Stock Exchange: Going Beyond Fundamentals, 3 Attractive Ideas

The Stock Exchange is all about trading. Each week we do the following:

  • Discuss an important issue for traders;
  • highlight several technical trading methods, including current ideas;
  • feature advice from top traders and writers; and,
  • provide a few (minority) reactions from fundamental analysts.

We also have some fun. We welcome comments, links, and ideas to help us improve this resource for traders. If you have some ideas, please join in!

Review:

Our previous Stock Exchange asked if it was time to get contrarian. If you missed it, a glance at your news feed will show that the key points remain relevant.

This Week: Going Beyond Fundamentals, 3 Attractive Ideas

This week we review three attractive trading strategies that go beyond fundamentals, and then our cast of trading characters offers three specific trading opportunities that are currently attractive.

Our first attractive trading strategy is “time series momentum,” also called “trend momentum.” Larry Swedroe does a good job of describing this strategy (investing in winners, and avoiding losers) and explaining “Why Trend Following Works” in this article. Swedroe also mentions multiple times that trend momentum not only offers attractive expected returns, but it also has a lower correlation with other strategies, thereby making it a powerful risk-adjusted addition to multiple trading strategies. As we’ll see more later, several of our trading models (e.g. Felix, Oscar and Athena) utilize trend momentum strategies.

Our second attractive trading idea is a multi-strategy “team-based” approach. According to Dr. Brett Steenbarger, successful traders find multiple ways to make money. With regard to successful traders, Steenbarger writes:

“They aren’t limited to one strategy or pattern to trade. That allows them to succeed when markets become slower or when trends are not dominant… A great way to not succeed is to be isolated and locked into a single style of trading.”

This multi-strategy approach is also relevant to the non-correlated benefits of trend momentum as mentioned earlier. Further, we find that blending multiple trading strategies helps us to lower risks while also keeping returns strong (we share our trading model performance later in this report).

Our third attractive trading strategy involves behavioral economics. According to the 2017 Nobel Prize winner for economics, Richard Thaler, behavioral economics will eventually disappear as a distinct part of economics, instead becoming essentially ubiquitous with the term. And according to AQR (the creator of much of the academic trend momentum work cited by Larry Swedroe, earlier in this report):

“a large body of research has shown that price trends exist in part due to long-standing behavioral biases exhibited by investors, such as anchoring and herding, as well as the trading activity of non-profit-seeking participants, such as central banks and corporate hedging programs.”

We’ve been having success taking advantage of said behavioral biases using our momentum models (e.g. Felix and Athena), as described in the following trading model performance table.

Trading Model Performance:

Per reader feedback, we’ve recently started including a table summarizing the performance results for our trading models. The table (below) shows actual client results after commissions and fees (I watch this every day, and now readers can see it as well). We’ll share additional information, including test data, with those interested in investing. For our weekly updates, we use only real-time results.


For reference, the results in the table above include all of the positions (10 for Road Runner and Athena, 16 for Holmes, and 20 for Felix), not just the specific stock examples we discuss in the Stock Exchange every week (and sorry Oscar, you have too many individual stocks and trades to be part of this approach). We’ve included six months of data since that is the shortest real-time record we have. All of the models are expected to perform well over longer time periods. Holmes, for example, has returned over 20% in the last eighteen months.

Also very importantly, our models (especially our “Blended” approach) tend to have a low correlation with the overall stock market, which can be extremely valuable for diversification and risk management purposes (this is essentially the multi-strategy team-based approach Dr. Steenbarger described, and the low correlation benefits that Larry Swedroe described.

Expert Picks From The Models:

This week’s Stock Exchange is being edited by Blue Harbinger (aka Mark Hines). Blue Harbinger is a source for independent investment ideas. The three stocks selected by our “trading team” this week are based on multiple strategies (e.g. trend momentum and dip-buying). We also share lists ranking securities from Felix and Oscar.

Road Runner: This week I like Southwestern Energy Company (SWN). Have you heard of it?

Blue Harbinger: Yes, it’s an energy company; oil and natural gas exploration and production. It’s relatively small ($2.8 billion market cap), and based out of Spring, Texas. Why do you like this stock, Road Runner?

RR: As you know, I like to buy stocks that are at the bottom of a rising channel. And based on the following chart, you can see why I like Southwestern Energy Company.

BH: Interesting pick. Are aware this company has generated a large net loss (i.e. negative net income) in 2015 and 2016, and it has a lot of debt relative to its assets. Higher energy prices could help this company, but the price of oil has fallen since we wrote about it two weeks ago: Will Oil Hit $70 Soon? Here is a look at  Chuck Carnivale’s FastGraph for more fundamental information.

Road Runner: I am a trading model, not a person, so I am not “afraid” of the data points you mentioned. Besides, my typical holding period is about 4-weeks. I’ll be in and out of this stock before the company’s fundamental story plays out.

BH: Suit yourself, Road Runner. Personally, I like to dive deeply into the fundamentals before I invest in any company, but I suppose you’re trying to move beyond the fundamentals. I’ll check back with you on this one in about 4-weeks. Anyway, how about you, Holmes—what have you got this week?

Holmes: This week I bought Proofpoint (PFPT). This stock’s dip over the last month is the sort of setup I like to see. From the chart below, you can see it is well below its 50-day and 200-day moving averages. However, it has attractive upside over the next six weeks.

BH: Proofpoint provides cloud-based solutions to prtect people from attacs on their email, social media and mobile aps. It sounds like there could be a large total addressable market for this company given the explosive growth in cloud-based applications. And even though this company is not yet profitable, its revenue has been growing very rapidly. Here is a look at the FastGraph.

Holmes: It’s nice that your FastGraph showns the company will experience strong growth in 2018 and 2019, but I’m typically in and out of my trades in about six weeks.

BH: Based on your dip-buying strategy, I suppose your trying to move beyond the fundamentals, but this long-term growth story is interesting to me. I’m going to take a closer look at this one. Thanks for bringing it to my attention. How about you, Athena—any ideas for us this week?

Athena: I like Vertex Pharmaceuticals (VRTX).

BH: Interesting. Vertex is engaged in discovering, developing, manufacturing and commercializing medicines for serious diseases. For example, Vertex is focused on developing and commercializing therapies for the treatment of cystic fibrosis (CF). Why do you like this stock, Athena?

Athena: As you know, I am a momentum trader, and my typical holding period is about 17-weeks. Based on the following chart, Vertex has a lot of upside price potential.

BH: Honestly, I don’t know enough about this company to have a strong opinion. I don’t know if I’m impressed or disturbed that you and the other models can pick stocks so quickly, and then own them for only a few weeks at a time. Vertex, for example, has barely been profitable so far this year, and the market has very high hopes for the company based on its valuation multiples. Here is a look at the FastGraph.

Athena: Thanks for that information, but I’m a trader, not an investor, and Vertex looks attractive right now.

BH: Well, at the very least I can say I am impressed with your performance in recent months, as shown in the earlier performance table. How about you, Felix—what have you got this week?

Felix: This week I am sharing my ranking of the top stocks in the Dow 30. I’m showing my top 20 in the following list. Also, as you know, I am a momentum trader, but I typically hold my positions for about 66 weeks—which is much longer than the other models. I exit when my price target is hit, and I use stops and macro considerations to control risks.

BH: Thanks for that list, Felix. I see a lot of the usual suspect (i.e. stocks that have been performing well this year) which makes sense considering you’re a momentum trader. DowDuPont (DWDP) is an interesting one. I think it’s still not on the radar of many investors as much as it should be following its creation through the relatively recent merger of Dow and DuPont. I suspect their actually are some synergies there that the market isn’t yet fully recognizing, plus I like Basic Materials (Chemicals) companies at this point in the cycle. Thanks for sharing. And what about you Oscar—any picks this week?

Oscar: This week I’m sharing my top ranked ETFs among “high volume” ETFs. The following table includes my top 20.

BH: Thanks Oscar. I see gold miners (DUST) and oil (USO) are still at the top of your list (the were last week too). Its also encouraging to see you have the S&P 500 (SPY) ranked highly too because it suggests to me you think this market can still go higher, at least over the next six weeks, which is your typical holding period.

Conclusion:

As we often mention in this Stock Exchange series, trading and investing are very different. However with both (and particularly with trading) it’s important to move beyond just the typical fundamental analysis, and to also include other factors (such as momentum) via a blended approach in order to take advantage of market opportunities such as those created by behavioral biases. Our blended model approach has been performing well, but more data and analysis is always important.

Background On The Stock Exchange:

Each week, Felix and Oscar host a poker game for some of their friends. Since they are all traders, they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check out Background on the Stock Exchange for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am usually the only human present and the only one using any fundamental analysis.

The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities.

Stock Exchange Character Guide:

Character Universe Style Average Holding Period Exit Method Risk Control
Felix NewArc Stocks Momentum 66 weeks Price target Macro and stops
Oscar “Empirical” Sectors Momentum Six weeks Rotation Stops
Athena NewArc Stocks Momentum 17 weeks Price target Stops
Holmes NewArc Stocks Dip-buying Mean reversion Six weeks Price target Macro and stops
RoadRunner NewArc Stocks Stocks at bottom of rising range Four weeks Time Time
Jeff Everything Value Long term Risk signals Recession risk, financial stress, Macro

Getting Updates:

Readers are welcome to suggest individual stocks and/or ETFs to be added to our model lists. We keep a running list of all securities our readers recommend, and we share the results within this weekly “Stock Exchange” series when feasible. Send your ideas to “etf at newarc dot com.” Also, we will share additional information about the models, including test data, with those interested in investing. Suggestions and comments about this weekly “Stock Exchange” report are welcome.

Stock Exchange: Is It Time To Be Contrarian?

The Stock Exchange is all about trading. Each week we do the following:

  • Discuss an important issue for traders;
  • highlight several technical trading methods, including current ideas;
  • feature advice from top traders and writers; and,
  • provide a few (minority) reactions from fundamental analysts.

We also have some fun. We welcome comments, links, and ideas to help us improve this resource for traders. If you have some ideas, please join in!

Review:

Our previous Stock Exchange asked if current supply and demand factors would cause oil prices to hit $70 anytime soon. If you missed it, a glance at your news feed will show that the key points remain relevant.

This Week: Is It Time To Be Contrarian?

So far, volatility has ticked up this week, and the stocks that had been performing best all year (e.g. momentum, technology, growth, FANG) are underperforming this week, thereby leaving some investors wondering if it’s time to get contrarian.

Considering momentum and FANG-type stocks have been performing so well since last November’s election, and considering a new pundit comes out every day claiming the market is overvalued, and considering we’ve entered the final month of the year where talk of profit-taking and rebalancing is increasingly discussed, and considering some value stocks are arguably getting to “too cheap,” many investors are wondering: Is it finally time to be contrarian?

Regarding contrarian ideas, Eric Parnell offers some interesting perspective in this article: Anti-Amazon: A Favorite Investment Theme For 2018. Eric explains “the upside investment opportunity that I see for the coming year is not trading against Amazon, but instead taking the opposite side of the Amazon trade.” As an opportunistic value investor, Eric focuses some of his time and attention on areas of market inefficiencies created by the Amazon narrative.

Our Trading Models:

Our trading models (highlighted in the table below) use a combination of momentum (non-contrarian) and “dip-buying” (contrarian) strategies, and unlike long-term investing, our models have the luxury of using “risk controls” to exit trades that are moving against us, instead of buying something “cheap” and then watching it get much cheaper over the following months and years as many “value-trapped” long-term investors often struggle to avoid.

Aside from the risk controls (e.g. stops and macro factors) that help us avoid long-term value traps, our models also have the luxury of using complementary momentum and “dip-buying” strategies thereby minimizing the risks of being trapped in one style when the other is out performing for an extended period of time (i.e. growth and momentum have been beating the pants off value and dividend investments so far this year, as shown in the following table).

Trading Model Performance:

Per reader feedback, we’ve recently started including a table summarizing the performance results for our trading models. The table (below) shows actual client results after commissions and fees (I watch this every day, and now readers can see it as well). We’ll share additional information, including test data, with those interested in investing. For our weekly updates, we use only real-time results.

And not surprisingly, our momentum models (e.g. Felix and Athena) have been doing very well in recent months, while our contrarian “dip-buying” strategies (i.e. Holmes, and somewhat Road Runner) have been somewhat lagging. However, very importantly, our “Blended” approach has been performing well, outperforming the market as measured by the S&P 500 (SPY).

For reference, the results in the table above include all of the positions (10 for Road Runner and Athena, 16 for Holmes, and 20 for Felix), not just the specific stock examples we discuss in the Stock Exchange every week (and sorry Oscar, you have too many individual stocks and trades to be part of this approach). We’ve included six months of data since that is the shortest real-time record we have. All of the models are expected to perform well over longer time periods. Holmes, for example, has returned over 20% in the last eighteen months.

Also very importantly, our models (especially our “Blended” approach) tend to have a low correlation with the overall stock market, which can be extremely valuable for diversification and risk management purposes, especially if you suspect the great momentum rally we’ve been experiencing might soon come to an end, but if you’re still not sure about going completely “contrarian.”

Interestingly, Dr. Steenbarger offers some very interesting perspective on the concept of co-trading in this article, which he describes as, among other things…

“Co-trading features true collaboration.  That means the sharing of ideas and resources, as well as coordinated work on personal and professional development…. The members of co-trading teams, however, are independent traders.”

In some sense, our Stock Exchange “characters” (e.g. Felix, Holmes, Road Runner, et al) are co-trading, as a team, on a weekly basis. However, more aptly, we hope this weekly Stock Exchange series is helpful to your development as an independent trader.

Expert Picks From The Models:

This week’s Stock Exchange is being edited by Blue Harbinger (aka Mark Hines). Blue Harbinger is a source for independent investment ideas.

Road Runner: This week I like NetEase (NTES). Are you familiar with this company?

Blue Harbinger: NetEase is a Chinese technology company, and it trades as an ADR on the Nasdaq. NetEase provides online media, games, and e-commerce. Why do you like this stock, Road Runner?

RR: As you know, I like to buy stocks that are at the bottom of a rising channel. And based on the following chart, you can see why I like NetEase.

BH: Interesting pick. My first reaction is one of skepticism because this stock is still up more than 50% this year (even after the sell-off shown in your chart), and it’s up about 650% in the last 5-years. Considering many investors are afraid the momentum/growth trade is about to slow, aren’t you at all afraid that you are “chasing returns?”

Road Runner: I am a trading model, not a person, so no I am not afraid. I have been designed specifically to avoid the type of emotional trading you are describing.

BH: Aside from my initial skepticism, I do see that this company’s revenue is growing dramatically in recent years, and it is profitable. Here is a look at the FastGraph.

RR: That information is interesting, but my typical holding period is about 4-weeks. I’ll be in and out of this stock before the company’s fundamental story plays out.

BH: Suit yourself Road Runner. Your strategy has been working. Personally, I’d rather do a lot more research before investing in a stock like this, but that’s why I am an investor and you are a trader. How about you, Holmes—what have you got this week?

Holmes: I have no picks this week. And when I don’t see anything, I don’t force anything. How about you, Athena—what do you like this week?

Athena: I bought Envision Healthcare on Monday 11/27.

BH: Envision offers healthcare plans to companies. Why do you like it, Athena?

Athena: As you know, I am a momentum trader, and my typical holding period is about 1-month. Based on the following chart, Envision has a lot of upside price potential.

BH: Honestly, I don’t know enough about this company to have a strong opinion. I don’t know if I’m impressed or disturbed that you and the other models can pick stocks so quickly, and then own them for only a few weeks at a time. Here is some fundamental data (in the following FastGraph) for you to consider, Athena.

Athena: Thanks for that information, but I’m a trader, not an investor, and Envision looks attractive right now.

BH: Well, at the very least I can say I am impressed with your performance in recent months, as shown in the earlier performance table. How about you, Felix—what have you got this week?

Felix: This week I am sharing my ranking of the top stocks in the Russell 1000. My top 20 are included in the following table. And as you know, I am a momentum trader, but I typically hold my positions for about 66 weeks—which is much longer than the other models. I exit when my price target is hit, and I use stops and macro considerations to control risks.

BH: Thanks for sharing that info, Felix. I noticed you’ve ranked Square (SQ) in your top 20. That stock has been on fire this year, and it’s been extremely volatile this week. I actually placed an options trade on Square earlier this week.

Felix: What was your thesis for that trade, Blue Harbinger? We’re not on opposite sides of this trade, are we?

BH: Well, first of all, if you don’t know, Square helps small businesses accept electronic payments through easy-to-use, low-cost hardware and software (i.e. they have a mobile phone credit card reader). The company’s revenues have been growing like wildfire, and they have a more room to run based on the size of the total addressable market. And to make things more interesting (and volatile), Square recently shared news that it was going to be facilitating Bitcoin payments. We wrote all about Bitcoin in this Stock Exchange about a month ago.

Felix: Thanks for that background, but why’d you place the trade?

BH: I’m not giving away all the details on my trade, but it was to generate income (the premium income available for selling puts was very high). We’re both bullish (to differing extents) on Square, but our timeline and objectives are different. My position expires in a couple weeks, you typically hold for around 66-weeks.

Felix: Interesting. Thanks. How about you, Oscar—what have you got this week?

Oscar: This week I’m sharing my top ranked ETFs among “high volume” ETFs. The following table includes my top 20.

BH: The US Oil Fund ETF (USO) stands out to me because we were discussing the oil market dynamics in last week’s Stock Exchange. It makes some sense to me that you’d rank it highly. You are into momentum trades, correct Oscar?

Oscar: Correct. And I typically hold for about 6-weeks at a time before I rotate into a new sector. Also, I use stops to manage risks, so if the momentum trade stops working, I’ll be out of my position long-before most long-term investors.

Conclusion:

Many trading strategies work great, until they don’t. This is why we prefer to use a blended approach in combining several of our trading models to minimize the impacts of a shift in market leadership. For example, momentum has been leading the market higher this year (as shown in our earlier charts), but based on market performance so far this week, some investors fear the momentum trade may finally be slowing down, and it could be time to take a more contrarian approach. Our blended approach has a lower correlation with the market, yet continues to deliver strong returns. We’ll be sticking to our strategy, constantly gathering more data, and watching closely as the year comes to an end, to see if so too does the powerful growth/momentum trade finally slow.

Background On The Stock Exchange:

Each week, Felix and Oscar host a poker game for some of their friends. Since they are all traders, they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check out Background on the Stock Exchange for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am usually the only human present and the only one using any fundamental analysis.

The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities.

Getting Updates:

Readers are welcome to suggest individual stocks and/or ETFs to be added to our model lists. We keep a running list of all securities our readers recommend, and we share the results within this weekly “Stock Exchange” series when feasible. Send your ideas to “etf at newarc dot com.” Also, we will share additional information about the models, including test data, with those interested in investing. Suggestions and comments about this weekly “Stock Exchange” report are welcome.

Stock Exchange: Will Oil Hit $70 Soon?

The Stock Exchange is all about trading. Each week we do the following:

  • Discuss an important issue for traders;
  • highlight several technical trading methods, including current ideas;
  • feature advice from top traders and writers; and,
  • provide a few (minority) reactions from fundamental analysts.

We also have some fun. We welcome comments, links, and ideas to help us improve this resource for traders. If you have some ideas, please join in!

Review:

Our previous Stock Exchange considered the ability of stocks to rise on technical metrics despite conflicting fundamental indicators. If you missed it, a glance at your news feed will show that the key points remain relevant.

This Week: Will Oil Hit $70 Soon?

In early 2016, Brent crude traded in the low $30’s per barrel, and it seemed absurd to imagine it could double in price anytime soon, especially considering technological advances (e.g. fracking) and the high supply. But here we are, less than two-years later, with Brent crude hitting new multi-year highs of over $63 per barrel, and many investors wondering how much higher it can go.

Last week it was announced that TransCanada’s keystone pipeline had leaked roughly 5,000 barrels of oil in South Dakota. As a result, the company shut down the pipeline, and then announced they expect flow from the pipeline to the US would be reduced by 85% through the end of November.

This recent Keystone reduction, combined with the production cut agreed to earlier this year by the Organization of the Petroleum Exporting Countries (including Russia), have both put upward pressure on oil prices. However, before anyone starts assuming oil is going much higher from here, be aware that US producers have taken advantage of the recent price rally by increasing US output to a record weekly high of 6.658 million barrels a day according to EIA data. Also, don’t forget Organization of the Petroleum Exporting Countries can also simply increase exports (i.e. there is no guarantee they’ll just keep production cuts in place).

The increase in oil prices, combined with the increase in production by US producers, has created some interesting trading opportunities. For example, despite the fact that many US producers continue to struggle with profitability (considering oil price are so much lower than they were just a few years ago, as shown in our earlier chart), many of them are setting up for continued near-term price gains considering their short-interest is high, and they’re earnings will likely be marginally better than previously expected (more on this later).

Trading Model Performance:

Per reader feedback, we’ve recently started including a table summarizing the performance results for our trading models. The table (below) shows actual client results after commissions and fees (I watch this every day, and now readers can see it as well). We’ll share additional information, including test data, with those interested in investing. For our weekly updates, we use only real-time results.

The results in the table above include all of the positions (10 for Road Runner and Athena, 16 for Holmes, and 20 for Felix), not just the specific stock examples we discuss in the Stock Exchange every week (and sorry Oscar, you have too many individual stocks and trades to be part of this approach). We’ve included six months of data since that is the shortest real-time record we have. All of the models are expected to perform well over longer time periods. Holmes, for example, has returned over 20% in the last eighteen months.

And worth noting, our models tend to have a low correlation with the overall stock market, which can be extremely valuable for diversification and risk management purposes. Further still, when “blended” (see table above) our models deliver very compelling risk-adjusted returns.

Expert Picks From The Models:

This week’s Stock Exchange is being edited by Blue Harbinger. Blue Harbinger is a source for independent investment ideas.

Road Runner: I recently bought shares of ENSCO (ESV) back on November 16th. Are you familiar with this company?

Blue Harbinger: Yes. ENSCO provides offshore drilling services to the international oil and gas industry. Why did you buy this stock?

RR: As you know, I like to buy stocks that are at the bottom of a rising channel. And based on the following chart, you can see why I bought ENSCO.

BH: Interesting pick. Are you aware this company’s net income has been negative all three quarters this year, and its short interest is over 16%? Also, its price is highly correlated with the price of oil, and this is essentially why it has been struggling to be profitable since 2014 (back when oil prices were much higher). Here is a look at the FastGraph.

RR: That information is interesting, but my typical holding period is about 4-weeks. I’ll be in and out of this stock before the company’s next quarterly earnings announcement.

BH: Based on the recent uptick in oil prices, and the impact it’ll likely have on this company’s profits, I am interested to see how this stock moves in the coming weeks. Thanks for this idea Road Runner.

RR: My pleasure. How about you, Holmes. What have you got this week?

Holmes: I have no picks this week. And when I don’t see anything, I don’t force anything. How about you, Athena—what do you like this week?

Athena: This week I like SM Energy (SM). It’s an exploration and production company.

BH: I’m familiar with this company. They explore for, and produce, crude oil, natural gas, and natural gas liquids, onshore, in North America. Why do you like SM Energy, Athena?

Athena: As you know, I am a momentum trader, and my typical holding period is about 1-month. Based on the following chart, SM Energy has a lot of upside price potential.

BH: This is another interesting pick. Similar to Ensco, SM Energy is highly sensitive to energy prices, oil in particular. It also has a high level of short-interest—recently roughly 19% of the shares outstanding were sold short. And it’s not surprising considering SM hasn’t achieved an annual profit since 2014 (when energy prices were much higher). For your reference, here is a look at the FastGraph.

Athena: Thanks for that information, but I’m a trader, not an investor, and SM looks attractive right now. Why don’t we check back on this pick in about 1-month.

BH: Deal. What have you got for us this week, Felix?

Felix: This week I am sharing my ranking of the top stocks in the Nasdaq. My top 20 are included in the following table:

BH: Thanks for sharing that info, Felix. Based on the companies on your list, I can imagine you are a momentum trader.

Felix: I am a momentum trader, but I typically hold my positions for about 66 weeks—which is much longer than the other models. I exit when my price target is hit, and I use stops and macro considerations to control risks.

BH: Based on your list, it seems you really like semiconductor chip companies, including Nvidia (NVDA), Micron (MU) and Broadcom (AVGO). I actually like these companies too, but my time frame is even longer than yours because I know this industry is cyclical and volatile, but it also has tremendous long-term growth potential.

I also see you like three of the four “FANG” stocks. In particular, you’ve included Netflix (NFLX), Amazon (AMZN) and Facebook (FB) in your top 20. I recognize Amazon is an absolute juggernaut, and Facebook continues to blow me away with its mobile advertising, but I’ve personally never really understood the excitement about Netflix. But I do know a lot of people swear by their love of Netflix. Thanks for sharing this information. And what about you Oscar—what do you like this week?

Oscar: This week I’m sharing my favorite ETFs from our most comprehensive and diverse set of ETFs, as shown in the following table. Do you see any on the list that are interesting to you?

BH: The US Oil Fund ETF (USO) stands out to me because we were discussing the oil market dynamics earlier. It makes some sense to me that you’d rank it highly. You are into momentum trades, correct Oscar?

Oscar: Correct. I Use ETFs, I typically hold for about 6-weeks at a time before I rotate into a new sector, and I use stops to manage risks.

Conclusion:

Decreased output from non-US producers has contributed to rising oil prices. US producers have been taking advantage of higher prices by increasing their own production. We may see earnings expectations eclipsed by US energy companies due to the current supply and demand environment. Potentially adding to the momentum, a reduction in the high level of short-interest among many energy companies could help drive stock prices higher. Whether increased domestic production prevents energy prices from rising significantly higher is yet to be determined. However, the changing market environment has already created some attractive trading opportunities.

Stock Exchange Character Guide:

https://static.seekingalpha.com/uploads/2017/11/3/55431-15096844950770037.png

Background On The Stock Exchange:

Each week, Felix and Oscar host a poker game for some of their friends. Since they are all traders, they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check out Background on the Stock Exchange for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am usually the only human present and the only one using any fundamental analysis.

The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities.

Getting Updates:

Readers are welcome to suggest individual stocks and/or ETFs to be added to our model lists. We keep a running list of all securities our readers recommend, and we share the results within this weekly “Stock Exchange” series when feasible. Send your ideas to “etf at newarc dot com.” Also, we will share additional information about the models, including test data, with those interested in investing. Suggestions and comments about this weekly “Stock Exchange” report are welcome.