'd get the cars.  Hence, GBX which makes tanker cars. Highlights include a BAC's reiteration of a buy with price target upgrade to 65 today. 

This has traded in a very tight range over the last two weeks.  My long thesis is that this breaks out of this two week consolidation to the upside. I feel that the broader markets, the railroad, stocks and general fundamentals of this stock are aligned. I the consolidation breaks to the downside, I'm not interested and will exit.  Given that my theory has a tight parameters risk is proportionate.  Stop Below 54,  1/2 R.








Dynamic

Wednesday, June 4, 2014

New Positions: RBCN, NQ

I added two new positions today. First RBCN at 7.52:


RBCN makes sapphire glass for semiconductors and potentially for face plates cell phones.  A competitor GTAT has a long term deal with apple, which has essentially taken all the supply.  Should the industry grow, new players would likely go to RBCN as a supplier.   It missed earnings which caused the dip.   I  like the risk to reward here has 7.50  could provide support a break of 7 and I'm out.   1R risk on the trade.

Dynamic chart:




NQ:  This one is interesting. For months NQ has been dogged by reports by Muddy Waters that the company was engaging in fraud. Today, the company issued a press release advising that the independent auditor found no evidence that the company was engaging in fraud and substantiated revenue growth.  The stock exploded upwards:


I believe that this is a type of episodic pivot event discussed by Stockbee. The volume was huge and the news could be a game changer leading to a multi-week change.  Still it is Chinese  and where there is smoke there is often fire. To that end, I felt the best way to play and manage risk was to buy the calls.  I bought August 12's for 1.85.  For options, I assume that my position will go to 0.00 and take the position size accordingly.



Tuesday, June 3, 2014

PME: Cutting bait.

My initial research revealed that PME was  possible deep value play, trading below asset value. Subsequent research revealed that there was still too much risk in this trade and I've elected to close it before I get trapped.

My concerns include  the fact that the Roy Yu, the CFO, previously was the CFO of Lihua International, Inc. (NASDAQ: LIWA) The SEC recently suspended trading LIWA because of non-compliance with financial reporting obligations.  I don't want a CFO of a company that I would own to have previously headed a delisted company due to improper financial reporting.

In addition, PME is guaranteeing numerous loans in the name of the wife of the CEO, but admits the pleadge has no beneficial purpose to the company.

" We have entered into certain pledge agreements pledging 22 fishing vessels as collateral to secure a loan to Hong Long, a fishing company controlled by spouse of Mr. Xinrong Zhuo. The pledge has no beneficial purpose for us and we could lose our fishing vessels if Hong Long were to default on the loans, which could be detrimental for our operations."
Trade Summary:
When your reason for taking a trade is in doubt, get out. I took about $100 loss on  PME rather than stay in and hope for a profit. This is too thin and the Risk level I planned for this  trade did not account for a delisting. Given the history of executive delisting could be a legitimate risk. Given the risk that the company is taking without a benefit, I would not be surprised if the insiders leave an empty shell for the American Investors. I'll fish elsewhere.