Author: Kerry Hew

This is a theory that I heard a while back and it has stuck with me. I wish I had the skill set to backtest this theory. I don’t know if I happen to notice this more because I’m aware of the theory or because it actually holds true more often than not. (You know when you think: “most BMW’s are black, you start to notice more black BMW’s”)

The most recent stock that seems to be experiencing this phenomenon is Shopify (SHOP). Look at that chart…Amazing! Maybe dangerous territory at this point as it has gone parabolic. But SHOP has to be one of the best performing stocks of 2017 so far.

Shopify isn’t profitable yet, but the growth rate is really strong. Shopify is an e-commerce platform that makes it super-easy to set-up and e-commerce shop. Rumor is they are a takeover target.

Another recent one is Dycom (DY). I totally missed this boat. I’ve been watching this stock for a while and I believe in the story of this company. They help build out networks for the giants. It’s probably not too late to invest here. I think this is a good company to average into.

As a trading strategy, the 80-to-100 strategy could offer a good risk/reward ratio. You want to buy on a close over $80. Let’s say you put a stop-loss at 8%, which is $6.40. Therefore, your stop-loss is $73.60. Your target is $100. That’s a 3:1 ratio. For this strategy to be profitable, it only needs to be right 33% of the time.

Again, I haven’t backtested this, but it could be interesting to and see if it worked. You could also apply other rules such as trailing the stop to $80 once it hits $88 or so (10% trail).

And the verdict is in … DOWN!

Earnings came out yesterday and they lost over $4M. I don’t even know if this was above or below expectations because I don’t think any one covers them. But clearly the stock is sinking on 3x volume.

Recall my post from last week: Aqua Metals (AQMS): This Stock is Going to Move…

If this stock is destined to fill the gap, which puts it down to $11.50. If this breaks $10, it’s going down to $3 and perhaps to $0 as the bear argument (referenced in the previous post) suggests.

I tried to short the stock in the morning, but this stock is hard to short through my broker. I was tempted to buy some way out-of-the-money put options, but I’ve not had much luck in the past with timing. I could be proven right, but be early, and thus lose on the trade.

So, I took the safer route. I layed up. Not as big a reward, but more measured and a higher chance to succeed. I sold some May 19 $15.00 Call options. These are already out-of-the-money and expire at the end of next week. I’m feeling good about that.

I can envision a dead cat bounce happening tomorrow or soon, but the gravitational pull of that gap will be strong.

Contrary to almost everything else on the market, REITs (as a group) are down from last year. But bucking that trend within the group are the Data Center REITs.

Recall, a REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. REITs typically pay out all of their taxable income as dividends to shareholders, so they are income producing assets.

REITs have likely sold off as investors are anticipating higher interest rates. Higher interest rates raise debt-financing costs. REITs carry debt because they are acquiring properties. But if the business is thriving, then it’s still a good trade-off. And I only see upside for data centers.

It’s all about data and data traffic is increasing every day; maybe even accelerating, I’m not certain. But I’m long data.

The best of breed of the Data Center REITs is COR. Although the stock looks elevated here (again, as does everything). I won’t be buying here as this makes the yield low (~3.25%). I prefer a REIT yield between 6-10%. Let’s see if COR can pull back a little bit and present a buying opportunity.

As an aside, another interesting company on the long data theory is Dycom (DY). This one is also probably towards the top of an uptrending channel, but it’s certainly appears to be a company poised for growth on the backbone of internet growth.

Do you think Corporate executives know something about their business that we don’t?

Trim Tabs Investment Research recently reported that monthly insider selling has hit a seven-year high. Corporate executives are better informed than the public, and this is definitely a negative sign.

It’s perfectly normal for insiders to divest themselves via a structured selling program over time. However, when the transactions rise above norms, it could be a cause for concern.

Obviously, they know more about the business than we ever will. Why the sudden increase in selling by those “in-the-know”?

When you combine this with the growing risk of China’s credit bubble along with the age-old adage “Sell in May and Go Away” along with this being the 2nd longest bull market run in history along with the Fed’s reducing of their balance sheet…it’s a confluence of too many things providing upside resistance.

Note that I did not say that this means sell-off. I’m still weary of Martin Armstrong’s call for the DOW to double. But I am looking to sell naked call options to take advantage of what I believe to be some strong near-term resistance.