By Mike Lim
Everyone's favorite stock is reaching new all-time highs almost every day this August. How high can it go this fall and winter? Sometime this year Apple Inc did that 7-for-1 split to make their stock 'affordable' for everyone. What this really caused was to make their stock less volatile than before where $5-$10 daily swings were normal. A lot of traders loved AAPL then because you can really make good daytrading income with that daily range. Nowadays, unless you're in for a big amount daily and are happy with 40 to 80 cent daily swings, you can't really eke out enough gains on AAPL.
This year, investors have made a good amount of money buying after the split at $80 and enjoying this meteoric rise to 102.50. On a pre-split basis, that's about a $22.50 move equivalent to $22.50 x $7 which is a move of $157.50. Investors have a lot to be happy for. So, has Apple's stock gone too far too fast? The Apple fan boys will ferociously come back to me saying "NO!" We are going into the period of the market where things get interesting. This means governments around the world are back from their summer breaks and a lot of the market players are also returning from their vacations from Europe. This is all welcomed as volatility will certainly increase in the coming months.
Products will be rolled out in the coming months by Apple be it their new iPhone or the new iPADs and MACbooks. Investors will be able to determine whether it's worthwhile to hang on to their shares after seeing what Apple has in store. Earnings will also be watched closely in October. Earnings alone can be the decision maker for the buying to continue for investors to take a break and take profits.
Looking at the chart, for now, it seems the trend is higher. The sentiment is definitely bullish. Hedge funds accumulated vast shares of Apple last quarter via their 13F filings. So at this point, the bull's are in control. But as father market has taught me in the many years of trading is that a trend can reverse on a whim.
Good luck out there! :)
by Mike Lim
If you stuck until the end of the day yesterday, this trade would've gotten you to go "WTF??". It's already Saturday and there are still no items on any newswires to explain the sudden ramp to about 30-40 pips. The best guess really is someone needing to cover an order before month-end or a trader realizing it is month-end and needed to cover their shorts.
This is the new norm in these erratic markets where we can get 20-60 pip swings on no material news. Typically, technicals would take you somewhere between 10 and 30 pips on any good day. But when you get moves more than that, you really have to gather your thoughts and plan accordingly especially if you're in that trade.
Let's take the trade above for example. You could've been happily shorting since 1.6590 on multiple resistances there hoping to cover 60 pips lower from that entry point. You set a trailing stop of 20 or 40 pips and this thing happens at the end of the day. You easily get taken out for no apparent reason. You go home and you're none the wiser afterwards.
There's no magic formula or strategy to ensure that these things don't happen to you. It doesn't mean that you wouldn't set stop limits either. Stops keep you honest and keep you alive in these crazy markets. What it does bring home though is this point: No one ever got poor taking profits. Even if you may be a few points short of your profit target, think about taking profits if you see the price is taking awhile to get there.
Have a good (long) weekend! :)
by Mike Lim
Short bonds at your own RISK! This should be a poster stuck on every retail trader's trading room. The bond market has been in a bull market since the late 1980s. Don't believe me? Pull up a 30-year chart of any TSY product and you'll see that it has been in a sustained uptrend.
It doesn't matter that when we are in a boom period, bonds still kept getting bid. The world still comes to the US to buy these safe-haven products. It is even more trivial nowadays when the 10-year TSY is just at the inflation rate. I get asked a lot, "Why would anyone want to park their money at something that offers little to no yield?" Let's look at a few fundamental reasons shall we:
Low Interest Environment
Have you opened a CD lately? Have you checked the APR on your savings account? You will probably see that the annual interest is no more than 1% (IF THAT). In the search for yield especially in this global environment where most nations offer dismal rates of return, savers would prefer bonds. Now these are not just any bonds but bonds drawn from strong sovereigns like Germany and the USA.
Like the guy who'd rather put his cash under his mattress than give it to some bank somewhere, savers bet on bonds because they have the full guarantee of the US government. This unquestionable trust that the US government is sound and will always be able to guarantee the repayment of the investment made when maturity comes. About 70% of the country's population reside in this space. Not everyone is cut out to be an investor or trader. Try this sometime: when you go on the subway, ask 5 random people whether they would rather put their money in bonds/savings accounts than the stock market. You will be quite surprised of the reply!
Nowhere Else To Go
This one is not really a reason but more so an acceptance of the ever changing global economic climate. Europe is about to go under. Asia isn't always for everyone out there - just the brave few. Emerging markets still have risks associated with them. You cannot bet your retirement or kid's college fund on the chance that perhaps India could prosper 10-20 years from now. People want relative safety and where can they go? They go to countries that issue debt that they perceive as having strong balance sheets and have good prospects for growth down the road.
Traders both large and small continue to keep buying bonds as a means of long term investment and also to hedge their other risky positions. This is what brings upon a conundrum to the whole situation of unstable or illogical markets. We have seen markets rise as bonds also rise. This big disconnect continues to boggle a lot of traders.
So I close with this for some later reflection: At some point when interest rates rise, will the bonds really react accordingly?
Traders from Equity Sense will be writing on this blog on positions and other market-related things.