24.07-28.07

Another week of great opportunities lies behind us. Given all this volatility I really have to pay attention to not give in to hindsight bias too much. I have to realize that I would not have traded many of these opportunities and that I may have lost on some. There is a huge difference between watching a great setup and actually trading it as we will see later.

Anyway, let´s have a look at the week.

24-07 

On Monday we encountered once more a pattern which we have seen already so many times before. Shares of Envoy Group Corp. (ENVV) recently have been pumped following the known pattern. ENVV is  a company that according to Yahoo Finance ” does not have any significant operations [but is] in the process of identifying and evaluating feasible business opportunities in the consumer products and technology industries”. Are you kidding me? Even after its crash this still has a 23 million market capitalization – so much about market efficiency.

After its pump like up grind for the past weeks, it gapped down on Monday and then panic set in. It went from 70 cents to around 36 cents in a matter of 4 minutes. Then however, the next three minutes gave the bounce opportunity too. In this short time-frame ENVV bounced from 36 cents to as high as 55 cents.

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25-07

Tuesday brought once more my beloved bounce play pattern. Shares of Tearlab Corporation (TEAR), a $8 million market cap 3 million shares float company active in the healthcare business, spiked from $1.8 to $3.6 on Friday. On Monday TEAR sold off and then on Tuesday we got the bounce opportunity. After the sell-off in the morning from $2.8 to $2.6 TEAR recovered and trended upwards. When the open at 2.8 was broken the stock spiked up to $3. This move confirms an observation I already had made previously. Shares that trade for far more than $1 tend to have smaller percentage spikes than shares in the $1 or less range. However in this case there would have been ample opportunity to profit betwen the beginning of the uptrend in the $2.6s and the high of $3.

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27-07 

On Wednesday I learned a great lesson about ignorance. I finally got stopped out of my CHGG position. As you may remember I had entered my position on 12-07 at $13.3 based on the chart setup. Since then CHGG had shown a nice development and trended higher up to $14 on Tuesday. With CHGG trending higher, I had daily adjusted my hard stops upwards since I am not able to actively trade. Thus on Tuesday I set my stop at $13.9 arguing that this level would invalidate my trade. My ignorance on this trade materializes in the point that I was not even aware of the fact that CHGG was about to announce earnings on Wednesday. When earnings came out, they apparently disappointed and the stock gapped down to the mid $13s. I was lucky to be filled at $13.7. Then however, sentiment changed and CHGG spiked on huge volume to a high of $15.2.

My first reaction was that my stop should not have been based on an intraday level but rather on the price at close. I made this justification basically because I saw CHGG going to the moon just after I had been stopped out and I tried to rationalize that I should have been participating in this move . My second reaction was “earnings were announced? How ignorant can I be! I could have lost so much more!”. Earnings always are a guessing game. Even though I agree with my second reaction my third reaction was that I should not have been trading CHGG in the first place.

Why did I trade CHGG? Because due to my internship currently I am not able to trade the patterns that I feel more and more comfortable with. Swing trading stocks like CHGG and CBAY was the next best solution – a “b solution”. However, the markets are so competitive that I really only should be trading a methodology were I feel that I have an edge in. Do I have an edge in swing trading if I am even too ignorant to be aware of the fact that earnings are announced? Probably not! Thus the lesson that I take out of this experience is that I´ll exclusively trade my nr. 1 trading methodology and only A+ setups.

By the way even though I bought at $13.3 and sold at $13.7 I still lost money on the trade due to transactions costs and the fact that I bought with Euros when the Dollar was strong and sold when the Euro had strengthened against the Dollar – apparently another thing to keep in mind.

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Besides CHGG, Wednesday offered another bounce play. Top Ships Inc., a shipping company, had spiked last week in sympathy with the DRYS squeeze that I talked about in last week´s recap. After the spike and two green days it sold off on Wednesday when it had its first red day.

 

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In the first minutes of the day it sold off from around 45 cents to 38 cents before squeezing back to 50 cents as we can see on the one minute chart.

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27-07

Thursday yet offered two more bounce plays. As I wrote on Friday I expected a bounce for AEZS and Thursday, admittedly later than expected, we got the opportunity. At this point AEZS had been selling off for four days. AEZS opened lower and then continued trading in a choppy way. After some upwards pressure however, AEZS went from around $2.13 to around $2.25 – yes, I have to admit that even a perfect entry and exit would only have allowed for small gains here.

AEZS

DRYS offered larger percentage gains. Let´s rewind a bit. On Friday DRYS had spiked from around $1 to almost $4. Monday, Tuesday and Wednesday followed the sell-off. Short sellers probably got crowded in this strategy as in the past. Let us remember that this has a huge short float and shorting DRYS is probably one of the most crowded trades at the moment. Well, when DRYS came back on Thursday after selling off in the morning, it broke the morning high at $1.06 and squeezed shorts up to $1.29.

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Additionally on Thursday we had the next awesome pump dip buy opportunity. 12 Retech Corporate Com (RETC) is a company with almost no information on the web. As a “serious investor” this limited information gives me much confidence in the company. As ENVV RETC had trended higher step by step for quite some time before crashing on Thursday.  It sold off from around $2.5 to the 1.5s before coming back big time. From its lows it spiked back to $2.2 which reflects almost a 50% bounce. Buying these falling knives is dangerous though since there also was a fake bounce from $1.7 to $2.15.

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Next week my eyes will be closely watching CAPR once more. This stock decided to spike a second time but could not hold its gains so far. Maybe there will be a bounce opportunity for this on Monday or Tuesday.

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Until then.

Best,

Nils

17.07-21.07

This week did not disappoint either. Much action took place and especially OTC breakouts occurred to an increased extent.

Let´s have a look at what happened.

On Wednesday the shares of Soligenix, Inc. (SNGX), a biotechnology company, gave the opportunity to jump in for the bounce play. SNGX had spiked big time (around 50%) on Monday on no significant news whatsoever. Since this is a 15 million dollar market cap and 5 million share float company even small moves like the gap up on Monday can lead to self enforcing price action.  The crash on Tuesday finally led to the bounce opportunity on Wednesday. Liquidity had dried up already but still was sufficient at this point. SNGX sold off down to $2.42 and then squeezed to $2.68.

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Capricor Therapeutics, Inc. (CAPR), another  biotechnology company, had similar price action. On Tuesday FDA approval had led the shares to more than double. The following day, CAPR sold off down to the 1.2s, grinded up again and when it broke the highs in the 1.3s it squeezed to $1.53.

CAPR

Amfil Technologies, Inc. (AMFE), our first OTC company, broke out very nicely at 11 cents and continued its move on Thursday going as high as 14.65 cents.

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Similarly, On the Move Systems Corp. (OMSV), another OTC company,  broke out at around 12 cents, moving to as high as 21.45 cents two days later on Friday.

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On Friday another biotechnology company Cerulean Pharma Inc. (CERU) squeezed once more. One can see here what a elevated short percentage of the float (8.6%) can cause. When it finally broke the high of the day at 68 cents it squeezed up to 88 cents.

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Furthermore Friday gave rise to the continuation of the breakout of Novo Resources Corp, (NSRPF), a basic materials company with shares traded OTC. After breaking out on Thursday, NSRPF closed at around $1.32. The next morning it gapped up and spiked to as high as $1.53 – all this without any significant news.

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What a very high short percentage of the float (42.5%) can cause was shown by DryShips Inc. (DRYS) on Friday. When the high of the day was broken, DRYS went from around $1.6 to a high of $3.84! What a move.

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Cymabay Therapeutics Inc. (CBAY) made an impressive move during thisweek. After positive trial news were announced and an analyst upgraded the price target to $12, shares gapped from the $5.6s to almost $7. The company immediately took advantage of the elevated price levels and announced a public offering of stocks at the current market conditions. This caused a sell off of CBAY but the shares rebounded closing the week at almost $8.

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One of my top watches for next week is Aeterna Zentaris Inc. (AEZS), yet again a biotechnology company. A favorable FDA ruling lead AEZS to multiply its price threefold during the last week. I expect a sell off, which partly started already on Friday, and a subsequent bounce play opportunity.

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OTC cybersecurity company MGT Capital Investments Inc. (MGTI) is grinding up to its previous highs around $1.4. If it breaks this level, a very nice OTC breakout setup may materialize again.

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These are the two stocks I´ll be watching next week.

Best,

Nils

What a Week! – 10.07-14.07

Wow, what a crazy week. This was one of the weeks (as there have been so many in the past) where not being able to trade does hurt quite a lot, especially if your favorite pattern works so well and your forecasts all seem to come true.

As announced, on Monday IMUC was the play to watch. A little squeeze did materialize. When the market opened it soll off for a few minutes, went as low as $1.37 before squeezing up to $1.59 .

IMUC

Even thought the intraday action did not fit the bounce play pattern perfectly due to the lack of a morning panick, given the daily chart another stock rebounded nicely. After two days of selling off CERU squeezed from 75 cents to 98 cents.

CERU

On Tuesday, YUMA squeezed shorts. From its lows in the $1.5s to as high as $2.18. However, admittedly the pattern was everything but clean in this case.

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On Wednesday I finally got active again just before the market closed.  As previously announced, I took my chance and bought CHGG at $13.2 after it had broken out of its previous highs at $13. The subsequent two days it continued to grind its way up but volume has not been very satisfactory, being below average.

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On Thursday, TEUM was in play – squeezing from $1.15 to $1.6. However, once more the pattern was not perfect.

TEUM

And boy, did YUMA move again. From around $1.9 to almost $2.9 – incredible!

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And even on Friday, YUMA squeezed a little bit after selling off in the first minutes of the day – $2.33 to $2.68.

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Best,

Nils

Predicting the global economy

Wall Street doesn´t want to see the emperor naked. He may be old and fat and flabby, but they don´t want to know it. They want to see him regal and royal in all his majesty. And as long as they see him that way, that´s the way he is, because they keep on buying. Big ball keep on rolling –

Marty Schwartz

In his book “Pit Bull: Lessons From Wall Streets´s Champion Day Trader” legendary technician Marty Schwartz makes the striking observation that in the short time fundamentals often do not matter. The economy can be sick to an extent that is rather perverted and still the market may be going up. Don´t fight the market! If Wall Street wants to believe the growth story, it will find justifications.

There were many smart people that correctly evaluated the fundamentals and still went bust fighting the market, be it shorting the dotcom bubble a little too early in 98-99, betting on the collapse of the economy just a little too soon in 2006 and so on… So what about the current situation? Even though markets are climbing, current markets seem to be as sick as seldom before. Debt burdens have been rising, productivity in the west hast been decreasing, god-playing central banks have pumped excess liquidity into the markets in their pursuit of ending the business cycle. Just recently Federal Reserve chair Janet Yellen has made the absurd remark that a next financial crisis is unlikely to take place in our lifetime – let´s talk about hybris here.

In this context I would like to write about some indicators that may skew the probabilities towards us when interpreting and “forecasting” the macroeconomic environment. For this purpose I summarize his thoughts on “Boom, Bust, Rinse & Repeat: Predicting The Global Economy” by global macro investor Raoul Pal.

The overall theme of the presentation is that global economies trend. There are cycles which economies adhere to. However, since economies are characterized by trends and cycles, they become forecastable to a certain extent. This leads us to an interesting conclusion. Since asset class valuations relate to economic conditions, asset classes become forecastable too.

There are three layers of cycles to consider in our economic evaluation.

  1. Secular Cycle (Kondratieff Wave)
  2. Business Cycle
  3. Short term Economic Cycle

The Secular Cycle

The first cycle which we consider is the long term secular cycle. When analysing the secular cycle the demographics of a given country are of utmost importance. Let´s have a look at the western world here. Especially in Europe, countries are more and more characterized by an aging population. Why is is of relevance? Well, the aging of the population leads to a decline in spending and disproportionate savings . At the same time a divestiture in the equity markets takes place since assets are sold in order to finance retirement. Therefore the aging of the population leads to slow growth and slow returns. It has a deflationary effect and equity returns tend to be low.

Next, let us consider the long term equity cycle. Below you see the 10 year moving average of year on year growth in the S&P 500 which for this purpose is taken as a proxy of the general equity market. What we do see is that equity markets tend to move in obvious cycles. More interestingly one may observe that once the cycle has peaked, declining growth sets in for sometimes decades. While the cycles are not of the same length in general, this graph represents the fact that one can expect a general minimum length for every cycle.

This feeds into a very important aspect which is linked to probabilities. Forecasting the global economy is not about actually being certain about what is going to happen but rather about having probabilities and favorable risk/reward on ones own side. Having the chart below in ones mind thus allows to evaluate whether a bounce may be due to a trend reversal or if the given down move has not yet been exhausted. In this case the bounce would be more likely to be a fake bounce.

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Source: Realvisiontv.com

After the equity cycle, the commodity cycle is our point of reference. We can observe that the commodity cycle lasts for many years and that indeed commodity prices are very cyclical. Interestingly at the end of 2016 the cycle does not seem to have bottomed out yet. Rather a long period of falling commodity returns seems to be ahead of us and appropriately Raoul Pal suggests that this makes him bearish on commodities for the next years to comes. Looking at commodities in recent such as oil prices and even gold confirms this bearish view.

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Source: Realvisiontv.com

Another indicator which has become of  much relevance in recent years is the debt super cycle. Below we see the 10 year on 10 year change in total US debt as a percentage of GDP. Even this seems to be cyclical. After more and more increasing debt and thus leveraging of the US economy, at some point a deleveraging has to occur. We see this in Europe, where many countries are completely over leveraged and we see this in the United States of America which is the most indebted nation in the history of the world. The decreasing debt growth which we can observe in the chart indicates that the deleveraging phase is on its way. But how does deleveraging occur? There are many ways: debt may be written off, there may be debt relief, there may be a default or debt possibly may be inflated away. But generally deleveragings are not pretty at all.

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Source: Realvisiontv.com

Over time debt burdens become unsustainable and one cannot just easily “print debt away”. High debt burdens decrease the velocity of money. Inflationary measures such as quantitative easing then have a limited impact and lower inflation and after all deflation may result. That´s what we see at the moment too in many countries of the world. The huge quantitative easing programs by the FED, ECB and BOJ have led to a massive inflow of liquidity into the markets. This liquidity has flown into financial markets while at the same time wage growth and especially inflation have remained below target levels. Especially Japan is to mention here which has been fighting deflation for decades already.

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Source: Realvisiontv.com

Taking together demographics, the equity cycle, the commodity cycle and the debt super cycle suggests a rather negative long term outlook for the western world.

The Business cycle

Even though economists may say so, the business cycle does not follow a linear, perfectly forecastable fashion. However, as we see below the business cycle exists. The grey areas on the charts represent recessions and one may observe that there are clear boom and bust cycles between the various recessions.

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Source: Realvisiontv.com

According to Raoul the best guide to the business cycle is the ISM manufacturing Index which is based on surveys expressing the confidence of an economies purchasing managers. When the ISM crosses below 46, there has been a 100% probability of a recession in the past. This probability goes down 80% and 65% for levels below 47 and 50, respectively. Of course this does not say that the probabilities will repeat themselves exactly in the future but remember that it is all about having the probabilities on your side and not doing “stupid” things. Being super bullish at an ISM reading of 45 probably would be such a stupid thing. As of 03.07.2017 the  ISM has climbed to as high as 57.8 .

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Source: Realvisiontv.com

Why is the ISM so important? First of all the ISM strongly precedes, moves along and correlates with US GDP and since the United States of America is the worlds largest consumer of goods and services the ISM strongly correlates with world output too.

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Source: Realvisiontv.com

The ISM therefore strongly correlates even with South Korean GDP. But not just equities and GDP are linked to this indicator. The ISM moves with commodities as well. Oil, lumber and as we see below copper too is highly correlated to the ISM index.

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Source: Realvisiontv.com

Even credit spreads are related to the ISM…

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Source: Realvisiontv.com

and inflation obviously is linked to the ISM too.

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Source: Realvisiontv.com

In recent years however, the relationship between the ISM and some indicators has shifted a little bit. This seems to be related to the central banks goal of playing god resulting in suppressed volatility. The VIX index, which proxies implied volatility of at the money options, shows just how perverted the situation is at the moment. Implied volatility trades at historic lows, realized volatility has been even lower in the past. The conclusion may be twofold. On the one hand, options may be cheap in a historic context and on the other hand low suppressed volatility ultimately most likely results in a huge explosion of volatility.

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Short term economic cycle

Finally, we consider the short term business cycle. Here, the indicator is the Citigroup Economic Surprise Index (CESI) which reflects if economic data is published above or below economic consensus forecasts.  Even thought it does not fit perfectly, we see that even overestimation and underestimation seem to be very cyclical.

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Source: Realvisiontv.com

The CESI in conjunction with the ISM are a powerful tools. Raoul states that backtesting has shown that when the CESI goes negative, i.e. economic consensus overestimates reality, the ISM is likely to decrease if its at a point on its down cycle. The relationship between these two indicators therefore differs according to where the ISM is on its cycle. If for example the ISM is on an upwards trend, in an up cycle, then a negative CESI  does not affect the ISM that much. If the ISM already is downwards trending however, a negative CESI may have considerable negative repercussions.

A more recent chart than the one of Raoul´s presentation is presented below. What we see is not pretty at all. The CESI as of 14.07.0217 has turned strongly negative, indicating overconfidence in the economy – reality can not keep up with expectations.

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But as we see, the ISM at least in the short term is trending upward and therefore there may not yet be reason for concern – at least for the short term.

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ISM Source:TradingEconomics

 

There we have it. The three cycles. We start with the macro overview of where we are at in the secular cycle. This already may give us a good impression of general conditions and above all may push probabilities favoring us thereby granting us an edge in the markets. Then, the business cycle analysis strongly indicates in which direction the economy is headed, especially if the short term economic cycle analysis is used alongside.

And voilà, these are the main tools that Raoul recommends for “easily” forecasting the global economy.

Best,

Nils

03.07 – 07.07

Ok, let´s have a look at the obligatory recap of the this week.

In the last weekly recap we had a look at PNTV which just had broken out of the 13 cents resistance and closed at 16 cents. I had indicated that if PNTV would follow the typical OTC breakout pattern it would most likely gap up and morning spike. My “forecast” materialized to some limited extent. PNTV did gap up to 19 cents. But within the first minute it dropped back to 17 cents where it found its trading range for the subsequent minutes. Thus, buying into the close would have resulted in a profit, albeit a small one.

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Two other stocks that had been on the watchlist from the previous recap were MBRX and SPEX. For these I had imagined a rebound play to be very likely.

MBRX offered two opportunities in this regard throughout the week. Already on Monday it bounced. By now we know the pattern: MBRX sold off, found support and grinded its way up again. At the red-to green mark however there was strong resistance and MBRX kept consolidating for quite some time. But when it finally broke this crucial level the stock quickly spiked. Thus, the bounce pattern in this case took considerably longer than usually but during the consolidation there would have been no reason to sell – of course it is easy to say this now with hindsight. Unbenannt

On Friday MBRX became interesting once more. During premarket hours it had been trading above the close but when the market opened it crashed from the $1.70s to the 1.60s slightly above where it had closed. Then, it grinded up and squeezed when the premarket highs were broken.

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SPEX on the other hand gapped up strongly on Monday. From there it squeezed higher. But due to the strong gap up it did not fit the anticipated bounce pattern.

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On Friday, another stock with the ticker CHFS bounced nicely. This stock had been down trending continuously for three days after spiking from 60 cents to $1.6 within two days. On Friday, CHFS sold off within the first hour before finding support in the 74 cents area, trending higher again and finally squeezing up to 89 cents and later almost $1.

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Regarding the bounce play, one stock will be very interesting next week. ImmunoCellular Therapeutics, Ltd. (IMUC) is a biotechnology company with a market cap of $4.3 million and a float of 3.4 million shares – perfect for squeeze potential. It spiked big time for two days last week before crashing on Friday. On Monday or some days afterwards I would expect the bounce play pattern to appear for IMUC.

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Regarding the longer term plays, CHGG continued to sell off. However, I will keep watching this closely.

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On the other hand LUV and NBGGY have confirmed their recent strength, both hitting new highs. This is especially noteworthy since markets have been down this week.

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Best,

Nils

 

 

 

26.06.2017 – 30.06.2017

Another week with a lot of action. Some familiar stocks moved, some new ones did too. Let´s have a short look at the action.

On Monday morning, DCTH perfectly fit the bounce play pattern and its three stages: 1) Last week, it went from 5 cents to as high as 36 cents 2) It had three consecutive red days and the end of the week 3) The bounce was due and played out pretty perfectly.

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First, DCTH sold off. Then, when the bottom was in, in put in higher lows and squeezed to around 16.5 cents and a few minutes later to 20 cents – pretty nice bounce.

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Two stocks with crazy price action this week were MBRX and SPEX multyplying in value almost 4 times and 5 times respectively. I expect both of them to be good bounce play opportunities next week, even though Monday may be too soon – but who knows.

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One stock having been on my list for the last week was PNTV. This perfectly followed the OTC brekaout pattern on Friday. When it finally broke out of its resistance in the afternoon, volume picked up and PNTV spiked big time. Given the pattern, I should have bought into the close since I expect a gap up on Monday. However, since I won´t be able to trade during the market open I have to sit at the sidelines here and see whether the pattern plays out. A gap up and short morning rally would be a confirmation of the pattern though.

PNTV

Also with some other stocks that I had been bullish on in recent weeks I am sitting at the sidelines which feels a little weird.

OLLI has experienced a strong rebound after I had stopped out of my position. Last week it spiked more than 10% and it is getting close to its previous highs in the $43 area. Since I followed my rules on this play I am more or less OK with not being in the trade – at least I am OK with the situation at the moment. However, if OLLI keeps on spiking I probably will feel a little stupid, since my analysis was so bullish and “only” the price action took me out of the trade.

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I am already a little more confused about why I am not in LUV after my bullish analysis. It broke out of its resistance at $61 and continues its uptrend.

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NBGGY seems to have kicked out weak investors (like me) and is coming back to previous highs, continuing its uptrend.

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CBAY definetely is the stock which points the finger at me the most at the moment.  It is up $1 to new highs from the point where I first considered buying it. Of course, there was some weakness in between the upmoves and most likely I would not have been able to capture the majority of this move. Anyway, I should have participated in some of the profits here.

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As so often, all this may be hindsight bias and maybe everything is just going up at the moment since we are still in a bull market after all. However, if you read my posts, you may see which opinion I have expressed about these stocks in the prior weeks already. Execution seems to be key after all – once more.

I would like to not experience the same with another stock I am watching at the moment. CHGG recently has been strong and is close to its $13 breakout. If it does breakout with advantageous price action and volume and if my schedule allows me to take a position towards the close I will do so next week.

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Let´s see what next week may offer.

Best,

Nils