Weekly Plan 5/19/23
Hey traders-
Welcome to another installment of the Weekly Plan with my favorite levels and ideas across different markets. These weekly journals can take a lot of time to prepare so if you find them helpful, please like, subscribe, and share :)
This was the week that saw the infamous range in Chart A below break to the upside.
The break happened on the backs of debt ceiling optimism, a flight to safety to the mega techs, with a generous heaping of a short squeeze. All in all, I think the dull trading ranges of 10-20 point days are now behind us, and the action going forward should be quite volatile in my view.
Last week, I also decided to share some of the stocks I favor over others with the subscribers here on a more routine basis. It is no secret that I have shied away from being bullish on extreme momentum junky names in the last couple of months. Like seriously, was I bullish on TSLA at 215 or AAPL at 170? Nope.
However, this has not meant that I was not bullish on some other stocks which did quite well in recent weeks, if not better than the tech-heavy general market. I am a thematic trader. I do not follow the conventional wisdom. I get bullish on stocks like TSLA and AMD when it is called upon to do so. For instance, I was bullish on TSLA at 100 and AMD at 50, but not at 220 and 100! This is not a flaw but by the design of my methodology.
For instance, I was a technology bull too a few weeks ago! On names like SMCI, AVGO. I was an LRCX bull. I shared SMCI at 60 bucks before it shot up to 150!
Now should my methodology continue to chase a name like SMCI at 160? I do not think so.
This is where my research comes in. I spend countless hours poring over the watchlist to find names like these when they are in the accumulation phase. This is months and sometimes years before the markup phase.
Below are the 4 key phases every trader and investor must be aware of in a stock’s lifecycle-
Accumulation - this is the most stealth mode. This can take months to years. The stock languishes or is even selling off in this phase of its life. No one pays it any attention, no one tweets about it or makes Youtube/Tik Tok videos on it. Analysts have ignored it. Many times less than 1-2 analysts cover it on Wall Street. Anyone who is bullish on these names is named a lunatic. Folks with better information or research are in this phase first. This is the phase where I find almost all of my long-term ideas. The downside on these is often 30-60% max. The upside can be much higher. GME, TSLA, SMCI, DOGE, CVNA, MARA. Just a few examples recently.
Mark up - the genie is out of the bottle. The cat is out of the bag. The stock makes new highs. It is featured on Barrons. CNBC talks about it nonstop. Discord and Twitter are crazy about this stock. This stock is now up 200-300% and folks begin calling it the next 10 trillion dollar stock. Folks attack ant one viciously who talks bearish about these stocks. This is classic markup. Melt-up and Markup often are one and the same phase. CTA, trend followers, and institutions often add to this phase.
Distribution - when the markup ends, the distribution begins. On larger stocks with 100s of billions of dollars of market cap, this process can take years. Once these types of highs are put in, it can be 10-15 years or more to recoup these highs due to the sheer amount of wealth that is involved. Most of us, and I mean 60-65% of us, but maybe much more, have seen the market only in the last 4-5 years max. This is not the optimum amount of market observation. A good investor or trader usually has seen each one of these 4 phases in at least 2-3 markets. This means he or she may have been active in markets for 15-20 years or even longer. The reason experience matters is that it teaches you the current conditions will not remain the same. Conditions are always changing but human behavior remains constant for a long time. It takes time to change habits. I know traders who have been doing this for over 40 years. They all think the same way more or less.
Markdown - markdown can begin once whoever had to buy has bought. There is now no one left to buy because everyone is now in. Those who bought in the accumulation phase are either out or have room to spare if the market ran south. If you bought TSLA at 5 dollars, you probably won’t add at 200 but you won’t panic either if it dropped to 150! And if you bought TSLA at 200 you will probably sell at first signs of trouble. This can create a dynamic where there is sometimes no one in the middle to buy. The market then has to sell down to a place where there are folks willing to buy. This is called markdown.
These phases 1 to 4 are happening in all the markets, in all time frames. Phases 1 and 3 are classic balancing phases. I like being in 1 and 3. Not 2 and 4. You are figuratively wading in # 2 when you are chasing the FOMO all the time! Phases 1 and 3 are where the markets spend most of their time. This is generally true in all time frames. Because our time span is getting shorter by the minute, this phenomenon is harder to see.
Why is this concept important to understand
I like to find a stock in Phase 1 of accumulation, not in the markup phase. This is at odds with most who are enamored with stocks when they start going up. This is why I refuse to join anyone in markup as my methodology naturally wants to avoid it.
This type of analysis means my analysis takes much longer as I am not a chart-based analyst. When you are a chart-based trader you are forming bias based on chart patterns. I review earnings transcripts, balance sheets, and order flow, and of course, technicals are a small part of my overall methodology. This is why it can be very time-consuming and may make 0 sense because the stock is either selling off or has not gone anywhere for many months!
I believe in research being substantive not just superficial based on visual patterns on which anyone and their dog can form an opinion on.
At the same time, I do not want this to sound as if it is something very difficult or impossible. I am just sharing this as an example that an uptrend (or a downtrend) is not to last forever. Sooner or later, it will meet the forces of accumulation or distribution
Over the last 20 years, I have been active in the market, I have made hundreds, if not several hundred, of mistakes. One of these mistakes is to assume that the analysis has to be super complicated. To assume that more analysis means more profits. If anything, analysis does not have to be hard. It should be easy the way you perceive it. If it is hard, you will not do it consistently. Which means you will never become good at it.
This is a very common mistake that almost everyone makes. To think that more analysis will lead to better outcomes. This is simply not true. The truth is that the outcomes are totally random. As long as you know what drives the markets which are the macro themes, the earnings power, the growth and valuations, and order flow, you do not need to go deeper than that in the rabbit hole.
So yes, what is the biggest lesson I learned from my mistakes?
Reduce the amount of technical analysis you do but rather learn to be more observant of the world around you. Great ideas are all around you. It is just that you have not found them yet. They are not to be found on the charts. They are near you in the mall or on the freeway or in a grocery.
This is how I found CELH at 30 dollars before it ran to 100. I found BYND at a Costco warehouse before it ran up 200%. I found UNFI at 10 on my jog one morning before it ran to 40 bucks within months during the pandemic.
The key is to find growing companies and find them when they are in an accumulation when no one knows about them. This is my goal - to be aware, to be observant, and share these names with the subscribers when I see one here in this blog.
And this is the precise reason also why I do not like MSFT at 300 or GOOG at 120! Remember I was quite bullish on TSLA at 100, SPY at 350, GOOG at 80, and AMZN at 80. What was wrong with me being bullish on Google at 80? Or AMZN at 80? So what changed now at GOOG 125? Why not be super bullish now also after a 50% run?
It is really not personal. I do not dislike the bulls. I am myself more of a perma bull than a perma bear, Mr. Doom, and Gloom. I think my methodology is still A+ and solid. It is just that I can not follow the crowds into the markup phase.
I have a universe of about 2000 stocks which I track on a regular basis. I know where good levels on each of these are, having followed the price action on these for over a long term. Now the way these act is that most of them get to the good levels in symphony with the general market, not without it.
So if the general market sells off, they also sell off and get to good levels. Market opportunities are not distributed on a set frequency like our 9-5 jobs. Maybe in a year, we get 2-3 very good opportunities. That is less than 10% of the time. Rest of the time the market does nothing. It just balances. This is something very basic but sometimes easy to forget. It is just that we have so many internet experts now who thrive on activity. The more activity, the better it is for them. But the truth is less activity is better. Good levels do not show up every day. Or every week. Or even every month. When they do, we will not have to second guess.
Eventually, everyone gets it. Those who do not, quit. Sooner the better.
There will be several ideas soon to be born, they are being conceived now as we speak. Join me now on these low prices in the accumulation phase before the Substack price is marked up to 50, 60, or even 100 dollars a month.
With this out of the way, let us review some of the longer-term ideas I like on my radar below.
But before we go there, I warn you that I think next week will be all about debt ceiling drama. I expect fairly large trading ranges all thru next week.
Are you in favor of raising the debt ceiling?
Below are some interesting names personally, about half a dozen of them, and some levels which I like
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