Trading Sentiment During Earnings Season (e.g., $C too positive)

There are a number of stocks that are overbought, and excessively positive as well, going into earnings season, especially in the banking (see $C down 4% today) and technology sectors.  We'll be reporting on individual ones over the next week, in advance of their reports. 

Our long $GDX call is panning out this morning on a large gap up.  Often buying panic is painful since the bottom can take a few days to form.  In this case (as often happens lately), the bottom occurred overnight.

Given the positivity going into earnings season, this market will likely be a short for a week or so starting later in 1-2 weeks.  But for now, it's still extremely bullish.

Looks like some panic in $GLD at the open, will likely come in today

One important rule of trading, which I forgot yesterday - let the fat pitch come to you.  I mentioned two "low conviction" trades of buying $GDX and shorting $BJK.  Ouch.  Now moving on with a fresh look, $GDX does genuinely look like the herd is all trying to exit at the same time this morning.  A good setup for a short term bounce.  Longer-term, the gold bubble is consolidating, and the herd is moving (has moved) into tech and energy.  Semiconductors ($SMH) and internet ($FDN) are a bit overbought and positive, but likely have move room to run this month on the momentum. 

Shorting $TAN and $AMD and Buying $IEZ and $GSS

We've got some lower conviction trades today (yesterday I didn't post because of low conviction).  It's worth beginning to position for a short on $TAN (solar ETF) based on its overbought situation.  That said, it was oversold last month, and so could still climb up to around $8.40, which is a better place to go short. 

Shorting $AMD on the underreaction to CEO shake-up.  That's big news, and creates fundamental uncertainty.  Coming off the spike related to CES, it still has a ways to slide (1-2%) over the week.

Buying $GSS on oversold situation, but again, low conviction.  Also buying $IEZ oil services due to a reversion to trend from an oversold state (more particularly, very negative sentiment).

High Positivity Going Into Alcoa's $AA Earnings After the Close Today

This is an ominous setup - such high positivity is often rewarded (mildly) and occasionally punished heavily.  The expected value leans towards a selloff:  http://www.marketpsychadvisor.com/vitalsigns?ticker=AA.  We're also seeing high optimism and low pessimism:  http://www.marketpsychadvisor.com/psychchart?ticker=aa&psysig=Optimism

Summary and Risk Management

To recap our method here - we generally execute our orders around the open (when overreaction is most prominent).  The trades we've posted have been uncannily accurate, but that's not always the case, of course.  In general you don't see all our trades, only the high conviction ones.  We try to maintain dollar-neutrality (if not Beta neutrality) in our portfolio, so you'll often see one high conviction trade balanced by a less-conviction trade -- e.g. $BJK short versus $GDX long (less conviction) this morning.

RISK MANAGEMENT
In case you were wondering, we hold most of our postitions from 2 to 8 days, based on our backtested trading rules.  We set exit plans in advance.   Our exit plans rely on sentiment and news stops.  If the sentiment or news shifts away from the speculative aspect that we are trading (either long or short), then we exit before the "expiration date" of the position.

Shorting $BJK (Gaming ETF) and Buying a little $GDX (Gold Miners)

We've got a clear short on our ETF cluster for $BJK (recently added to our ETF list) which appears quite over-extended.  11% of the ETF is $LVS, and that appears to be where much of the positivity is being contributed.

I like to trade balanced long-short.  While very tentative, we're compelled to buy some of the weakest name on our chart - $GDX (despite it being still sentiment positive).  A substitute for GDX would also be $IEZ (oil equipment ETF).  These two have sold off, and may continue to do so.  If $GLD falls under Friday's lows, it's time to take some off the

RISK MANAGEMENT
In case you were wondering, we hold most of our postitions from 2 to 8 days, based on our backtested trading rules.  We set exit plans in advance.   Our exit plans rely on sentiment and news stops.  If the sentiment or news shifts away from the speculative aspect that we are trading (either long or short), then we exit before the "expiration date" of the position.

Shorting $NVDA and $XRTX and considering holding nose and buying $AIB

Looks like some blo-off topping action in tech yesterday and into the open this morning.  We got lots of shorts on tech names, especially good on overoptimism in NVDA and XRTX.

On the long side AIB is a true stinker - and insolvent bank, nationalized, with share price collapsing.  Always interesting to watch for a pause to the downside and pick up some shares.  Real angst in Ireland makes for good buying opportunities in select ADRs.

Unfortunately our site is down today... ahh, technology.