Momentum Monday – The Bulls Are Raging. What’s Next?

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The oversold bounce continues with full force led by two groups of stocks:

  1. The ones the held the best during the correction – enterprise software names like TWLO, TEAM, MDB, AYX, SPLK, etc.
  2. The ones the were hit the hardest during the correction – small-cap biotech. (XBI).

My trading thesis is that all major U.S. stock indexes are now in new ranges. SPY is in 230 to 260. QQQ is between 145 and 160. IWM is between 125 and 145.

As they approach the upper levels of their potential new ranges, it makes sense to take profits if we bought the dip in the past couple of weeks and even think about initiating some small short positions if you are aggressive and skilled.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Big Earnings Surprises

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Big surprises often lead to big moves. This is why one of my favorite screens to run on MarketSmith is for stocks that beat earnings estimates by more than 50% and receive favorable market reaction. Here’s my version of it:

The current list is quite short and involves stocks that have weathered the market correction quite well: SEND, TWLO, AYX, DATA, CHGG, TDS, USM, EHTH, REV, WK, FIVN, MTLS, SHEN, IONS, CROX, NXTM, APTI.

Check out my latest book: Swing Trading with Options – How to trade big trends for big returns.

62 Stocks Doubled In 2018

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The market is still in a correction mode but plenty of stocks have had a good year. As of December 15, there are 62 that have more than doubled. If you study their charts, you will notice how the majority of them started their move with a huge-volume breakout to new 50-day highs.

We see quite a few enterprise software names on the list, which only comes to remind us to always pay attention to industry relative strength. It is a lot more sustainable catalyst than just company’s earnings: TWLO, TTD, OKTA, MDB, AYX, COUP. Most of these names continue to be among the strongest stocks currently in the market and are likely to outperform if the general market bounces.

There are also a few cannabis related stocks, which was one of the hottest industries in 2018: TLRY, NBEV.

As usual, the list is dominated by biotech, healthcare and medical research names which account for almost half of the big 2018 winners.

There are a couple turnaround stories in the retail space – CROX and FOSL. There were a lot cannabis-related earlier in the year, but the correction in the last two months has caused a lot of damage to the sector.

While the S&P 500 is down 11.2% from its 52-week highs, the 2018 Doubles are down on average 24.3% from their 52-week highs. Most of them offer multiple great long trading opportunities during their ascent. Now, quite a few of them are setting up on the short side. Some examples to consider: WWE, REGI, SSTI, AMRN,

Check out my latest book: Swing Trading with Options – How to trade big trends for big returns.

New Book – Swing Trading with Options

It’s not a secret that many enter the options world because they are undercapitalized and want to get rich quickly. No one wants to get rich slowly by averaging 8% a year. The only way to get rich by making 8% a year is if you are already rich.

Options trading can be very challenging. Developing traders are attracted by the leverage options offer, and professionals love the ability to manage risk in a more precise way. Options are not the magic solution to any problem under the sun. They will magnify your trading weaknesses. If you are a lousy, impatient trader, options will help you lose your money quicker. If you know how to pick stocks, size your positions properly, and time your market exposure, options can help you boost your returns significantly.

In this book, you will learn:

  • How to use momentum to find stocks that can go up 30% to 100% in 3 to 6 months. When to enter and when to exit those stocks. Which options strategies to choose to ride those powerful trends and potentially achieve 500% to 2000% returns.
  • Why options can be a superior risk management tool and how to use them to enhance your returns in momentum stocks.
  • How to size your option positions so you don’t blow up your account.
  • How to use weekly options for swing trading. When to use options for swing trades and how much to risk. When to buy them and when to sell them.
  • How to handle the mental side of trading and become consistently profitable.
  • How to manage your overall market exposure and create a plan you can actually follow.

This is an easy-to-read and easy-to-understand guide filled with practical examples, market wisdom, and hundreds of annotated stocks and options charts. There are no complicated and sophisticated options strategies. Everything is as simple as possible. I hope you will enjoy it and find it extremely useful and maybe, even eye-opening.

If you read and liked one of my previous books, you will absolutely enjoy this one. With that in mind, I like to keep expectations reasonable:

If you expect complex multi-leg non-directional options strategies and a magic recipe, this book is not for you. Don’t waste your money. More importantly, don’t waste your time.

But if you want to learn how to consistently pick stocks with great upside or downside potential, how to express your bullishness or bearishness via simple call or put options, what type of options to buy – what duration, what strike, when to buy them and when to sell them, how to manage risk and achieve superior returns, then this practical guidance might be what you have been looking for.

Every time I write a book, I always promise myself that it will be the last one. It takes so much time and effort, but then I realize how much I actually learn while sharing my thoughts and experience in an easy-to-absorb manner.

As always, I benefited tremendously from the whole process of writing this options book – the research, the charting, the thinking, the reviewing of my options trades and journal have been an invaluable experience. I am a better and more profitable market speculator because of it. I am confident it can help your trading process and returns, too.

TABLE OF CONTENTS

What You Can Learn in This Book.

One – The Power of Options – Pros and Cons.

Two – How to Follow Big Trends with Call Options.

Three – Swing Trading with Call Options.

Four – How to Trade Downtrends with Put Options.

Summary

The book is available in digital and paper format.

Momentum Stocks Are Great Leading Indicators

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I pay close attention to the action in momentum stocks. They are called market leaders for a good reason. This is what I tweeted yesterday:

Keep a list of leading momentum stocks and watch how they act. Many of them are likely to get hit just before the market indexes’ selloff accelerates. You can create your own list of momentum stocks by scanning for the top performers on a 6 and 12-month time frames or you can take a shortcut and use established lists like the SL50 from MarketWisdom.com and IBD50 from Investors.com. A list of momentum stocks is a great source of long trading ideas during rising markets, it is a great leading indicator for both rallies and selloffs, and it is a great source of short trading ideas during corrections because most momentum stocks take a hard hit during general market declines.

From a big picture perspective, nothing has changed. All major U.S. stock indexes are still in an uptrend. Dip buyers are likely to step up around $180 for the Nasdaq 100 (QQQ). The sustainability of that potential bounce will largely depend on the price action in individual momentum names, because as I mentioned earlier – they tend to lead on the way up and on the way down.