Markets yield to fear. Let the panic flow through. Big shake up in marijuana industry has me going back to old trade ideas. Hackers will keep on hacking - one day FireEye might go up. And Chinese currency slides more and rolls on to deliver a tidy profit.
Portfolio News
Market Jitters I watched the US markets open to a triple digit drop on the Dow Jones.
The headlines carry the story. Markets are within a whisker of all time highs. Macy's reported disappointing store by store sales and the stock was smacked (taking back some of the last year gains). Even the yields markets were showing their fear, though I did see that the 10 year yield had actually gone up 2 basis points in the early session. Is it Turkey? Is it trade? Is it Argentina? Is it fear of losing strong gains from the last year and the last 10 years?
The answer from Jim Cramer = FEAR. I have taken to watching Jim Cramer talking at market open. I never used to like him but I am finding that his brain seems to work the same way as mine - hundreds of loosely connected ideas bound together with data that make a bigger picture. He says (recorded later in the day).
Do not be in a hurry. Let panic run through the system. Let it give you better prices. That is antithetical to the natural instinct which is to sell. Let it wash out
The good news in the tariff tantrum is that it looks like China will re-commence trade talks with US at the end of the month. As each day gets closer to the mid-term elections and the markets are soft, the less the pressure on China will be.
While there is all the fear flowing through markets, US restaurant spending was at record levels for the last 3 months. Growth is happening in spending and waistlines.
Cannabis Carnival Big news in the marijuana markets with drinks business, Constellation Brands (STZ) buying Canopy Growth (CGC) for a large premium. CGP price popped 40% on the market open.
Why does a drinks business buy into this sector? Many factors to consider: Similar customers. Overlapping value propositions. Shared distribution. This was not a shot out of the blue. Constellation has been working with Canopy Growth to develop a non-alcoholic marijuana based product for some time. Maybe it is just a good business opportunity that leverages core skills and scale that Constellation has.
Why did they choose Canopy Growth? It is an integrated producer that is operating at scale. That means that it is able to integrate the marijuana components into a wide range of products and applications covering a range of medicinal and recreational uses. My thesis on marijuana has always been to focus in on medicinal uses in regulated markets - Canopy Growth ticks that box plus more.
Bought
FireEye, Inc (FEYE): US Cybersecurity. Jim Cramer was talking about cybersecurity as a hot topic. He had been interviewing the CEO of Cyberark Software (CYBR). I looked at call options on CYBR - a bit pricey for me. That got me to reviewing FireEye again. I know that last earnings was a disappointment to the market - this is a regular happening. The markets like to value FireEye as a software business. The reality is they are more of a services business that is building annuity income streams. I already am invested in the stock and through January 2019 call options (15/25 bull call spread).
I pushed this out a year and added a January 2020 15/25 bull call spread with a $2.18 net premium (14.5% of strike). [Means: Bought strike 15 call options and sold strike 25 call options with the same expiry]. This offers 358% maximum profit potential if price reaches $25 on or before expiry. (Closing price $14.38). The chart shows shows the bought call (15) as a blue ray and the sold call (25) as a red ray with the expiry date the dotted green line on the right margin.
Price has just got to move one third of the way to 2015 highs to reach maximum profit. The challenging part is that it has not looked like doing that since it broke the downtrend in mid 2017- it just likes bouncing along that support line (green horizontal dotted line)
Harvest One Cannabis Inc (HVT.V): Canadian Marijuana. I saw the Canopy Growth announcement and I saw the prices of many Canadian marijuana producers pop including Aphria Inc (APH.TO - up 20% in my portfolio). I heard Jim Cramer talking about the integrated producer angle which is what I have been saying too. I already own shares in ASX listed cannabis investment vehicle MMJ Phytotech (MMJ.AX) who own 60% of Harvest One in Canada. This has become something of a frustrating investment as they have turned into an investment vehicle that has bought a bunch of small stakes across the sector. I think this is diluting their effectiveness. That is playing through in the way their price lags Harvest One. Here is the MMJ chart (black bars) compared with Harvest One (green line)
I then looked at the Harvest One chart - it did not pop yet it is operating as an integrated producer in legalized markets (more than Canada). The market is clearly seeing something different to what I am seeing. Yes: there is execution risk in their sales of cannabis capsules in Europe. Yes: there is regulatory risk in their medicinal approvals Yes: they are not a pure consumer facing opportunity. It is those differences that might decide between winning and losing. The entry price has hardly ever been lower. HVT lags the industry - Aphria (APH.TO - red line); Aurora Cannabis (ACB.TO - yellow line); Canopy Growth (CGC - orange line). Close half the gap from top to bottom and this will be a 3 times winner back to 2017 highs
Note: Be aware of currency effects in these charts. CGC is in USD; MMJ in AUD and the others in CAD.
Expiring Options
KeyCorp (KEY): US Regional Bank. With closing price $21.13, my short term strike 21 call option is in-the-money but not enough to recover accumulated premiums. I rolled up to strike 22 for one more month for a net premium of -$0.24 (i.e., cash back). Locks in 25% profit in one month and recovers half the premium from the previous month's roll up. The updated chart shows the old contract as pink rays and the new contract as blue rays.
Price has followed the green arrow scenario thus far but not quite enough to get the old contract to 100% profit. What it does show is that there is scope for a pink arrow scenario which will comfortably take this trade past its 100% target (which includes accumulated premium not recovered this month). There is a chance that price will track sideways for a while and then move on another green arrow - that will work too. Of note is the next Federal Reserve meeting is set before expiry - and they are expected to hike rates.
Income Trades
FireEye, Inc (FEYE): US Cybersecurity. Bought back August covered call trade to allow buying a new bull call spread (see above). This trade would have run to expiry with no risk of being assigned. 98% profit on the trade rather than 100%
Cryptocurency
Bitcoin (BTCUSD): Price range for the day was $442 (7.1% of the low). Buying momentum from the bottom of the range on Tuesday carried through to drive price to the top of the range - and then surrendered all the gains to close about where the open was. This gives two long tailed bars, one testing the lower level and the other testing the higher level. Today's price action will be key to see if price wants to drive through the $6500 resistance level or surrender back to $6000.
I did watch a Brian Kelly segment on CNBC's Fast Money. He presented data on the way price has moved before and after the CBOE options expiry dates. Price tends to move up after the expiry date has passed - August 15. Let's watch to see if he is right this time.
Ethereum (ETHUSD): Price range for the day was $30 (10.9% of the high). Price action on ETH looked the same as BTC though the center of the two bar action was the support line of $280.
CryptoBots
Outsourced Bot No closed trades. (213 closed trades). Problem children stayed at 18 coins. (>10% down) - ETH (-56%), ZEC (-59%), DASH (-67%), LTC (-41%), BTS (-51%), ICX (-83%), ADA (-62%), PPT (-79%), DGD (-76%), GAS (-86%), SNT (-57%), STRAT (-76%), NEO (-81%), ETC, QTUM (-73%), BTG (-77%), XMR (-47%), OMG (-64%).
ETC (-39%) left the 40% down club. Most coins moved just 1 or 2 points either way on a quiet altcoins day
Profit Trailer Bot Three closed trades (1.30% profit) bringing the position on the account to 1.17% profit (was 1.15%) (not accounting for open trades). Trade size is a bit small - this is a change in the way V2 works compared to V1 (fixed now)
I am working through a new test on the Dollar Cost Average (DCA) list. When a coin reaches 5% down, I get PT Defender working to clear the list. That leaves for now 1 coin on DCA list (BAT) and two coins being defended (ZEC and XLM).
Defending List
I did work through the process for working on the pending list. Process is to enable trading in the coin to be defended and then add it to PT Defender team. I did this for EOS. The downside of the process is I have to remove stop losses (or make them bigger than the pending list coin). This is uncomfortable as it leaves the bot open to adverse price moves. An alternate approach would be to disable trading on all coins other than the one being defended until it clears.
Pending list remains at 10 coins with EOS now being defended from that list. Most coins moved a little either way though ICX had a bad day dropping 3 points.
New Trading Bot Positions dropped half a point to -65.5% (was -65.0%)
NEO and ETH traded flat and BTC/LTC dropped a little.
I did start trading in this account using a combination of technical analysis and Crypto Prophecy. I reported the BTCUSDT and ETCETH trades yesterday both of which closed profitably. I also entered a POAETH trade which also closed profitably. Here is the set up - trade from lower band and hope price moves up and close when it reaches the upper band).
The process is somewhat manual and something I will play around with a bit UNTIL I can find a way to get it to work more automatically.
Currency Trades
Chinese Renmimbi (USDCNH): Chinese currency has weakened much more aggressively than the price scenario I had modelled and pushed one of my two call options to over 100% profit. Because I have two contracts open, I chose to close out one.
I closed out the lower January 2019 6.5320 strike call options for 108% profit (the pink ray). This was a 12 months to expiry call option. I have one contract open which is a 6.6255 strike call option expiring closer in than the one just closed (the blue rays). I have mapped in the 100% profit target level which is well above the highs on the chart.
Currency markets are certainly reflecting a level of discomfort with the Turkey and Tariff Tantrum situation. Next chart is an updated Euro US Dollar chart - I will not be closing my Euro puts just yet as there is a lot of way to go to reach the early 2017 lows. The challenge in the trade is that the price move may exhaust itself. They do tend to be similar in length on each move
Forex Robot closed 6 trades (0.23% profit) and is trading at a negative equity level of 9.8% (lower than prior day's 12.4%).
Outsourced MAM account Actions to Wealth closed out 5 trades for 0.95% losses for the day. Ouch again!! Twice in 10 days.
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. Cannabis creative commons image comes from Wikipedia. News headlines come from Google Search. All other images are created using my various trading and charting platforms. They are all my own work
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
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August 15, 2018