Sell-Off Action Plan; Use This 'Fast Trade' Tip; Buy The Green, Not The Red

Summary

I maintain that this is a temporary sale in a still powerful rally. A good trader takes advantage. The question is how.

Buy the dips is the "go to" tactic. This time because most stocks are above support levels so this will not be as effective, especially short term.

The presumption is that the market has a continued "knee-jerk" sale tomorrow morning. Look for the green names. The ones you like that are up in a down market.

You should have several watchlists or at least one watchlist to help you pick out likely trades. If you don't have an organized approach to trading, you are about to get hurt.

We Are Selling Off Temporarily, But Still in a Larger Rally. As Scary as All This Talk of War Is, It Will Blow Over

I made a case for the temporary nature of this sell-off on Friday. Rarely does even an actual war directly create a bear market condition, let alone a single drone strike. Even more rarely does the stock market spend more than a few days worrying about geopolitical events. The market cares about interest rates, earnings, new products, and trends. So I ask, what does some third rate regional power have to do with the earnings of Amazon? The answer is ZERO. Trump's bravado aside, the market wants clarity into earnings which will happen in the latter half of this month. I believe that earnings will surprise to the upside but that is not the point right now. The market wants visibility, and I believe we will have visibility even on the political front

As Unpredictable as the President Can Be, We Can Detect a Pattern

If you recall the stream of invective that Trump directed at Kim Jong-un before he “fell in love”, I believe Trump is following a similar script. Trump is in what I would call his “Rocket Man” phase as Trump called Kim Jong-un "Little Rocket Man" in derision. He may have some more furious tweets and statements of bravado and then the news will move on to the next scandal.

This threat of attacking 52 separate targets are a response to the threats out of Iran, in the aftermath of the decapitation of that country’s reputed #2. This bit of bravado in the last few days is also necessary for them and expected. As I stated on Friday, Iran is NOT going to attack in any substantial way any time soon. Trump has proven to be unpredictable, some would say erratic, in geopolitical matters. Iran needs to think twice, to weigh all options. Even if Iran were plotting against a conventional thinker, at this point, they need to bide their time. Again, as I said on Friday, to have the fine line between plausible deniability and yet for everyone to know that Iran had its fingerprints on it. The stakes are higher now that Trump has threatened 52 separate high-value targets. Iran is probably furiously reviewing what might be on that list, or look for assets that will give them that list. In any case, I stand by my assumption that any retaliation by Iran will not be immediate, or even in the next few weeks or months. In that case, this is a dip that needs to be bought.

Let’s Hope that the Market Starts Off Down Tomorrow

Did you notice that despite the fearful start of stock markets from Thursday night into Friday morning, they had moderated to the level of an everyday sell-off by midday, and only a bit lower by the close? I was actually hoping for a stronger sale by the day’s end. In any case, the best course of action is to look for the stocks that were up, not trying to buy the dips right now. I don’t mean the safe-haven names, which are the traditional refuge. I mean high-tech high-beta names that would normally fall harder in a selloff but instead are moving higher, or at least NOT falling.

I Know, It’s a Cliche, “Go-To” Tactic. It Also Works

Buying the dips can work here as well, if you know the charts and see a stock going to a support level. Also, this is about trading, if you are looking for long-term investment, just go ahead and start allocating funds to your IRA, 401K, and what-have-you.

If you can, you should tail out this allocation as slowly as possible for dollar-cost-averaging. Chances are we will see some strong volatility further into this 1st quarter of 2020. When you buy little by little, you will likely buy some shares at lower prices. Over the long term, gains will be made by dividends and just the act of buying over time.

In any case, this piece is about trading and speculation, not long-term investing. The reason I am suggesting a change in tactic is that most of the names we trade are not near support levels. Also, we are still in rally-mode; this is a mere pause that refreshes.

Also, did you notice that a large number of stocks were up Friday? I suspect that those same names will continue to go up, or at least not go down. Also, there might be new names that may have fallen on Friday and have found an interim support level from which they will continue their upward movement once the rally gets back on track. So let me be clear, “buying the dips” is a great tactic, but right now, I think “Buy High and Sell Higher” is going to create better chances for good alpha. This week needs to be fast money trading. So look through your watchlists and find the names that are working.

This Begs the Question, Do You Have Watchlists?

If you are a habitual trader and you aren’t doing research on stocks, or are watching prices and having an understanding of the behavior of a particular stock, you are not doing this right. Maybe now is not the time for you to be trading. You should be studying, and in the meantime, concentrate on long-term investing, primarily ETFs.

If you have some expertise in a particular industry and know the players, perhaps start there. Again, if you are trading names you happen to hear of, or off of some tips, that might have worked last year from October on, but we may be sorely tested in the next several weeks. We’ve had some heady times, but rallying markets tend to have the effect of making one feel like a genius. Going long into the opposite is supremely discouraging. What I don’t want to happen is that you have developed a penchant for the stock market and then get discouraged and drop the whole thing. You gotta be in it to win it.

Okay So Now It’s About Buying the Rips, and Selling them “Rippier”

It means not buying names like Amazon (AMZN) or Alphabet (GOOGL) (NASDAQ:GOOG) right now (even though I love AMZN and GOOGL) just by going with the results from Friday. It also means that if the market is down tomorrow morning, and these two names are up, you buy them. Makes sense?

Do this if you agree that this is a minor sale in a larger rally. This stretch is an opportunity for very good alpha, but I see it hitting a wall in several weeks. Paradoxically, this interruption in the hyperbolic lift in the indexes will serve to prolong the rally. I was looking at a mid to late January drop, I’m gonna push that out to late January/early February now.

Here are some names that are on my watchlists that were green by Friday’s close; Okta Inc. (OKTA), Workday (WDAY), Roku Inc. (ROKU), Tesla (TSLA), The Trade Desk (TTD), Atlassian (TEAM), HubSpot (HUBS), Alteryx (AYX), Anaplan (PLAN), MongoDB (MDB), Take-Two Interactive (TTWO), Activision Blizzard (ATVI), Twilio (TWLO), Coupa (COUP), and Nutanix (NTNX)...

There are more, but my point is, these names withstood a level of panic, and also just garden variety profit-taking. That means their forward momentum is strong. Also, by the way, all the housing names that I follow are up too. It could be the great homebuilding numbers had something to do with that (see below).

The short message I want to leave you with, you should NOT be selling right now. If you don’t want to buy this sale, that is all well and fine. Fast money trading isn’t for everyone. If you managed to buy names on Friday and dipped into your cash reserve to do so, you should not use more than ⅓ of that cash. You should also look to add back that cash over the next 3 weeks to prepare for “the Big One”.

Weekend Media Review

My takes on items of interest in business media

Always Nice to Get Confirmation from Barron’s, Amazon is a Buy

My call was based on the chart, Barron’s is more about fundamentals

First, let me say that I don’t get the weekend issue before anyone else; that aside this isn’t about boasting. There are some nuggets in this piece. AMZN is valued based on cash flow, and Barron’s projects massive cash flow boost from 1-day shipping, Prime Membership, advertising, and AWS. 2019 was an investment year, but the rise in investment will level off and the stronger cash flow will feed through to earnings in 2020. Reading through my suggestion from my introductory paragraphs, I would wait for AMZN to bottom out and start to move up, then get on board.

From Bloomberg TV Tech

A little color on the Needham Analyst Alex Henderson call on CrowdStrike (CRWD) with an interview on Bloomberg TV. Sees cloud-native solutions as the best play in the security space. He likes CRWD having future growth more than 50% while other analysts are at (only) 30%. Any upside in revenue goes right to the bottom line for CRWD. Overall, the leaders in cybersecurity will be those that protect from inside the perimeter. Perimeter defense is not enough, though you still need it. Palo Alto Networks (PANW), Check Point Software (NASDAQ:CHKP), and Fortinet (FTNT) are primarily perimeter companies. The world is shifting to Cloud-Direct Security: Proofpoint (PFPT), Okta Inc., Mimecast Limited (MIME), Zscaler (ZS), and Qualys (NASDAQ:QLYS) are the names he likes. In a recent survey, 76% of Chief Security Officers (CSOs) expect to be hacked in 2020, 60% said they wouldn’t even know it when it happens. (By the way, CDS is the same as Zero-Trust security)

My Take: On Friday, I listed a number of these names. The truth is, there are just too many players in this space; QLYS and MIME are barely in my consciousness. The reason I highlighted this interview is because it was a concise analysis of what is happening in this space. Right now, his number one pick is CRWD (I think this is a consensus call). It was the first name listed in my Friday piece, and the CEO of CRWD was on Mad Money with Cramer Friday night. So if you had to pick one name, probably CRWD is a good fast money trade. That doesn’t take away from the fact that I find this space vexing. Who knows maybe QLYS is going to outperform too? Also, there are probably another dozen names that aren’t included. I like OKTA because it has non-security applications as well.

Rohit Kulkarni, MKM Partner, on Bloomberg TV Tech

We should see a lot more IPOs in the next 6 months, since there are so many big-cap unicorns that can’t go back to the private market anymore, and must go public. I am bullish on the big-cap tech names, AMZN super long consensus. My order is AMZN 1, Facebook (FB) 2, and Alphabet 3. AMZN made a lot of investment in same-day delivery; we’ll see earnings results in the first 6 months. As for AWS, its cloud division, it will hold its market share over the next 12-18 months. The way AWS will hold on to share will be by featuring Machine Learning and furthering Enterprise hypercomputing migration to the cloud from legacy mainframe. Overall, AMZN will hold the lead in cloud computing. FB and GOOGL will have the ad market share, both have multiple properties with multi-billion users.

As a standalone challenge, I like Snap (NYSE:SNAP). Kulkarni sees GOOGL having the most regulatory headwinds, then FB, then AMZN.

My take: This last piece is a surprise. Everyone has FB as the name with the greatest regulatory difficulty, then AMZN, followed by GOOGL. I think that above 0 FB has downside vulnerability, but there might be a fast money opportunity in the next week or two. Again GOOGL and AMZN are my choices for strong alpha short term. As far as SNAP is concerned, I have heard traders are taking profits, and on the other side, traders being very bullish with another potential 20% upside. If you are interested, wait until tomorrow morning; if the market is down and SNAP is up, make a “Fast Money” Trade.

Big Tech Predictions for 2020 from CFRA’s John Freeman

  • Google Cloud makes a dent in the cloud market (Gain share).

  • Oracle (NYSE:ORCL) undergoes substantial reorg.

  • FB enters the enterprise cloud.

We are crowded at the application layer. There are many cloud-based applications like WDAY, PayPal (PYPL), Square (SQ), Shopify (SHOP), many of them. However, there are only 3 cloud computing leaders; Microsoft (MSFT) Azure, AWS, GCS. They scale at orders of magnitude ahead of anyone. FB would have little regulatory scrutiny against them getting into this space. Bloomberg: “So how can GCS capture market share then?” “With Tensor-flow framework for AI, very popular and GCS has the support of the developer community and that can make you.” The two big surprises are: Oracle breaks up HW from Software, and applications and FB gets into the Cloud Service business. FB already has the hyperscale computing capability, and the money to invest.

My Take: This will be a true surprise that will likely hammer Microsoft, GOOGL and AMZN (temporarily). I see this as a buying opportunity for these established names. Match (MTCH) went down hard with FB’s announcement that they were getting into that space. Does anyone care that FB has a dating app now? NOPE. Also, I think it will set off a frantic level of M&A in response. More on that at a later date.

Analyst Corner

Baxter International (BAX), PerkinElmer (PKI), Varian Medical Systems (VAR) and Stryker (SYK) - Evercore ISI upgrade from In-Line to Outperform.

Baxter International - Citigroup Inc. and Morgan Stanley upgrade from Neutral to Buy and from Equal-Weight to Overweight concomitantly.

Zimmer Biomet (ZBH) - Citigroup Inc. analyst upgrades from Neutral to Buy.

Danaher (DHR) - Needham & Company LLC boosts price target, Buy.

Medtronic (MDT) - Guggenheim upgrades from Neutral to Buy.

GW Pharmaceuticals PLC (GWPH) - JPMorgan Chase & Co. analyst initiated coverage Overweight, 29.3% upside.

My take: The sheer number of med-tech names being upgraded confirms my enthusiasm for this sector. I would apply the same “Buy the Green” tactic this week with these names. If you are looking for a long-term investment, I would look at the names with the juiciest dividends. I left GWPH for last because I think it might offer an interesting opportunity as the most practical cannabis name. Cannabis chatter is rising, so the timing might be right for a legitimate pharmaceutical name that is associated with it. You have probably never heard me talk about this space. The reason is, I think it’s just slightly above Bitcoin (BTC-USD) as a hyped area. This sector in the not too distant future will have the same growth profile as the Wine and Spirits sector. This is not an area that I would be interested in. However, GWPH is the real deal. Read up on it, and make your own decisions.

Applied Materials (AMAT) - Nomura analyst David Wong boosts price target, Buy .00 -> .00 with 22.9% upside.

My take: AMAT is my number one “out of the box” chip play, so yeah I like this call.

Halliburton (HAL) and Schlumberger (SLB) - Stifel Nicolaus analysts boost price targets with a Buy rating and a 21% and 17% upside.

My take: I am grudgingly being dragged into the oil sector. I would wait for the latest bounce to recede in oil and then perhaps buy these services names if you believe the talk that the drought in the oil patch is over. Of the two, I would go with SLB.

Insider Activities

Enterprise Products Partners (EPD) - Randa Duncan Williams (Director) buys ,897,390.00 in shares.

My Take: Another indicator that energy is rising to the top as an area to speculate in.

Darden Restaurants (DRI) - Charles M. Sonsteby (Director) buys 8,390.00 in shares.

International Flavors & Fragrances (IFF) - Winder Investment Pte Ltd. (major shareholder) buys ,290,750.00 in shares.

My take: I don’t like highlighting inside buyers that are not direct purchases by executives. That said, IFF is undergoing a huge transformative acquisition. So an million investment is of interest.

U.S. Well Services (USWS) - David J. Matlin (Director) buys 1,000,000 shares at .69 or total ,690,000.00.

My Take: Combining this substantial insider purchase with the upgrade of Haliburton and Schlumberger makes the timing of this purchase VERY interesting. No one risks .7 million on a company that is about to go bankrupt. This is the usual assumption with a penny stock like this.

My Trades: After I completed my Friday piece, I decided to roll my Boeing (BA) call option to mid-February, and tightened the strike price closer to where it is trading. I tried to add to my Uber Tech call, but unsuccessfully so, because it didn’t hit my price. I also rolled up my HubSpot call and spread it to harvest a little profit. All these names traded in the green, and I am still holding onto my Roku Inc. (ROKU), Splunk (SPLK) and Lovesac (LOVE) calls as well. I might try to get long AMAT and CRWD via call options if I can get a good entry point.

Disclosure: I am/we are long ROKU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may look to go long in CRWD and AMAT this week. I am still long LOVE, ROKU, HUBS, BA, SPLK in Call options

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