Markets get happy except Italy. I am rotating profits in mining services. Adding to medicinal marijuana stocks and some new stocks for writing covered calls.
Portfolio News
Tariff Tantrum US markets did what I expected after the China announcement. Dow Jones Index went marching on to 2 months highs. The mood amongst the talking heads was more buoyant. Or was it? The headline snippet tells its own story.
Funny thing was I was talking about risk measurement last night - it is easy to forget to do it when markets are running up. Best do it before it is too late.
https://www.cnbc.com/2018/05/21/are-you-suffering-from-stock-market-risk-amnesia.html
This image popped up on the news feeds. I do not like to give Steve Bannon any airtime BUT he has been quiet since he got fired.
Now he is on the warpath again. It is fair enough to offer guidance about not giving too much away in the trade talks. I would have thought Donald Trump knew that anyway.
It was also nice to be welcomed with a 13% jump in Chesapeake Energy share price - so excited I was I took a photo of the TV image.
News for Italy was less friendly with a big divergence in Italian and German bonds - the money went to the safe haven of the German Bund.
Sold
Sales first today
Emeco Holdings Limited (EHL.AX): Mining Services. Emeco Holdings operates heavy earthmoving equipment rental solutions and maintenance services to mining companies and contractors in Australia, Canada, and Chile. They have been rebuilding after coming close to bankruptcy in the commodities bust of 2015. I sold my holdings for a profit of 318% on my original holding (Feb 2017) and 59% on shares added in the last rights issue (Nov 2017). They were running a further rights issue which was set at a 12% discount to market price at the time it was started. I did not get my act together to participate - decided rather to take the profits. Investment idea came from my investing coach (see TIB25 for the original rationale which talks about bankruptcy risk)
It is always good to pick a bankruptcy risk stock and find it becomes a winner. Now the big question is did I exit too early? The chart shows that price has reached the 2014 highs but there was a lot more of a fall from 2013 and 2012 highs. This was not a total exit from the sector as I remain exposed via Austin Engineering (ANG.AX) and MacMahon (MAH.AX) and I did add a new position in ALS (ALQ.AX)
Maybe I was impatient. Maybe I was bored and could not see another 100% climb.
Bought
3D Systems Corporation (DDD): 3D Printing. I am always interested in technology investments. This one caught my eye. This trade idea comes from Michele Schneider, director of trading education and research at MarketGauge and was part of my Real Vision subscription. The video was aired before May 1 earnings which popped the share price. I made the trade after earnings. 3D Systems is the founding supplier for 3D printing. Its share price has been a roller coaster but has not scaled the heights of technology stocks. The trade idea was to wait until the earnings call and then trade based on the outcome - if earnings are good buy in to the stock and/or an at-the-money call option. I saw this a week later. Price did pop into the 2nd buying zone so I bought the stock.
The chart tells a story of a stock that raced up to amazing highs in 2014 and has since fallen back. Every time earnings come out, the price spikes up and then falls over again to settle around the support level (the dotted green line). The mid-2017 earnings dragged price below that support level and the latest earnings has pushed it back above. The first level trade idea is to trade back to 2017 highs which is a 50% price move. The 2nd level aspiration is based on 3D Systems ability to bring down the cost of its printing equipment to more affordable levels, we could see price scale back to the 2015 or even 2014 highs.
The piece of evidence that gave me confidence on the 1st level is 3D are doing extensive work for US Defense printing parts for equipment. Defense budgets are currently sacrosanct. Anything that delivers more value for spending will have a strong future.
The implied volatility also spiked which gave me scope to add a January 2020 12/22 bull call spread for net premium of $2.31 with maximum profit potential of 332%. How does that look on the charts which shows the bought call (12), and 200% profit as blue rays and the sold call (22) as a red ray with the expiry date the dotted green line on the right margin.
I have drawn in a blue ray which is half way to the 2017 highs. If price gets there, the option will deliver a 69% return. I have modeled the last run since the stock fell over from May 2106 earnings. It went sideways and then went ahead (2 left hand blue arrows). If that pattern repeats, this trade will offer a 200% return. There would still be time left over to do more.
ALS Limited (ALQ.AX): Analytical Testing. ALS provides a wide range of analytical testing services across life sciences, industrial and and commodities segments. As such it is somewhat geared to the energy and mining sectors but not 100 percent.
Australian investing is strongly influenced by the tax treatment of company dividends. Dividends are only taxed once - in the hands of shareholders with the tax already paid by companies refunded as tax credits (called franking credits). To date, I have not spent much time focused on dividend yield investing. With markets starting to look a little toppy I started to explore value areas in the Australian markets. I ran my normal stock screens for under-valued companies (price to book, price to sales and price to earnings) and found nothing. I then looked at relative valuations of stocks that are between -5 and 10% of the market overall. I also looked at stocks ranked by dividend yield. All I could see on that list was candidates for a fall (like the banks facing a Royal Commission) or already fallen like Telstra or AMP (Insurance). ALS popped up on this list on a relative valuation basis.
I compared ALS to a number of other mining services stocks. I had sold Emeco as it had passed its highs from late 2013/early 2014. ALS has not reached its 2013 highs yet - in fact there is a 25% gap before it does that. I know that the industry forces are favourable (Emeco tells me that). I can see that management has taken major steps to reduce overheads on a business that has solid gross margins. I took a small position - if price pulls back I will add another portion.
The chart that stacks the mining services stocks together and starts from the target of the late 2013 highs tells a story. Emeco (EHL.AX - Orange line) and MacMahon (MAH.AX - red line) have blown out of the top.
Worley Parsons (WOR.AX - ochre line) and Monadelphous (MND.AX- yellow line) have ended in the same place as ALS (black bars) and there is close to 100% points to reach the top. The laggard is Austin Engineering (ANG.AX - green line) which I am holding. This chart tells me to add some more once I test that it is not going to head to bankruptcy like Emeco was close to.
MMJ Phytotech (MMJ.AX): Medicinal Marijuana. In TIB 228, I wrote about buying Aphria Inc (APH.TO) following the big Aurora Cannabis deal. Part of my rationale was to catch the stock after it had broken the downtrend. I have been invested in MMJ Phytotech, the Australian producer which owns 60% of one of the Canadian producers (Harvest One - HVT.TO) for some time. Its price chart has not broken the downtrend - in fact in the week that all cannabis stocks were breaking up, it was heading down. I added another parcel in one of my portfolios to average down my entry price.
The charts alone tell me that MMJ (black bars) should close the gap to Harvest One (green line) (because it owns 60% anyway) and to Aphria (red line) to the degree of overlap in the businesses that are related to medicinal cannabis. Harvest One is a grower and Aphria is a medicinal cannabis business. MMJ is a blended business operating in multiple legalized geographies which is what attracts me.
The chart shows a gap of 25% to Harvest One and 120% to Aphria. There is a currency impact in the chart which has to be adjusted for. In this time the Australian Dollar has depreciated against the Canadian Dollar by close to 4%.
Income Trades
I did not have time to set up income trades. I got two new ones away. The Exxon Mobil trade runs the risk on getting assigned because oil stocks are moving strongly. Chesapeake Energy (CHK) which I bought last week jumped 13% in overnight trading, for example. Sunpower, I am happy to assign if I have to, as it has made good returns so far and is subject to US tariffs which were levied in advance of the latest round of discussions.
Exxon Mobil Corporation (XOM): Integrated Oil Producer. Sold June 2018 strike 86 calls for 0.27% premium (a bit low) (0.27% to purchase price). Closing price $81.30 (new trade). Price needs to move another 5.8% to reach the sold strike (new trade). Should price pass the sold strike I book a 4.2% capital gain.
SunPower Corporation (SPWR): China Solar Power. Sold June 2018 strike 10.5 calls for 2.04% premium (2.41% to purchase price). Closing price $9.30 (new trade). Price needs to move another 12.9% to reach the sold strike (new trade). Should price pass the sold strike I book a 33.2% capital gain.
Cryptocurency
Bitcoin (BTCUSD): Price range for the day was $269 (3.1% of the high). This was a really quiet day with another higher low and level with the prior day's high. Price has worked its way back into the middle of "no mans land" which is better than the bottom. It would be nice if price decided to make a higher high and a new cycle uptrend can be confirmed.
TRON (TRXBTC): Somehow a mystical sale appeared on my Binance account - I cannot see evidence from my trading robots - they do lose track. Bought May 8 and sold May 21 for 2.1% profit. I had seen a pump and dump advice on TRX and was not surprised to see the sale emerge. The chart shows the pump side happening.
CryptoBots
Outsourced Bot No closed trades on this account (204 closed trades). Problem children was added to with ICX joining (>10% down) - (14 coins) - ETH, ZEC, DASH, ICX, ADA, PPT, DGD, GAS (-44%), STRAT, NEO (-45%), ETC (-42%), QTUM, BTG (-43%), XMR.
NEO remains the worst and there are 4 coins worse than 40% down.
Profit Trailer Bot No closed trades. Dollar Cost Average (DCA) list was unchanged at 12 coins with 1 coins improving (VEN), 1 coin trading flat (OAX) and only ten worse. 5 coins are now worse than 30% down. Multiplied by the level of DCA each has had, this more than wipes out profits on the account.
New Trading Bot Positions sagged 3 points to -31.1% (was -28.3%).
All coins sagged about 2 percentage points. NEO now has two positions worse than 50% down.
Currency Trades
Australian Dollar (AUDUSD): I was not wrong about the impact of the China trade discussions. The trade did stop out in mid afternoon for 0.5% loss. I am surprised it lasted that long. 3 losing trades in a row reminds me what my investing coach used to say, "Stop doing what is not working". It is time to give up on forex trading and outsource to someone who knows better how to succeed.
Forex Robot closed 2 trades (0.02% profit) and is trading at a negative equity level of 15.9% (lower than prior day's 17.4%) and heading in a better direction
Outsourced MAM account Actions to Wealth closed out 2 trades for 0.5% loss for the day.
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. News headlines come from Google Search. Chespeake screenshot comes from Bloomberg TV. 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
May 21, 2018