Let’s check out Baidu (BIDU), Boeing (BA), and Amazon (AMZN) (July 28, 2017)AMZN BIDU BA BIDU
This weekend I want to talk about Amazon ( NASDAQ:AMZN ), Baidu ( NASDAQ:BIDU ), and Boeing ( NYSE:BA ). I don’t typically don’t send out notes on Fridays, I just don’t, but there were a few things going on that I thought were worthy of mentioning. I talked about Amazon ( NASDAQ:AMZN ), and Baidu ( NASDAQ:BIDU ), and Boeing ( NYSE:BA ), and said these three stocks that I am going to be watching, at least at the open. So I thought we would go through these.
My idea was that Amazon ( NASDAQ:AMZN ) came close to $1000.00 and I thought if $1000.00 holds, this is a high-priced stock, you buy however many shares you buy, but at $1000.00 I would rather trade options on this. But because Amazon ( NASDAQ:AMZN ) was broken down, this was clearly a broken stock as opposed to one that formed a pretty long base. It came back and tagged the 50-day moving average but there is going to be a lot of resistance overhead. Where as this, by the time it tagged the 50-day moving average all the resistance had been cleared out.
My point is, I didn’t want to go long the stock. I wanted to make a bet (there is no other way to say it when you are trading options), I wanted to make a bet that the stock would not go further south. And so what we did was waited (this is a 5-minute chart) until the stock really revealed that this low of $1000.00 was going to hold. I didn’t want to wait for it to get up above this level, the first 5-minute bar, I didn’t really care about that. I am not looking to buy the thing, I just wanted to sell some out of the money puts. And so after it was trading here for a bit and it was not pulling back down then we sold a bull put spread; where we sold the $1000.00 puts and bought the 990.00 puts as insurance; and we are up about 25 percent on that.
That, to me, was a much better trade than if you had bought calls on it. You can make good money on the calls, that is fine. Of course if I had known Amazon ( NASDAQ:AMZN ) was going to do this then I would have taken out a second mortgage on the house and put all of my money in calls down here and then closed right at the very top. But we don’t know whether it is going to do that or not. To be honest with you, I am not going to sit around all day and watch one stock, that is just not what I do. So we sell out of the money puts and it worked just fine.
Now another stock that I mentioned was Baidu ( NASDAQ:BIDU ). My idea on that was that the stock had gapped up so much that I wanted to consider shorting it. The key word here is consider. I mentioned in the note that just because a stock gaps up a little bit, and this wasn’t a huge gap, about 5 percent or so from the prior close. It was not a huge gap, but don’t just short a stock because it is up a lot. That is a recipe for having to get a second job to pay off your broker for the money that you lost. You want to wait for the stock to tell you that it has peaked. I looked at this and I actually did short this stock, I was in the forum a little bit talking about it because somebody asked me, I did short the stock first thing in the morning and did okay on it. Ultimately I was looking for more, frankly, so I closed out a bit here. But then once the stock moved back above this level I was completely out of the stock, with respect to a short position.
Here is the moral of this story: Don’t be afraid to change your mind. There is an old saying, I don’t know how old it is but it sure is a good one, if you realize that you are wrong in trading then the only way you can be right is just stop doing what you are doing. You don’t have to pivot but at least say, “Oh crap, I’m wrong! I’m out of here.” The idea on this was, that once you see the stock starting to roll over, which it did here, this is again a minute chart so it wasn’t too long into the open where this stock started to roll over a bit, so you short the stock there. But think about this, think about what other traders are doing. Other folks are selling this stock too. Otherwise it wouldn’t be moving lower.
There is more aggression among the sellers than buyers. The stock is up. Oh, the stock is going lower, so you are going to get people shorting the stock, selling the stock. Then once the stock moves up past this first opening rotation high don’t sit there like a fool and short more, and short more.. “Oh, I know it is going to go lower. I know it is going to go lower.” Or worse still, “I know it is going to go lower because Dan Fitzpatrick said it was going to go lower.” Those are really bad reasons to stay in trades. What you have to think about is this, that the stock started to take off to the downside. It started to float lower, so traders who are trading this stock, and there are millions of shares traded, traders that are trading this stock are leaning bearish. The stock was up a lot.
Once the stock clears this morning rotation, now suddenly, anybody who is a pro who had shorted the stock is going to say, “Wait a minute, it is Friday and I don’t really feel like losing money. It is not what I do and so I better close my shorts and I better go long.” That is what I did, I pivoted and I was long here, I didn’t hold it all the way through the day. I held it through this little pullback and wound up closing right around 10:30, something like that, before the noon hour, simply because I wanted to get on with my day. The Idea was, that short here, stock comes up, you are wrong, the market is going to rally, the stock is going to rally, and a lot of traders, other than you, are going to say, “Oh crap, I’m wrong! I am either going to buy my short back and then get out of it.” Or, they are going to buy the stock. So, once you see a stock reverse and then reverse again, believe the second reversal. That is really what I am saying. The stock goes up, “Oh it is moving up.” No, it reverses. Then it reverses again. The second reversal is is the magic one.
So from this point with Baidu ( NASDAQ:BIDU ), it may turn out to be a good short, it may not. I am not going to get preoccupied with it at all. It was a little bit of a payday on Friday, not a lot, but I made a little bit of money on it. Here is another thing that I wanted to mention: I can day trade but it is kind of nerve-racking and most of the time the market actually lends itself to being in just a small amount of stocks that are just working. But when the market gets choppy, for me, I like to protect my downside. I just don’t want to take a lot of risk, because I don’t like to lose money. Keeps me from making money. So I will really kind of pull in my horns and not make any big commitments unless it is for a big dislocation during the day. And so when the market gets like this my trading will get shorter in duration; a lot shorter in duration.
That is what I am doing now, but hopefully over the next few days or weeks that will fix itself and we can just be in stocks that are working and will continue to work. A lot of you guys that are watching this video, you have got jobs other than trading. You can’t be sitting there on your phone all the time, all day long looking at at quotes. So what we want to do ultimately is be getting into stocks that we can just hang on to. It is just the last few days this week was a little bit of a wild one particularly in tech, but we will get back to that.
Now, the last thing was Boeing ( NYSE:BA ) and I had mentioned that this stock after two big days, after earnings, Three Day Rule, smart money buys on the first day, semi smart money buys on the second day, the not so smart money buys on the third day. You figure out if this was day one or this was day one, but either way the stock is up a lot. I am thinking it has got to come back. I mentioned that it looked like it could be a blow-off top; big, nice run here selling into this. I was actually looking to short this today and I did, this was this morning, I did (pardon the pun) for a very short period of time. And then the stock just kind of stopped going down and so I covered my short for a small gain. I don’t short a lot of shares, it is not just what I do.
Then the question is, alright on Baidu ( NASDAQ:BIDU ) you can kind of pivot and go the other way, so would we do that on Boeing ( NYSE:BA )? And my answer was, no. Because first of all the stock is very, very extended, it is on the third day. Also, this is Boeing ( NYSE:BA ). It is a Dow ( INDEXDJX:.DJI ) stock, it is not one of these Internet stocks that whips around a lot. So after this, this stock is due for a rest, it just is. I am not going to go long this stock now. That would be just a really, really bad idea. It is way outside the upper Bollinger Band.
If we actually go to three standard deviations it is not quite up there, this is the first day out of the last three where it has not closed above three standard deviations from the 20-day moving average. That is a big, big deal. So this stock is really, really overextended. The volume is really, really declining. Maybe Monday this will turn into to be a short, but right now what is was was essentially a potential trade that turned out not to be a great trade at all. Just kind of a nothing done. As opposed to Baidu ( NASDAQ:BIDU ), which turned out to be a pretty decent trade, just in the opposite direction than what I was originally looking at.
The moral of the story, so to speak, in this video was, I just wanted to underscore the fact that when you are a trader it is great to have an opinion. It is important to have an opinion. But you can’t be wedded to that opinion. One of the biggest mistakes, and there are a bunch of biggest mistakes I guess, one of the biggest mistakes that a trader can make is to have an opinion and actually believe that you are right even though the stock is disagreeing with you. That is not going to work out real well for you. It is important to have an opinion, but know why you have that opinion. What is the basis for that opinion? The reason why that is important is, because if you know why you feel what you feel. Why you think what you think. And we are not talking about intuition, “Oh I just have a feeling that this is going to go down.” Dude, seriously, you don’t know that. “Oh, I am sure that we will be able to do this. I am sure the stock is going to peak.” Really? Because I am not.
The point is, if you know what you are looking for and why you are looking for it. Then when the stock does something different it makes sense to you. And when the price action makes sense to you then you can trade accordingly, because you get it. I am going on a little bit longer than I wanted to but this is important. Like I said, I was looking to short Baidu ( NASDAQ:BIDU ). But when the stock started trading to a new high, it is a pretty simple conclusion, traders are buying this stock despite the fact that it is extended. Or put another way, nobody gives a rip that it is extended, they are buying it anyway. I don’t get to choose who is right or wrong. I turn around and go, “I will join the crowd too. I will just make sure I don’t run off the cliff with you, but I will ride it up to the very edge with you.” So make sure you are able and willing to change your actions if the situation warrants it. Trust me, you will make more money.