Catching up last week's trades in semiconductors and giving old dog, General Electric another chance. Profits come from video chips and Brazil.
Portfolio News
Falling FANGS Technology stocks had been taking a pounding for several days on the back of the Facebook and Tesla and Amazon stories. I wrote a post about it in TIB210 last week. I spent several hours the day I wrote that post late into the night digging behind the charts a little more. First chart is a buy:sell chart of S&P500 (represented by the SPDR S&P 500 ETF (SPY) and Technology Select Sector ETF (XLK). [Means: Buy the first named stock and sell the second named stock. If the chart goes up the first named stock is outperforming. If the chart goes down the second named stock is outperforming].
Technology stocks have outperformed strongly for all of the last 5 years - the ratio is 1.3 times. The key question is how uniform has this been and why should the selloff be affecting technology stocks so dramatically? First place to check is the mix of the ETF - XLK. The top 10 stocks account for 60% and the top 15 is well over 70%.
There are only two semiconductors stocks in the top 15 and the FANGs account for 30%. What caught my attention last week was one of the talking heads talking about the productivity trade.
Here he is (I do not recall his name). He reminded the viewers that economies are growing, and earnings are robust and are forecast to be that way for 2018. With employment reaching full employment the only way to continue to grow earnings is to drive productivity and the industries that stand to benefit are financials (finance the investments needed); technology and industrials. One of the other talking heads keeps coming back to Micron Technology as his go to chip stock. That got me thinking semiconductors. My first search of etfdb.com came up with the Proshares Ultra Semiconductors ETF (USD) - here is its buy:sell chart against S&P500.
Strong out-performance - in fact 4 times more growth than the S&P 500 over the 5 years.Now to the components of the ETF.
There are some key threads in this list. The size of the NVIDIA holding surprised me. Broadcom and Qualcom have been embroiled in a takeover saga which has just been rejected by US regulators. Intel's position is not surprising as they are the largest chip maker - their recent share price has been challenging following the chip security problems they announced.
Next step was to map the individual components - I took a two year view as this is when the surge happened in the middle of the buy:sell chart. I added in two stocks (Cypress Semiconductor (CY) and Advanced Micro Devices (AMD) and only plotted one of the Qualcom/Broadcom pair (AVGO) as I already hold QCOM.
What stands out on the chart is the dominance of NVIDIA (top blue line) and AMD (next blue line). Two stocks have performed in line and everything else is below. This is enough data to formulate a strategy if one buys into the Productivity Trade and believe that the trade war will not be diabolically bad for semiconductors.
Now there is a big flaw in the analysis and it lies in the choice of the Proshares Ultra Semiconductors ETF (USD). I find out as I write this up a week later that this is in fact a 2X leveraged ETF - that is why its performance is 4 times the S&P as it has been leveraged twice. Even so 2 times S&P 500 is better than the 1.3 times from the Technology Select Sector ETF (XLK). A better ETF to use would have been the iShares PHLX Semiconductor ETF (SOXX)
Bought
Next step of the analysis on Proshares Ultra Semiconductors ETF (USD), was to look at the chart without NVIDIA in it. There is only one outperformer - Micron Technology (MU - yellow line) and one in line performer, Applied Materials (AMAT - green line).
What is clear is there are some big performance differences with Intel (INTC - orange line) at the bottom lagging 140% below the ETF (black bars) and next up Analog Devices (ADI - pink line) 125% behind. I elected to buy the next 5 chip stocks in the USD holdings and added in Cypress Semiconductor (CY). I have no basis for choosing between the stocks - I will let the market decide. First step is to invest $1,000 in each stock and see what happens.
Analog Devices, Inc (ADI): US Semicondcutors
Applied Materials, Inc (AMAT): US Semicondcutors
Cypress Semiconductor Corp (CY): US Semicondcutors
Intel Corporation (INTC): US Semicondcutors
Micron Technology, Inc (MU): US Semicondcutors
Texas Instruments Inc (TXN): US Semicondcutors
General Electric Company (GE): US Industrials. Wednesday was a down day for the markets and GE share price went up against the trend. Is this the bottom? [Beware of reading bottoms on 4 hour charts]
Add to this the Productivity Trade idea on industrials and I was wanting to explore GE further. Stepping back let's look at a buy:sell chart of the Industrial sector (represented by the Industrial Select Sector ETF (XLI)) and the S&P 500 which shows Industrials tracking sideways since 2017 after under-performing from 2014. The chart has turned over and made a higher high - this is a telling time. Maybe it is time for Industrials to pick up. What I do know is General Electric has been a dog for some months now.
I explored the options chains for GE and picked a January 2020 15/22 bull call spread. [Means: Bought strike 15 call options and sold strike 22 call options with the same expiry]. With a $1.42 net premium (9.5% of strike) maximum profit potential is 392% if price can recover to $22 on or before expiry. This is just under a 50% jump in stock price which is a tall ask. Let's look at a chart which shows the bought call (15) as a blue ray and the sold call (22) as a red ray with the expiry date the dotted green line on the right margin.
I have modeled two run ups. The blue arrow shows the run from the 2011 lows and the pink arrow shows the run after the 2015 flash crash lows. If the price bounce, when the S&P 500 was correcting, is the bottom, there is enough time for either of those recovery trajectories to make this trade a winner through it might not make maximum potential. I would not be surprised to see a 15/20 bull call spread able to deliver a 300% return. Let's look a few days later. Net premium for a 15/20 would be $1.10 which offers a maximum profit potential of 354%. I might add this to one of my other portfolios.
Sold
NVIDIA Corporation (NVDA): US Semiconductors. I funded the purchase of semiconductor stocks above by selling my NVIDIA holding. It has delivered the asymetric returns I look for with a 54% profit since June 2017
I did write in TIB95 at the time
Looking at the chart suggests that one might be a bit optimistic about getting much more out of the stock
Grabbing 54% after that feeling is a great outcome.
Petróleo Brasileiro S.A. (PBR): Brazil Oil Producer. Reduced my exposure to fund semiconducotr purchases for a 19.3% profit since October 2016. Petrobras has been a good way to leverage the oil price and Brazil recoveries, scandals aside.
Income Trades
First Solar, Inc (FSLR): US Solar. Sold April 2018 strike 75 calls for 0.81% premium (3.43% to purchase price). Closing price $71.51 (new trade). Price needs to move another 4.9% to reach the sold strike (new trade). Should price pass the sold strike I book a 100% capital gain.
Cryptocurency
Bitcoin (BTCUSD): A week away from the charts saw a dramatic price range from a high of $8104 on March 28 to a low of $6427 on April 1 and a recovery to $7106 on April 2. I added one new position on my IG Markets account at $7074 which is the only position currently profitable. I am exposed to 3.5 BTC on this account.
CryptoBots
Outsourced Bot No closed trades on this account. Problem children (>10% down) list was unchanged - ETH, ZEC, DASH, NEO, ENG, EOS, STRAT, ETC, XLM, ADA, QTUM, BTG, ARK, GAS, OMG.
XLM looks like it might escape this list.
Profit Trailer Bot No trades closed
Dollar Cost Average (DCA) list remains at 9 with 2 doing better and 7 worse and Bitcoin Gold dropping worse than 40% down.
New Trading Bot No change as this is now under buy and hold management and the bot is not trading. Overall loss average is dropped to -44% (was -35%) with NEO still the worst performer at -64% and -61%. Best performer is BTC at -27% (was -19%)
Currency Trades
Forex Robot did not close any trades and is trading at a negative equity level of 10.3% (lower than prior post's 11.7%).
Outsourced MAM account I run an outsourced forex trading account with Actions to Wealth. They closed out 6 trades in two sessions for 3.7% losses overall. Disappointing to see the traders hard work blown away in two sessions with monthly performance a 2.7% loss.
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. ETF images come from etfdb.com. 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
Bitcoin: Get started with mining Bitcoin for as little as $25 http://mymark.mx/Galaxy
March 28-30, 2018