Trading Ideas for the Week Ahead: September 17

By Alex Salomon
What a week, what a week!! What a week!! Green, everywhere… Lots and lots of green! Of course, doomsayers are dousing it with calls for Armageddon, for the end of the QE world and everything else. But, in the meantime, green is a beautiful color!

As a matter of fact, I would like to repeat a couple of thoughts I mentioned on my Twitter stream during the week:

1. The unfair truth remains that “bulls” have to keep it humble at all times (even when bulls go short!) while bears can trumpet their mood at all times. It’s life;

2. If you said “trade the price” but didn’t, you just boxed yourself into trading performance anxiety & CANNOT trade price anymore.

So be ready for many different columns (tons of them) advising not to chase the rally (few will advise to chase it!). While the rationale makes sense, if you see something you like, if it makes sense in your system, in your trading plan, then set it up and execute. To invest today is not different than at the end of last May, when the “world was ending.” Stay true to your plan and tune out the noise. I see many break outs now that remain valid — until they are not… then what? There will be new setups, that’s what!

If you really trade price, then just relax and follow the price!

You can follow most of my real-time updates and action on Twitter @Alex__Salomon where I comment on many of the stocks covered in this weekly column.

On a macro view, “unlimited” is a powerful word. And, further, both Draghi & Bernanke used it. As the joke goes, both of them brought bazookas to a gunfight!! Considering the amount of bearishness and negativity in the markets, coupled with fairly pedestrian returns for most hedge funds and traditional funds, there is a distinct possibility that short-term dips will be bought “with both hands” because performance anxiety is the strongest driver for Wall Street pros.

I had written that Draghi’s late July speech had created an S&P 1350 floor for the year, and I expected us to revisit it AFTER we reached 1450. I do think we’ll see 1400 again, on our way to 1550 by January 2013.

In my opinion, there will be dips to be bought, but right or wrong, “unlimited” is very powerful. In effect, it is akin to telling speculators shorting Europe: you need to have unlimited funds to fight us.

Though, I suppose, uncertainty over the Presidential Election could bring a bout of weakness — which is likely to be bought with… “both hands”!

Also, please remember: this column mostly focuses on sharing my real portfolio, not open-ended ideas. I don’t offer tons of potential stocks that could pan out or not: I offer insight on my actual portfolio, limited by cash available. If I don’t have funds to invest because I am mostly committed, I don’t really take the energy to look at “potential setups.” I do look at requests and comment on a few here and there!

But before we attack the week ahead, though, let’s review the previous positions still open:

1) iShares Semiconductor Sector (SOXX) – As mentioned last week, I decided to re-add to my open position. I was in at $48, I added 1/3 at $54 to bring my current price to $50. I am still targeting $56, $60 and new highs as rewards, while my risk is defined to $52 & the 50d SMA (protecting some gains) and giving it some leash. The plan remains to see if SOXX can repeat the Nov./Dec. 2011 pattern.

No matter how you cut it, SOXX broke out of a descending trendline going back from the March tops.

I contend that this position can still be entered (as such or with riskier ETFs — please know and understand the risks though!!). The clean break out above $55 provides a descent risk/reward trade: the risk is a failure to sustain (about $1.00 per share of risk = the trailing stop) while the reward can be up $5.00 higher (above the $60 mark).

2) Apple (AAPL) – Apple is the gift that keeps on giving… my last third is trailing $40 below (it was $643 and I got a scare on Tuesday and Wednesday), the stock is now close to new all time highs and my stop is now at $657. This last tier is $100 above my last entry point, so thank you Apple, thank you very much.

3) Russell 2000 iShares (IWM) – The trade has been “on” for almost 5 weeks and while first and second tier profits were taken at $81 & $82, a stop on the last tier is now a $3 trailing stop (currently at $84).

4) Teradata Corp (TDC) – Another trade that had been “on” (twice) for 4 weeks and finally came to an end when my last 50% position got stopped out on the $4 trail at $76.20. This example illustrates, yet again, the power and value of planned trading and stops.

I will re-visit TDC as an earnings play, around November 1, since it has been a successful trade for the last 2 earnings reports.

5) IPG Photonics (IPGP) – started a week ago at $62.50 with a strong rationale mixing a very long forming cup and handle (the cup from mid-February highs to a rounded June bottoms then back up in July, the handle all through August) and price action above key moving averages, my “risk” is $60, targeting a first reward at $70, then $75 and keep the last third. The stock is currently at $65.38 and “unfolding” for now, representing a non-realized gain of 4.6%.

For investors with a willingness to accept a 5% downside risk (so please, remember, if 5% is a lot, then move on; even if 5% is acceptable, keep it to a size with which you are certain that 5% is acceptable!), I think that IPGP could reward patient investors — the targets are higher and could take a few weeks to unfold. I guess it is a case of -5% vs. +5%, 10%, and a lot more!

6) iShares Emerging Markets (EEM) – another position started a week ago at $39.70 (1/3 position so far) based on the break above $40.25 and the long defined descending trend line. I wanted to wait for “a break above $41 to add 2/3 and make it a full position.” That happened on Thursday and I now own a full position at $40.55 (averaged). My risk is going to be that $40.00 break out level (meaning that, at $40.55 average, I am putting my current stop at $40) and my rewards are going to be $43 (I’d sell 50% then) and keep the other 50% with a $3.00 trailing stop.

I believe that EEM can recapture 2011 highs around $48 and more — but the timing, again, could be a few weeks out. In the meantime, $40 is my floor!

For the week ahead here are a few tempting or new positions:

1) Fusion-IO (FIO) – as commented on Twitter, I am starting this position right here at $30. I see a long forming cup and handle pattern (the walls and bottom of the cup formed by the descent from May to June/July, the up wall in August with the earnings gap and the long coiling handle in August-September). My entry being $30, I am using $29.50 as my risk (I see $29.50 as the break out) and I am going to use $32 and $34 as rewards, while keep the last tier as long as possible.

2) Natural Grocers by Vitamin Cottage (NGVC) – I will start this position on Monday around $21.00 / $21.30. I will use $20.00 as my trailing stop (again, that represents 5% risk, so be mindful and consider your size and position) and consider $22 as a first reward — at which point, I will revisit.

I have been asked to review SBA Communications (SBAC) – I must confess it is intriguing!! On the pro side: it is coiling, it has a strong uptrend all year, it seems to be correcting on time (theta) over price (which is good), and while the MACD, MFI and RSI are all trending negatively, the stock is resisting — which could be interpreted as a sign that strong hands are not shedding the stock, only weak hands are; on the con side: it must be one of the very few stocks that did not get a Draghi & Bernanke lift, which is surprising and odd, and begs the question: “if QE cannot lift it, what can?”

The answer might be: it does not need QE for a lift and just some consolidation.

I’m looking at these 2 scenarios:

A) Copy the May-June 2012 pattern: starting here around $59.25 with a 1/3 position — considering that it could weaken to $55 (-10%!!) and add 2/3 then (cost average down, to about $56.40). Consider it over and move on at $54 (a loss) while your reward would be a repeat of the same pattern as May-June and thus a 15-20% upside (and more);

B) Wait for a bounce and thrust up above $60 — becoming your entry point and reward yourself at $62, $64 and trail that last tier for $5 as long as you can.

As always, use stops, trade safe, and stay disciplined!!

Disclosure: At the time of writing I own Apple common stock; I own IWM; I own SOXL, a 3x ETF based on SOXX & EDC, a 3X ETF based on EEM — 3x ETFs are riskier vehicles and investors considering them should carefully read the risk disclosures written by each leveraged ETF underwriter; I own IPGP and FIO stock; I am considering building position in NGVC the next 3 trading days.

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