Trade recap I & CVSI

Dear L.,

In this post I quickly want to reflect on my last two trades.

The first trade was my first short trade so far. I (Intelsat S.A., Technology Sector) has been one truly strong stock in past weeks, advancing to a high of $9.7 from a base of 3.7 just three weeks ago. However, I guess that I does not belong where it is and that we will see a considerable crash not too far in the future.


On Friday I thought this crash was about to come. I had planned not to short the front move but wait for what I thought would be a trend reversal. However, both my entry and exit turned out to be poor. After a few failed spikes, I seemed to be in a downtrend. I chased my exit and shorted into the push into $9, thinking that VWAP would act as strong resistance. I did so with a very small position size, to get a feeling of these plays. Just a few minutes later, I pushed to $9.3. Even though I had planned to stop out above the highs of the day at $9.5, I panicked and covered at $9.26 for a small loss. This turned out to be the top for the moment. After pulling back however I ascended once more, this time surpassing previous highs. Thus, I would have been stopped out at this position anyway.


The takeaway from this trade is that both my entry and especially my exit were not very well chosen and I did not follow my plan when stopping out.

The second stock that I traded is CVSI (CV Science, Inc., Cannabis Sector). On Friday, CVSI broke out of multi-month resistance at 68 cents.


In the morning it quickly broke through resistance and spiked a little bit. I expected a pullback and wanted to buy the dip. This dip came but it was stronger than expected. From 70 cents, CVSI pulled back to 64 cents. I got in at 68, which turned out to be a little expensive. CVSI defended 64 cents twice on Friday and closed strong at 75 cents.


My plan for today was to either wait for a gap up and morning push to sell half into, or see how the 73 cents level would defend in the morning. CVSI did gap up to 77 cents but directly started selling off. 73 cents got taken out and the level of 70 cents was reached. There however CVSI bottomed and bounced. The bounce ended already at 75 cents. This demonstrated a lower high for me and I sold my position at 73 cents for an OK gain.

Later, CVSI sold off to the previous breakout level and I failed to rebuy my position there.


Thinking about this trade, there are two things to note here. First, I am happy to have followed my plan 100%. Secondly, I think that my plan was not well worked out however. As was already the case for my GOPH and VEND trades, I lost the perspective of the chart. I think that CVSI can go a lot higher in the next week and probably I should have decided to swing this for a longer time frame. Two successful OTC traders I am in contact with both have a price target of $2 for CVSI. However, without having conviction in this target myself, I took the small profit. I should have given it a little more time though.

Well that´s it.




Macro Lesson #3

Dear L.,

For the third Macro Lesson I´ll write about the main takeaways of episode 103 of the Macro Voices Podcast. This episode featured Darius Dale of Hedgeye.

So, here are the main lessons that I took out of the episode.

On Peak Cycle

If one looks at second derivatives of main variables instead of the main variables themselves, changes of growth give a main insight into the development of the global economy. Given this change of growth perspective, there is much evidence to support the hypothesis of a peak in global growth. In the past we have been at a very asymmetric point in terms of this changes of growth perspective. There have been many consecutive quarters of accelerating growth. However, this growth seems to be topping and it is decelerating on a global basis. If one includes realized volatility into the analysis, it becomes apparent that 8 quarters of accelerating growth led to all time lows of volatility. Therefore, if growth finally decelerates, more volatility may be a logical consequence too.

In the short term core CPI may accelerate. There are some lofty expectations on Wall Street regarding both companies´ earnings and profit margins, which are broadly extrapolated into the future. However, we are at peak margins already. Most likely companies will not be able to sustain these margins given wage growth. We are in a very tight labor market and have additionally experienced a degradation of the labor share of profits which is well below historical average. This may give rise to the assumption of rising wage pressure in the future which will be seriously detrimental to companies´ profitability. The end of the deflationary wireless price war and a 3Q17 all time lows print in medical inflation in the US are most likely to be not sustained. Nevertheless, unlike other guests Mr. Dale argues that structural reasons make a large and long term increase in inflation unlikely.

On global divergences

In the recent past, we have seen decelerating growth in many economies. Global growth was accompanied by ever decreasing volatility too. Now, as growth decelerates, we have come to experience a material increase in volatility. One of the most important countries to look at in terms of global growth is China. World corporate profits and world manufacturing growth are both highly correlated with China´s imports. During the last challenging period in 2015-2016 the FED was easing, thereby allowing the PBOC to push liquidity into the markets without causing capital to leave. However, this time authorities are unlikely to step into a downturn due to unsustainability high investment. A slowdown in China will have a ripple effect on other EM and south Asian countries too.

On the US Dollar

Currently, there are near all time high speculative long positions in Euro vs. US Dollar. This is also reflected in the derivatives market. In the last quarter, in which we still experienced sustained global growth and a broadly positive outlook, this synchronized recovery was the main reason for the weak dollar. Now, that growth is decelerating, the Dollar may see a leg up. A further supporting factor for this are US demographics. Compared to the European Union, the share of 34-54 years olds, which tend to have the strongest purchasing power, will widen sharply in the decades to come.

Well, this short text summaries my main takeaways.




On planning and being decisive

Dear L.,

I have not been quite as accountable as I should be in the past two weeks. It is not that I have not continued to trade, but that I rather have felt a sense of frustration. Anyway, I have  preferred not to relive these trades again. Nevertheless, some developments today made me aware of the importance that reflection has, especially during times of frustration.

Therefore, in this post I´ll keep you updated about my last trades and today´s opportunities, which I missed due to some factors that I will write about.

So let´s get it started.

OTC stock USRM (U.S. Stem Cell Inc., Biotechnology Sector) decided to break out of it 8.25 cents resistance on September 9th. I had been waiting for this breakout and therefore decided to trade this.


Right in the morning, USRM accelerated and squeezed to a high of 9 cents. I was expecting the usual OTC breakout pattern however and therefore planned to buy the dip. And the dip presented itself. When USRM sold off below the breakout level at 8.25 cents, I hesitated only for a second (a little to long) and entered at 8.25 cents. Recently, I have been able to buy into these dips without a lot of stress pretty nicely and I am satisfied with this entry. Just as the other recent breakout plays such as GOPH and vend, USRM hovered around the breakout level for a long time. There was support at 8 cents and I decided to stop out below this level. Since I did not want to be shaken out too easily, I gave myself a little room however. It turned out that USRM did not bounce. Instead, toward the end of the day support got tested again. At 8 cents, a huge buyer was sitting and I decided “to see” if he was taken out. At this point my reaction was too slow however. The buyer got taken out rapidly causing a quick panic. Instead of exiting at 8 cents I got filled at 7.8. What should have been a minuscule loss given a tight stop, became considerably larger one.


Overall, the trade was not so bad. The breakout turned out not to work this time and that is OK. I did not chase and bought the dip nicely. However, when exiting I should have been way more decisive. After all, exiting into an OTC panic is almost impossible and serious slippage may be a result.

Recently, there has been a slight rebound in the price of Bitcoin which brings us to the second stock that I want to write about. BTSC (Bitcoin Servics, Inc., Cryptocurrency Sector) was a truly amazing stock when Bitcoin was hot in December of 2017. However, given the chart below I think it is correct to say that it has not performed too well in past months.


But the crypto crowd consists of true believers and the recent relief has led to some nice price action in this sector. On September 13th BTSC broke out of multi day 8 cents resistance. I waited for the typical pattern and planned to trade it.



By now we know how the pattern plays out. BTSC spiked and then dipped back quickly. I jumped in and entered my position at 7.9 cents. BTSC started to not to do a lot after my entry. At this point I was making my plans where to set my stops, where possibly to exit and if simultaneously to have an eye on the Bitcoin price action. I was not certain at all at this point how to answer these questions. The previous day BTSC had spiked in the morning, dipped afterwards and then had done nothing for the rest of the day. Now I feared a similar price action for the day. Given the breakout my plan should have been clear: to hold BTSC unless it broke considerably below the 7.9 cents dip. However, I got bored and exited at 8.15 cents for a very small gain.


As one can see BTSC did shake out some longs when dipping below 7.9 cents. This demonstrates the necessity to leave some room to not become one of those weak hands. Later in the day BTSC reached highs of almost 9 cents however and I was sitting at the sidelines.

This morning BTSC broke out yet again. This time 9 cents gave away pretty quickly and 9.4 cents were reached in no time. At this point I waited for the pullback to buy at 9 cents. The pullback came, but reached only 9.1 cents. I did not want to enter on a higher average cost basis and missed my entry. BTSC spiked to almost 9.9 cents just a few minutes later. I think in this case I very well could have tried to buy at 9.1 cents given the fact that this was VWAP. Of course, a higher cost basis equals a larger loss given the same stop price and I did not want to risk a lot of capital given yesterday´s trade.


This trade most likely was the worst one I have done in quite some time. The entry was rushed, the exit was rushed and I had not clear plan.

CELZ (Creative Medical Technology Holdings,  Inc., Biotechnology Sector) gapped above 1.4 cents yesterday. Even thought this is not the high of the past weeks, this level proved to be resistance the previous 4 times. Therefore 1.4 cents seemed to be crucial to me and I planed to buy the dip.


The dip came. But instead of buying close to the lows of 1.33 cents, I chased and bought at 1.41 cents. Given this higher cost average I was already very uneasy. There was no clear support to base my risk off of. I decided to give CELZ a little room below 1.33 cents and thereby to risk more of my capital. When support got tested however, I suddenly changed my mind and sold all. I acted emotionally and sold right at the near term bottom. As if to laugh at me, CELZ at first confirmed the breakout pattern and spiked to 1.48 cents. Later in the day it was a faded however and sold off considerably. Paradoxically, I most likely would have lost more, had I followed my plan. I must not fool myself however. This trade was executed badly from start to finish and I must follow my plan.


This brings us to today´s price action and the fact that there were some incredible opportunities which I failed to profit off. Of course there is hindsight bias in my reflections and I forget about the losses that I did not take by not trading. But I feel like I hadthe right feeling on quite a few plays. Nevertheless, I was not decisive enough and ended up not trading today.

Besides BTSC there has been another OTC breakout in recent days. this is FUSZ (nFüsz Inc. Media/Technology). After breaking out at $2.1 it reached highs of $2.64. Even though this was on my watchlist when breaking out, the price action seemed a little off. Therefore I missed this opportunity.


I (Intelsat S.A, Communication Services) has been one recent parabolic stock which seems to have topped. Today it has been fading throughout the whole day . I thought about shorting into VWAP at around $8.5 with a longer time frame but ended up not doing it due to my lack of short experience. This chart looks a little like the recent GERN chart and I will plan a possible short tomorrow.


Chat pumps have been a gift of gods for short sellers recently. Today SINO (Sino-Global Shipping America Ltd., Shipping Services) spiked out of nowhere due to a chat pump. It turned out to be an awesome short opportunity fading all day after the rats had exited the sinking ship. I did not consider shorting this at this point however. SINO.png

The serious opportunity that I missed today was buying the rebound on VTVT (vTv Therapeutics Inc., Biotechnology Sector). This stock has been incredible in the past few days squeezing shorts day after day.


And today was no different. In the morning it seemed as if the action had shifted. However in the afternoon (CEST) VTVT slowly grinded towards VWAP and finally reclaimed. At this point level 2 was very much telling what was going on. The bid would not disappear and soaked up all the offer. I felt very bullish at this point but was undecided given support 20 cents lower. I was just not decisive enough and when I finally decided to lower my position size and buy at $1.99, VTVT went to almost $2.45 in a matter of three minutes. Probably a big short seller had to cover. Anyway I was sitting at the sidelines. This indecisiveness is not acceptable in a situation like this. If I feel uncomfortable with my risk, I have to lower my position size. But I must not miss these kinds of opportunities.


Finally, SDRL (SeaDrill Limited, Basic Materials Sector) offered a similar opportunity. Similarly to VTVT, SDRL had spiked big time yesterday. Today it started weak too. But when VWAP finally reclaimed the buyers gained control.


SDRL squeezed from 34 cents to almost 40 cents. Even though I was watching the VWAP reclaim closely, I was a lot less convinced about the odds of this opportunity and therefore I did not consider SDRL.

2018-04-19-TOddS _CHARTS.png

There were however the plays that I wanted to play.  I should have ended up taking action on some opportunities among BTSC, I and VTVT.

But I did not capitalize on these opportunities. Therefore, I will have to make a plan about what to change to become more decisive in these kinds of situations, be it having a smaller position size or having tighter stops. I will definitely make a plan for this major impediment.



Macro Lessons #2: The Topping Process

Dear L.,

for today´s Macro Lesson I want to write about my takeaways of yet another Macro Voices interview. Episode 102 featured Simon White of Variant Perception who had to offer an intriguing position on various topics.

On equity markets

This year´s market action has been in strong contrast to last year´s behavior. Generally, once a material change such as a market crash occurs market dynamics quickly change. We were able to observe this phenomenon this year too. While 2017 was characterized by incredibly suppressed volatility, 2018 has seen much market volatility once the short vol trade (XIV etc.) broke in early February. The unwind of explicit or implicit (such as risk parity) short volatility bets may have a material impact on the markets in the near future.

Mr. White mentions that often there is a similar pattern in how market crashes play out. As in physics, markets display harmonic oscillation with a self-reinforcing tendency towards the center of the move. The time frame for such oscillation may last from 8 to 12 weeks. Since the lows were tested last week and the correction has been going on for around 8 weeks, a short term rebound may be likely.

More fundamentally however equities have lost support most recently. Factors that have supported equities in the past seem to be at risk. Firstly, global growth is peaking. Secondly, global central banks are in the process of removing liquidity from the markets. Thirdly, higher inflation will be a headwind. It generally is bad for PE multiples and squeezes profit margins due to higher wages and increased input costs.

In summary, there is higher risk and less reward in equities at the current state.

On the US Dollar

In the medium term the US Dollar may appreciate since it seems to be oversold currently. Generally, the Dollar tends to weaken when purchase manager indexes in other countries rally. US tax reform was a positive signal for international PMI´s posing a headwind for the US Dollar. On the other hand, a risk to global growth and global trade such as the current trade tensions between the United States and China are bullish for the Dollar. This is because a decline in global trade tends to hurt other nations more than the United States. When other currencies fall, the trade weighted Dollar rises. A further tailwind for the greenback are real rate differentials which favor the Dollar. Furthermore, there is a strong correlation between a rising Dollar and a steepening yield curve. Thus far we have seen the curve steepening which would further support the Dollar.

Given a longer term perspective however, the US Dollar seems to be overvalued on both the basis of PPP (Purchasing Power Parity) and the real effective exchange rate

On The yield Curve

We seem to be past the flattening phase and there is a bias for further steepening. In general the yield curve remains a great recession indicator since it has correctly predicted every major recession and there has only been one false signal in 1967. However, the yield curve is not sufficient to forecast recessions since it has had a lag between 6 months and 2.5 years in past instances. There is a strong correlation between Fixed Income volatility and a steepening of the yield curve. An increase of the volatility in changes in the Federal Reserve balance sheet has increased Fixed Income volatility recently If the correlation holds this may support further thought on a steepening yield curve.

On The Libor-Ois Spread

The current spike of the Libor-Ois spread indeed poses a warning sign yet a different one than most market participants expect. Unlike in 2018 when the increased spread was a sign that institutions had stopped lending, today we face a supply issue. Due to tax reform and the repatriation incentives to bring US Dollars home, there have been less offshore Dollars available to fund unsecured offshore lending. Therefore with less supply the price of these funds has risen thereby increasing the Libor-OIS spread. Increased bill issuance by the US Treasury has further strengthened this spread. As Mr. White states this issue is not “acute but chronic”. Trillions of loans are priced in Libor and the move in the Libor-Ois spread may squeeze profit margins of financial institutions and increase required repayments of consumer loans. The spread may lead to higher household debt ratios, thereby posing a further headwind for consumption.

On China

In China there is a huge debt overhang. However, Chinese authorities generally are quite capable in managing this overhang. At the same time major economic indicators are turning lower which indicates lower future growth and tightening liquidity. President Xi Jinping has very much strengthened his position and will allow lower short term growth to be able to face both economic and environmental reforms and a reformation of the shadow finance industry.  The weak Dollar has made it easier for Chinese authorities to manage the challenges. If the Dollar picks up however, this may make matters more challenging.

On Japan

Similarly in Japan growth seems to be peaking. However, the monetary policy outlook finally is brightening. Withdrawing from negative interest rate policies and targeting  a positive yield curve instead has been the right monetary policy move. Central banks need the financial industry to transmit their policy to the economy which works better with the current approach. As a result finally the inflation outlook seems to improve and even wages are picking up.

These are the main lessons that I personally have taken from this great interview.




Some more midday reflections…

Dear L.

in one of the last posts I wrote about my trade in GOPH, entering at $2.04 and exiting at $3.2 to see it close at $3.6. At this point I already was quite confident that GOPH would gap up and make a fool out of me.

An look what happened.



GOPH topped out at almost $4.7. This was a 50%+ move from my entry and I took less than around 5%! Wow, that hurts! Well, I have already talked about the lessons in the last post but it boils down to a few things:

  • Looking at level two all day made me loose the macro picture on these “monumental” move.
  • I did not follow my plan – more on this in just a second
  • I did not follow the OTC breakout pattern – more on this in just a second.

On Thursday, a new opportunity presented itself on the OTC breakout front. It was not of the same quality as GOPH, but a good opportunity nevertheless. VEND (Generation Next Franchise Brands. Inc, Franchise Development Company) broke out to multi year highs at $2.17. This stock does not offer a lot of liquidity. However, I was aware of this before going long and concluded that it does offer enough liquidity for position size.


Despite being less liquid, VEND followed the breakout patter which we have experienced quite a lot in recent times. In the first minutes after the market had opened,VEND broke out and spiked. Then it pulled back and retested this crucial level. This is were I got in at $2.2, a little bit on the expensive side. How I traded VEND for the rest of the day was quite well executed. Why? Because I did not trade it. I decided where to stop out and to hold into the close otherwise. At various times during the day my conviction in this plan got tested. VEND traded in a quite choppy way. However, towards the market close it rallied a bit and closed close to the highs of the day. I decided to hold overnight.

Coming into the market on Friday my plan was as follows. I wanted to watch the morning action and not hold VEND longer than 30 minutes since it tends to have rather strong morning shake outs. I decided to stop out below 29 cents. Recently, we have seen quite a few breakouts which had a small dip before rallying the second day. VEND opened where it had closed and quickly spiked to 37 cents where it topped. Then, a rather strong pullback was what followed. I watched level two closely to see buyers disappear. One larger buyer at $2.31 got slowly taken out by sellers. This made me quite uncomfortable. When the size of the buyer shrank and shrank I finally hit the bid exiting at $2.31. This turned out to be the bottom and at the time of writing VEND has reached a high of $2.46. Thus, I left more than half of the profits on the table – once more.


There are two similar lessons as in the case of GOPH to take away here.

  • I did not follow my plan today. I knew that the 29 cents level was the crucial one. But when 31 cents threatened to break, I wanted to save what I had left of my profits. I panicked, filling on the low of the day.
  • I think that myself watching level 2 during these OTC breakouts may be seriously detrimental. Level 2 is useful in times of volatility. But in times of consolidation it may convey a false sense of selling/buying pressure. The time frame for these OTC breakouts is more than a day. Thus, I should trade the chart here and follow my plan. Level 2 makes me too focused on the micro picture when in a longer term trade like this.

I just had exited VEND on Friday when I made the day worse. NETE (Net Element, Inc., Technology Sector) had been very strong on Thursday and I had had it on my watchlist for a possible red to green move. NETE did sell off in the morning, to fight heavily around VWAP. When it did seem as if VWAP was able to reclaim, I bought NETE at $9.01. Just seconds afterwards, the bottom fell out and I stopped out at $8.65.

What is the lesson from this trade? I am not 100% sure. On the one hand,  I took the decision which I thought to be right. In the last days I have beaten myself up a lot because I did not trade these VWAP reclaim-squeeze opportunities. On the other hand, I am not sure if this pattern actually is a high percentage pattern or if I just remember the cases in which it has worked.

It turns out that NETE closed at $7.33. Thus, my exit was well chosen and the failure to reclaim VWAP actually was a nice short trigger.


There are some other stocks which I was following where the VWAP reclaim squeeze did turn out to work.

First, there was TNTR (Tintri, Inc., Technology Sector) which gapped up this morning thereby falling on my watchlist. However, this stock was rather illiquid in the first hour. It in fact tried to squeeze higher once but failed to do so. After this failure I did not watch it anymore. The second attempt to squeeze did work though. When VWAP held at $2.05, TNTR squeezed to almost $2.4 in a matter of 3 minutes.


And then there was once more SLS (Sellas Life Science Group, Inc., Biotechnology Sector). I had had this on the top of my watchlist for a possible bounce play. However when SLS declined from $7 to $6.4 I thought that the bounce was unlikely at this point. However SLS did reclaim VWAP  and quickly squeezed shorts from $6.6 almost a whole point.

SLS 3.png

Despite all these volatile plays, without a shadow of a doubt the play of the day, of the week and of the month was LFIN (Longfin Corp., Technology Sector). LFIN became famous last December when it purchased a concurrency, thereby creating a linkage to Bitcoin and other cryptocurrencies. This made it spike from $5 to almost $150 in just two days.


While Bitcoin was crashing LFIN slowly but steadily depreciated too. Then, in past weeks the announcement that LFIN was to be included in the Russel 2000 index once more caused a mania. LFIN doubled before a negative article by Citron research demonstrated the questionable quality of the business. LFIN  crashed from $70 to $8 before shorts got squeezed for the last three days of this week.


And this is where Friday´s trading session started. LFIN once more gapped up and started to squeeze shorts. From a low of $22 it reached a high of more than $28. Then it happened. LFIN got halted on a T-12. This halt requires the company to provide additional information to authorities. These kind of halts may last for days, weeks or even months. Most likely LFIN will open much much lower and many traders are stuck in their positions for an unforeseeable future.

LFIN 2.png

After having complained about all the opportunities that I have missed recently, not being caught in this halt truly makes me feel grateful.





Macro Lessons #1: The Comeback of Inflation

One excellent source of commentary on the general state of the global economy is the Macro Voices podcast. Listening to episodes covering all kinds of macro-related topics has taught me incredibly much about this field of finance.

As a way of reflecting on the episodes I want to start to summarize main lessons and opinions that I have taken from the various conversations as I believe that it will strengthen my understanding of the matter. Therefore, I´ll start the “Macro Lessons”  today with a summary of episode 101 of MacoVoices which includes a conversation with MI2 Partners founder Julian Bridgen.

So let´s talk about what I have taken out of this episode.

On treasury yields

The cyclical low in treasury yields was marked by the 2016 lows. Now we are most likely in a structural bear market in bonds. At the same time, now yields are trading at a crucial level. The 10 year yield of 3.05 is crucial as resistance and it will be important to see how yields trade around this level. Mr. Bridgen´s models further tell him that yields are expected to move higher in the future to come.

Interestingly, many market pundits got the effect that quantitative easing had on treasury yields wrong. Contrary to public opinion quantitative easing policies were not able to lower treasury yields. This can be observed by having a look at real yields. So why did nominal yields did fall? Nominal yields merely fell because of disinflation or a fall in inflation. Further, since the end of 2015 capital from Europe and Japan flew into the United States, thereby putting pressure on treasury yields.

On inflation

The current theme may be summarized by a reemergence of inflation. The big “deflationary scare” of 2015 indeed was merely caused by a drop in oil prices. Already in early 2019 inflation above the target of central banks is expected in both Europe and the United States. Indeed price increases are already in the system, lowering corporate profit margins and giving rise to nascent inflation. At the same time one has to consider that this year there still is a lot of money to be spent in the US. Donald Trump´s “huge” budget, tax cuts and infrastructure spending will put even more pressure on prices.

A comparison to the 60s may be appropriate here. During this period just like today badly timed fiscal spending resulted in inflation. Paradoxically, economic strength is the risk of present times. In the process of trying so badly to create economic growth and inflation central banks have utterly distorted financial markets as may be observed in the development of risk assets. Hence, when growth, wage growth and inflation will come in stronger than expected bonds will go down and so will equities. In a situation like this central bank´s hands will be bound. The central bank put will be gone. Every investor betting on the Fed stepping in and saving the market is playing Russian roulette here. Once the central banks lose control of inflation, they won´t have a decision but will have to raise rates.

The effects that inflationary pressures have on the economy may already be observed in the decrease of mortgage applications. Homes across the board have become less affordable and rising rates will make mortgages even less affordable. There has been a lot of talk of all the millennials who live in their parents basements. The argument goes as follows: once they leave their parents´ homes they will want to buy a home and thereby strongly increase demand for housing. However, millenials do not live in basements because they want to. We have to face the fact that they just can´t afford to move out. And rising rates will not be helpful here.

Further stress emerging in the real economy is credit stress. There has been an increase in defaults of credit cards which generally is a late cycle development.

On Equities

Equities are overvalued by many measures and rising yields will contribute to equity stress. Thus, the outlook on equities is bearish. Mr. Bridgen makes a case for the fact that a considerable part of the equity appreciation since Trump´s election may be attributed to “dumb” retail money being lured into the market. This traditionally is a late cycle phenomenon too. At the same time, many leveraged institutions are running out of capital that would allow them to absorb shocks. This will be especially problematic in a situation where volatility remains elevated. Thus, there are constrained institutional buyers in an environment where retail is already long. This is not a particularly rosy picture for the equity market and the top may very well be already in.

Now let´s connect the theme of equity markets to one common fallacy. In modern portfolio theory a negative correlation between fixed income products and equities is assumed, thereby promising diversification. However, in an environment of rising inflation bonds won´t hedge equities. Rather, both will fall together.

Given this inflationary outlook, commodities should perform relatively well, at least outperforming equities.

On the Dollar

Regarding the US Dollar, there has been an interesting development in recent years. There has been a low current account deficit relative to global GDP in the United States. The US  Dollar being the world´s reserve currency, global markets need a supply of Dollars for global trade. To supply the world with US Dollars, the US manages a current account deficit. If this deficit however does not grow at the same pace as global GDP does, a lack of Dollars in the system may be a result. This lack of dollars combined with the repatriation of US Dollars as a result of US tax reform demonstrate two bullish indicators for the US Dollar in the short time. Additionally, a global risk off mood will further aggravate the strengths of the US Dollar due to its global save haven status.

While there are quite a few signals that make Mr. Bridgen bullish on the US Dollar in the short time, he argues that due to structural reasons the long-term outlook is rather bearish.

Well, these are the main lessons that I have taken out of this week´s great episode.



GOPH: Love the Pain – Learn the Lesson

Dear L.,

Yesterday I mentioned my long of GOPH (Gopher Protocol, Inc., Technology Sector). I bought the breakout at $3 with an entry at $3.04 and planned to hold into the close unless crucial support at $2.98 was broken. Well, I did not follow my plan. I gave into fear and greed and gave away this great opportunity.

After $2.98 had held for the third time, GOPH quickly started to climb. When the high of the day at $3.14 was broken, GOPH took out a huge wall of sellers at multi month highs of $2.15 and really started to pick up pace there. Then GOPH hit $3.24 and greed started to take over. My conviction to hold into the close quickly faded away. I let myself be influenced by some external factors and sold my shares into the pullback at $3.2.


I directly knew, that it had been a very, very bad decision to violate my plan and as the chart shows, GOPH hit a high of $3.6 and closed not far from these highs. I expect GOPH to continue its rally when the market will open in less than an hour, even though trade tensions and the resulting gap down of the S&P 500 may weaken the move.

Let´s go over the lessons from this trade:

  • When I longed GOPH early in the trading session, my first stop was below recent support of $2.90. Later in the day, I shifted to below $2.98 when this level had proven to be strong support. Nevertheless, given my exit at $3.2 I traded GOPH with a risk/reward of 1 to 1. Of course I can´t always win. However, when I win and especially when the setup works out so perfectly as it did yesterday, my potential profit should be 2-3 times larger than the risk which I take. In this case, if I had followed my plan, the ratio would have been almost 4 to 1.
  • I did not follow my plan. I lost the macro perspective when GOPH started to accelerate. On a micro perspective the move from $3.1 to $3.24 seemed “parabolic”. However, this was an appreciation of not even 3%. Reading the tape and watching the chart all day, may be seriously detrimental in a situation like this. Setting a hard stop and taking a walk would probably have been the best decision in this case.
  • To get a grasp of just how good the setup was, we have to consider the daily chart. Firsly, GOPH broke out on a multi day level when $3 were surpassed. Secondly, and more importantly however, when a massive wall of sellers at $3.15 was taken out in a matter of seconds, GOPH achieved a multi month breakout, surpassing the highs of early January. This means that literally no backholders from the recent past are left. I had this in the back of my mind when trading. But given the power of fear and greed I disregarded it.


Let´s see where GOPH will open today and let´s see where it will go. I really hope to have learnt the lesson.



On red to green moves and breakouts

Dear L.,

Today there have been quite some interesting opportunities which I want to write about a little bit. So let´s just get right into it.

First there was SLS (SELLAS Life Science Group, Inc., Biotechnology Sector). Positive news had made this stock appreciate by almost 200% at some point yesterday. Consequently, it was back on my watchlist today. I especially liked about SLS that it has a very low float of shares. I argued that short sellers were likely to be squeezed in the case of a red to green move. As hoped, SLS opened slightly lower and sold off a little before reclaming VWAP. My plan had been to buy SLS once VWAP had been reclaimed in anticipation of a red to green move and a possible squeeze. However, once SLS held VWAP I became gunshy and in a matter of minutes the stock had squeezed $2 from this level. The setup was perfect in this case, but I failed to take advantage of it.


Another red to green move was offered by LFIN (Longfin Copr., Technology Sector) . Last week this faced excessive losses when it was confronted with accusations of fraud and other wrongdoings. This morning, LFIN gapped down once more. After selling off it reclaimed VWAP though and started to squeeze shorts from there, especially once the open at around $11.2 was broken. LFIN would squeeze to $14.5 in a matter of minutes. Since LFIN had not been on my watchlist however, the benefit of hindsight is at play in my analysis here.


After missing out on SLS I was looking in fact for another red to green play. BPTH (Bio-Path Holdings, Inc., Biotechnology Sector) seemed to be such an opportunity. The stock had gapped up on “positive” trial results. The setup seemed perfect. BPTH sold off, found support and then grinded higher. However, when it tried to reclaim VWAP, it failed to do so. Therefore, I did not consider taking a long position. BPTH ended up selling off throughout the whole day. This example demonstrates the importance of VWAP as an indicator for being bullish or bearish. Earlier this month, I would have bought BPTH here just to get dumped on.


And then there was the stock I have taken a long position in. GOPH (Gopher Protocol, Inc., Technology Sector, OTC) has been strong in the past week and I followed my plan to buy the $3 breakout. My plan was to buy the retest of this level after the breakout. However, I ended up chasing a little bit and bought directly at the breakout at $3.04. As so often, GOPH did retest the breakout level for a long part of today´s trading session. Thus by following my plan in a more disciplined manner I could have saved myself some stress and I could have obtained a better entry price. At the time of writing GOPH trades at $3.09 and I plan on holding this if  $2.98 continues to hold.


These are my thoughts for the moment.






Some thoughts…

Dear L.,

In this post I will jump quite a bit from topic to topic, from setup to setup. There are a few things I have been thinking about recently and some things I have to reflect on. So, here we go.

Firstly, as a corner stone causing some of my reflections, we have to go over my most recent loosing trade on HEMP.

Hemp Inc. (HEMP) is one of the many Cannabis companies which showed impressive results last year. Since then, the Cannabis sector has been in a downtrend even though some companies have been faring better than others. After bottoming at 2 cents, HEMP showed strong price action and closed at 2.45 cents on Tuesday. Even though at this level HEMP was way off of its December highs of almost 6 cents a break above 2.6 cents and the resulting multi month breakout would have triggered a bullish signal in my opinion. Additionally, HEMP issued a PR on Wednesday morning titled:

“Hemp, Inc. Named Best Hemp Company by Media Outlet Cashinbis Best of Cannabis Awards 2018”

Yes, yes yes! I am aware of the pathetic quality of this announcement. Nevertheless, I argued that this might give the breakout some additional strength.


My plan was as follows: waiting for the breakout and a pullback back to the breakout level to take my long position.

HEMP did gap up slightly to just above 2.5 cents and then tried to break out at 2.6 cents. For the first minutes of the day it failed to do so. When it finally did break resistance however, it quickly spiked to a high of 2.67 cents just to pull back to 2.6 again where it fought for a while. All this happened according to my plan and when level two finally indicated increased support at 2.6 cents and I spotted more and more buyers, I took my position at 2.61 cents. At this point I had a stop of 2.55 cents in mind which meant taking a very small loss given a rather small position size.

After this buy HEMP continued to grind around the 2.6 cents mark. When it finally failed this level however, the unwind happened pretty quickly. From 2.6 cents 2.55 cents was reached rather quickly. I decided to bail on my position and put in my limit order at the best bid of 2.55 cents. Unfortunately, this was to be the time that made me experience how difficult it can be to get filled on OTC stocks, even if you hit the bid. Half of my position got executed at 2.55 cents before the buyers disappeared at this level completely. When I realized that HEMP was not about to bounce back to 2.55, I had to cancel my limit order and put in another one, selling the rest of my shares at 2.48 cents, considerably lower than planned. Additionally, my scaled exit increased my transaction costs.


Lessons: So, what can we learn from this loosing trade? After exiting the trade, angry about loosing yet again, I concluded that there was nothing to learn since I had followed my plan 100%. However, after some reflecting I do think that there are some things to take away from this. First of all, we have to conclude that already the two days before the breakout, HEMP had seen some very strong price action. Therefore, it may have been a little too exhausted already. I did take this fact into consideration on Wednesday. Nevertheless, I disregarded it since we already have seen other breakouts in similar conditions. But it may be worth considering this in the future. Secondly, as already elaborated on above, I finally experienced how tough OTC executions can be. I am actually quite grateful for the fact that this happened now and not during a situation when I have to get executed with size. Therefore, liquidity constraints, exits and my position size will be of even more concern in the near future. Thirdly, I will in any case adjust my position size in the future.

Talking about breakouts, let us have a look at two perfect breakout charts lacking one essential ingredient.

“False” Breakouts

Both shares of Lig. Assets, Inc (LIGA) and P10 Holdings, Inc (PIOE) broke out very nicely at 1.2 cents and $1.5 respectively. However, given a total of 20 million and 100k shares traded respectively, these setups unfortunately are not viable for me.



Catching A Falling Knife Revisited

Besides breakouts, last week offered the opportunity to catch quite a few falling knifes, i.e. previous high flyers which finally crashed.

GERN (Geron Corporation, Biotechnology Sector) has been the stock of the past week, almost doubling from around $3.5 to almost $7 in a matter of days. However, as fast as this one climbed, it crashed too. After the first red day on Tuesday, a rather strong gap down followed on Wednesday. In the morning selling pressure intensified until at around 10:30 EST panic took over. GERN tanked from $3.9 to almost $3.4. As so often the point in time of highest panic was a great buying opportunity and GERN bounced to as high as $4.3 after the panic had ended.


Similarly, FUSZ (nfüsz, Inc., Technology Sector) which had been a leading stock in the OTC sector, experienced a wave of panic selling on Tuesday after having topped two days earlier. Around 11: 00 EST bids disappeared and the stock went from $1.6 to $1.2 in less than 15 minutes. Later in the day it should bounce back to $1.45 from these lows. Even though I had had FUSZ on my watchlist for a possible dip buying opportunity, at the time my attention was on HEMP and I missed out on FUSZ.


Bounce Play

On Thursday, AYTU (Aytu Bioscience, Inc., Biotechnology Sector) bounced quite nicely after its meteoric rise last week. Given the setup, this should have been on my watchlist. I don´t know why it wasn´t.


The Short Side

Besides talking about all these long opportunities, let us have a short look at possible short trades too. This definitely is a field I want to have a look at too (yeah, there still is a lot of room for improvements on the long side – I get it). Last week, ASTC (Astrotech Corporation, Industrial Goods Sector and NSPR (InspireMD, Inc., Healthcare Sector) gapped up pre-market. When thinking about a possible long or short bias, a look at the long term chart of both stocks was particularly helpful. Both have a history of not being able to hold their gains and have been selling of for a considerable period of time (hint: I´ve highlighted last week´s gap ups). This sub optimal long-term performance means that there are a lot of bagholding investors happy to sell into any little spike. The result is strong selling pressure. As we see, neither of the two could hold its gains and has sold off since.



These the thought I wanted to jot down.