Stock Exchange: Sizzling Summer Picks in Discretionary Spending

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 earnings season ideas, please join in!

Review

Our last Stock Exchange took a deep dive into the earnings season. If you missed it, a glance at your news will show that the key points remain relevant.

 

This Week — Consumer Discretionary Spending Heats Up

Our experts are picking up on this week’s theme in a big way. From luxurious cruises to hip new threads, our technical indicators suggest there’s something driving levels on consumer discretionary spending. Derek Benedet of seeitmarket.com had an interesting take. Let’s review some traditional causes behind increased spending:

While these points are accurate, Benedet goes on to note that the patterns of spending are very different. Traditional retailers may find difficulty attracting discretionary spending in a way that Tesla or Urban Outfitters may not. Let’s ask the experts:

Expert Picks from the Models

We’re joined again by one of our favorite guest experts on the stock exchange: Blue Harbinger (also known as Mark Hines). Blue Harbinger specializes in independent investment research, and we’re glad to have his thoughts this week. Let’s get down to it.

This week’s picks happen to center around luxury goods and discretionary spending.

Oscar

Oscar: This week, I bought into my custom Leisure, Lodge, and Cruise sector. PEJ is a close approximation. Stocks in the sector have been hanging around the same level since December, but there’s been enough volatility that I can see an upside. Check the 200-day moving average on the chart below.

Despite the up and down movement, the 200-day moving average has continued the steady rise past the compensation for November’s pop. Beyond the trend, a popup near the $43 mark in the next two to four weeks would provide a solid exit point for me.

Blue Harbinger: Unless you are aware of some short-term exploitable market-mispricing anomaly, I do NOT like this ETF. The PowerShares Dynamic Leisure & Entertainment ETF (PEJ) charges a fairly high fee, it has a high turnover ratio, its price can trade at unpredictable premiums and discounts to its net asset value.

O: A grim assessment, but I’ve got my own stocks in the same sector. Is that inherently wrong?

BH: Well this is based on a goofy, undiversified and concentrated index that seems to have been developed as a marketing ploy to get retail investors to invest in something that lines the pockets of the PowerShares people.

For starters, it only holds 30 stocks, and they’re concentrated in the Consumer Discretionary sector (79%) with the remaining holdings (21%) in Industrials. According to the PowerShares website, the index is described as follows.

The Intellidex Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value. The Underlying Intellidex Index is comprised of common stocks of 30 US leisure and entertainment companies. These are companies that are principally engaged in the design, production or distribution of goods or services in the leisure and entertainment industries.

In my assessment, this index is likely based on some rickety quantitative screen, that is heavy on sounding good to the marketing people, and light on empirical evidence.

O: Understood. I can’t spill too many secrets – all I can say is I’m confident that I’ve managed to strike a better balance on my own.

Athena

Athena: I’ve got a hot one today: Tesla (TSLA). As many people know, I like to buy stocks when they’re in the midst of an upswing. Usually they’re lesser-known names, although I’m happy to make an exception in this case. Let’s check the chart:

This stock is prone to significant upswings, and is currently recovering from a correction earlier this month. Considering the rapid pace at which this went up to $375, I have no qualms at all about buying in at $328.

Blue Harbinger: Athena, I love Tesla’s vehicles. They’re high quality, attractive-looking, very efficient, and they’re environmentally friendly. I also like what Elon Musk is doing with batteries and solar power. However, as an investment opportunity, Tesla is not attractive. Aside from no net income, Tesla trades at a price to sales valuation multiple that is far above other automakers, as shown in the following chart.

Tesla’s high price to sales multiple is a reflection of the market’s very high expectations for the company. However, any slip-up (for example production delays) could send Tesla’s price much lower. Also, competition in the electric vehicle space continues to grow as Tesla’s peers continue to work on new electric vehicles as well as new batteries too.

A: What do I care about price to sales multiples? The market loves the cars as much as you do. Is it so inconceivable that a bit of good news might lead to exuberance?

BH: I don’t know if the market is heading in that direction. It’s worth noting that Tesla’s short-interest is very high, as shown in the following chart.

For a company with a relatively small amount of sales, negative net income, and growing competition, its $55 billion market capitalization is simply too rich and too risky.

A: That all sounds very compelling, but I just don’t invest on that basis. I’m sticking with this one for another two weeks, and looking for another 10% pop.

Holmes

Holmes: I’m getting into Coscto (COST) this week. What a deal! This stock has been trading below $155 this month, but it’s spent the vast majority of the past year well above that same mark. See for yourself:

That 50 day moving average – despite its strong resemblance to a roller coaster – tells me this stock is undervalued. The stretch from January to June alone should be enough to convince anyone of the same.

Blue Harbinger: Costco isn’t a horrible investment, but its best days of growth are in the past, and the company will be challenged to keep customers as excited as they have historically been. Costco’s physical locations as well as its shopping club concept are not new, and they will face challenges going forward. For example, the recently announced interest by Amazon to purchase of Whole Foods drove Costco’s price lower last month, and it may actually mark the beginning of an industry shift where shoppers (and investors) are no longer as excited about Costco as they once were.

H: Well, that would explain the recent drop. Anything else I should know about?

BH: Yes. Costco’s already significant market penetration will make it challenging for new Costco locations to open because the most attractive demographic locations have already been targeted, and new locations could lead to some attrition at existing locations.

For some perspective, according to data from StockRover, the per annum EPS growth rate estimate for Costco over the next 5-year is 5.6%. Not an extremely high rate, but one that will likely be challenging to achieve. Further still, even after the recent price decline, Costco’s price-to-earnings ratio isn’t all that attractive relative to its historical valuation, as shown in the following chart.

I’m not suggesting Costco is at risk of an imminent collapse, but it’s certainly not the great growth opportunity it once was.

H: That makes a lot of sense for long term investors. Regular readers know my timeframe is much shorter. Hey, maybe the market will decide this Amazon deal wasn’t the death knell for all other retailers after all.

Felix

Felix: Urban Outfitters (URBN) looks extremely uncool right now, and to me that’s the coolest thing about it. The month and a half long lull is signalling a bottom to me. As a longer-term investor, that’s a very important factor. Have a look at this chart of the past 12 months:

I’ll admit this does not read as a success story, though I still think it provides a useful entry point. I could easily see some recovery back up to the $22 mark, especially with my extended timeframe.

Blue Harbinger: Urban Outfitters is a well-run business with very limited growth opportunities and no competitive advantage. The company’s premium brands (Urban Outfitters, Anthropologie, BHLDN, Terrain and Vetri) will face challenges in staying relevant, and this is a stock I’m are not interested in owning.

At first glance, the stock might appear attractive because of all the share buybacks, zero long-term debt, and very low price-to-earnings ratio.

However, the average five-year EPS growth estimate according to StockRover is negative 1.6%, and management expects the number of stores and square footage to grow very little.

F: You’ve been pretty rough on all our picks this week. Maybe we should start calling you the Harbinger of Doom.

BH: Alright, alright. Here’s something positive. The company does expect to grow through its direct-to-consumer channel and wholesale (Free People) business, but these currently make up a small portion of sales, and their viability depends, to a large extent, on the brand’s ability to stay relevant.

I don’t believe the brands will become irrelevant overnight, and because the business is well-run, I don’t expect Urban Outfitters to completely disappear anytime soon. However, I do believe margins will continue to be pressured, the brand value will erode over time, and despite the recent price declines and low valuation multiples, this is not a stock I am interested in owning.

F: Okay, that’s fair. I can’t say much other than I like current prices as an entry point, and that I would be looking for a long-term holding. If the mullet can make a comeback, then surely we could see new growth out of Urban Outfitters…

Conclusion

Favorable conditions for discretionary spending are bringing consumers around to household names that have been en vogue as of late. In fact, this may be the first week where our models have gravitated to these kinds of trendy companies.

Thankfully, we have Blue Harbinger here to talk us down from the hype. Each of these selections might give the human investor pause. It’s the model’s job to follow its technical indicators carefully, and to remain consistentStock 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 One month 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

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 it out 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

We have a (free) service for subscribers of our Felix/Oscar update list. You can suggest three favorite stocks and sectors. Sign up with email to “etf at newarc dot com”. We keep a running list of all securities our readers recommend. The “favorite fifteen” are top ranking positions according to each respective model. Within that list, green is a “buy,” yellow a “hold,” and red a “sell.” Suggestions and comments are welcome. Please remember that these are responses to reader requests, not necessarily stocks and sectors that we own. Sign up now to vote your favorite stock or sector onto the list!

Stock Exchange: Are You Guilty of Voodoo Chart Reading?

Michael Kahn, a leading technician and columnist, provides the inspiration for this week’s Stock Exchange. In a recent post he take on a quest: Unmasking the Voodoo of Chart Reading.

This topic really hits home with our Stock Exchange Group. Since they cannot explain their methods in great detail, outsiders sometimes think of them as “black boxes” with mysterious decision criteria. In fact, their general methods are quite clear. Through this series, we share many of their specific decisions. When I review the output, I see it as suggestions from a group of wise friends.

Kahn emphasizes this point.

[Charts] do not tell us what will happen. They are meant to give us clues as to what to do.

Rinse, repeat.

Charts do not forecast the future. They suggest that it is time to take an action.

You don’t sell when the market is overbought. It may still be going up and will get more overbought. But you pay attention because if the market does start to succumb to supply, the indicator – whatever told you it was overbought – will back down by a certain amount.

This is a great attitude to take when employing your technical indicators. Let us try to take the voodoo out of our group’s current ideas!

Review

Our last Stock Exchange considered how to trade a market with a lot of headline risk. If you missed it, please check back and catch up on this important topic.

Market Tech Take

We are adding a new feature this week – a technical market overview. We will feature our proprietary measure, MHI, the market health index. This is a specialized combination of breadth and strength in our proprietary universe. For contrast, we will include an alternative technical measure each week. We welcome suggestions. What is your own favorite indicator?

One popular indicator of strength is the percentage of stocks above the 50-day moving average. Stock charts provides an excellent way to follow this indicator.

Another good one is new highs versus new lows. This is based on our special universe. It is over a two-year period. I will improve the time scale for this feature.

The market health is our key indicator. Once again, it covers a two-year period. It is important since nearly every method experiences the worst drawdowns when MHI give a negative signal.

Comments are most welcome on this segment – a work in progress. Vince and I will provide more ideas about interpretation. Meanwhile, watch out for the red line crossing above the green one!

Let’s turn to this week’s ideas.

This Week—How to Take the Voodoo Out of Your Chart Reading

 

Felix

I’m just getting into Wynn Resorts (WYNN). I’ll admit this is an unusual pick for me. Since I could be in this position for as long as a year or two, buying on peak isn’t generally my style. For my holding period, it takes a significant move to trip my trigger.

I find a few things attractive here. For one, the 200-day moving average increased steadily in 2016 despite rapid price fluctuations. It’s since leveled off, and now the 50-day moving average is climbing. I feel I can count on reliable growth here despite some short-term swings.

J: Are you worried about the company’s sensitivity to revenues from Macau? Those fell 40% in 2016.

F: That was just the subsidiary. The Chinese love to gamble. Look to the long run.

J: At least you have a choice that has a reasonable valuation and solid earnings growth. There is even a dividend. Chuck Carnevale’s excellent research tool helps us generate this chart:

F: I am glad you like the earnings, but I am focused on the price. What is this rumor that Mr. Carnevale is taking your job?

J: We hope to have him as our guest expert next week. He has his own job. I am taking a long birthday weekend with Mrs. OldProf. What about questions from your fans.

F: I always appreciate reader questions. The extra work helps my pay.

J: Are you responding to every request?

F: I am making a list of top choices from the “reader universe.”

J: What if a reader request is not on the list?

F: Then I do not see it as an attractive long-term choice. I respond to email with more specific questions.

J: And where would that be?

F: ETF at NewArc dot com. At least until you give me my own personal email address!

 

 

 

 

 

 

 

 

 

 

 

 

 

Oscar

In an unusual twist, I don’t have a new sector for this week. I generally try to hold three sectors for a period of 2-4 weeks each – which means I’m a fairly active trader. This week, however, I’m good with my current holdings. In lieu of a new selection, let’s review one of my favorite picks so far this year. The Aerospace and Defense sector (XAR) was very kind to me.

I recommended this one back at the beginning of February. As you can see, that pick enjoyed some steady growth until the end of the month. As I said, I generally exit around the 4 week mark at the latest, so it was easy to walk away with a nice chunk of change here.

J: Yes, we enjoyed booking some profits on that trade. What about your current holdings? I see some hotels and also Roadrunner’s AVGO idea in your account. Are you too caught up in your NCAA brackets to give us a fresh pick?

O: No way, but I really need North Carolina to lose.

J: Good luck with that. What about the reader questions?

O: Like Felix, I am emphasizing the top choices from the reader questions.

J: So they are not necessarily your own favorites?

O: No, but there is plenty of overlap.

 

 

 

 

 

 

RoadRunner

(Commentary translated from various pecks, rapid movements and beeps).

Reader PN informs me that I can get better performance from RoadRunner if I improve the birdseed diet. She writes, based upon personal experience in Oklahoma, that the best food consists of “small mammals, lizards, and insects.” Birdseed is a last resort. RoadRunner beeped with approval as I read PN’s email.

RR: I’m right up there with Oscar in terms of time frame. I like to get out of any new position within 20 business days at the absolute maximum. Short term growth is imperative. For Broadcom (AVGO), that’s exactly what I expect.

RR: This year has been a steep climb upwards for AVGO, with only a few bumps in the road. To me, the current price point looks more like an investment opportunity than a peak.

J: Your method is to look for rising channels, buying at the bottom?

RR: Yes.

J: I can see that on the chart, but why not draw it for us?

RR: That is your job! I can’t draw.

J: Broadcom looks good on a fundamental basis as well. Here is the fundamental analysis, once again from Chuck Carnevale.

RR: Once again, I am interested only in a four-week trade.

J: It is always better to trade stocks where the fundamentals are solid.

RR: Beep beep.

 

Athena

On occasion, I’ve been known to buy once a stock has already jumped. With Consol Energy (CNX), I’m confident that I’ll be jumping in early enough to come away with a tidy profit.

J: On occasion? That is your regular method.

A: The stock is about matched with its 50-day moving average; however, its 200-day moving average is still basically flat. We’ve seen a pop up from recent lows in early March. Who’s to say this one couldn’t recover to its prices from the beginning of the year.

J: I find myself asking each week: Have you ever learned about earnings? Look at the fundamental chart! The price chart looks like RoadRunner’s old nemesis – Wile E. Coyote.

A: I play for big, short-term winners. If necessary I will move on.

Holmes

I love QEP Resources (QEP) this week. Here we’ve got a stock that’s just gone through a huge correction, bringing the price well below both the 50 and 200 day moving averages. Past performance is no indication of the future, of course, but in my mind, there’s dramatic room for growth here.

Even a modest increase pack to $15.00 would make spending a few weeks with this stock worthwhile.

J: This is another energy name with no earnings.

H: As we all keep telling you, the market often does not require earnings.

J: There is a lot of bullish sentiment on energy. President Trump has been helping the group. CNBC pundits were enthusiastic today.

H: Who is Trump? What is CNBC? What is a pundit?

J: A sound attitude! That is why we keep you on the payroll. Err… I mean the biscuit roll.

 

Conclusion

Charts are always subject to interpretation. When I analyze the results from our models, the charts are a result – not the starting point. A careful look provides ideas about what the model is “seeing.” It is certainly not voodoo, and my own analysis has been sharpened over the years by the constant review of model picks.

The stimulus from new ideas and interpretations is one of our goals at the Stock Exchange.

We welcome comments, suggestions, and followers for each character. Even Jeff. I try to have fun once a week in writing this, and I hope you get a chuckle or two from reading it. Here is a scorecard for the characters, and information about how you can join in.

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 One month 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 One month or long term Risk signals Recession risk, financial stress, Macro

 

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 it out 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 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.

Questions

If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You can choose me, although my feelings will not be hurt very much if you prefer one of the models).

Getting Updates

We have a new (free) service to subscribers to our Felix/Oscar update list. You can suggest three favorite stocks and sectors. We report regularly on the “favorite fifteen” in each category– stocks and sectors—as determined by readers. Sign up with email to “etf at newarc dot com”. Suggestions and comments are welcome. In the tables above, green is a “buy,” yellow a “hold,” and red a “sell.” Each category represents about 1/3 of the underlying universe. Please remember that these are responses to reader requests, not necessarily stocks and sectors that we own. Sign up now to vote your favorite stock or sector onto the list!

 

 

 

 

Stock Exchange: Can Humans Compete with High Frequency Traders?

Many individual investors have been frustrated by the growing prominence of High Frequency Trading. Complicated algorithms can process new information and react in fractions of a second. It sounds intimidating, and in some sense, it is. Individual Investors would be poorly suited for direct competition.

Instead, stick to what the market is giving you. The connections made by these programs are often spurious – totally unrelated to the fundamentals of a given business. This is intentional. After all, they’re after a quick buck rather than a long-term investment.

For that reason, a stock being walloped for frivolous story in the 24-hour news cycle may present an attractive buying opportunity. It all comes down to the individual investor’s process and commitment to their goals.

To help give us perspective this week, we’re bringing in earnings expert Brian Gilmartin. Since 1995, Brian has managed Trinity Asset Management. You can find his regular writings on Fundamentalis.

This Week—Holmes sniffs out a deal

It can be tempting to make a trading decision based on a glance at its recent chart. Unfortunately, a stock that has underperformed in recent days might be providing a big opportunity. Holmes uses a mix of advanced trading techniques and technical analysis to avoid significant drawdowns. When he chases after a down stock, it’s because he sees some serious upside. Let’s see what he’s up to this week:

Holmes

Holmes: This week I’m buying  Jack-in-the-Box (Jack) a restaurant chain in the U.S. (95.98).

It’s not easy finding stocks that fit the exact criteria I’m looking for. I try to find stocks that have been trending higher, then have broken down below that trend, and have started to base a for reasonable period of time.

This gives me a good entry with limited downside risk and upside gains that may get back to the previous levels before the most recent debacle. I like risk/reward ratios of 2:1 or better.  With Jack, my downside is 93.70(Stop), my upside is 106, risking $2.28 to make $10.02. Woof Woof!

Brian: a comp miss sent the stock down to its 200-day moving average after February ’17 comp’s for JACK as the industry that the “low-end” consumer has taken a breather. Forward earnings and revenue estimates are a little weaker following the February ’17 miss, but JACK is trading at 20(x) expected ’17 earnings for expected 17% growth. Even if EPS growth slips to 15% or even low teens the stock is cheap on a PEG (P.E to growth) basis.

Holmes: Glad to hear you approve! Jeff is usually a bit harsher.

Brian: It’s not a bad pick, depending on how long you’re holding onto this one.

Holmes: My usual target is about 4-6 weeks, though I wouldn’t hesitate to unload this if another downturn became apparent.

Brian: Solid reasoning – for a talking dog, at least…

Oscar

Oscar: My big pick this week is the China Large-Cap ETF (FXI).

We’re in the midst of March Madness, so let’s call this pick a rebound. Not in the classic sense: that’s better suited for FXI’s behavior through early January.

Still, I made this my pick on 2/9 and hung with it for a couple of weeks. Now that we’ve seen another drop, I’m ready to jump off the bleachers and get back in the game.

Brian: BRIC’s and Emerging Markets have traded well since the bottom in Q1 ’16. FXI is the safer asset class in a crowded China ETF market. As someone who was never a fan of China as a strategic or even tactical asset allocation recipient, Emerging Market ETF’s might be a better risk / reward. The ETF is scraping along its 200-day moving average.

Oscar: So, you like this one too?

Brian: I’ve always thought China was like playing the US stock market in the late 1800’s – it is the Wild Wild West of outcomes, as a Communist country tries to centrally plan a free-market economy.

Oscar: It’s a risk I’m willing to take!

Felix

Felix:

Continental Resources (CLR) is my next long position.

The decline here has been sustained and significant, which I find attractive. At $43.22, there is definitely potential for the stock to improve near previous highs above the $55 mark. I could hang onto this one for months.

Brian: Continental took a beating on Wednesday as crude oil fell 5%. The Energy sector is a battleground sector as crude gyrates around $50 per barrel and CLR is leveraged to the price of crude. The stock is oversold and trading below its 200-day moving average.

Felix: I agree the stock is oversold, but I don’t like the sound of that “battleground.” How do I know when I’ve hit a proper valuation here?

Brian: Tell me what crude oil will do and you can figure out what CLR will do.

Felix: Uh oh.

Athena

Athena: I understand my methods are often met with skepticism. That’s why I like to pause now and then and reflect on some small successes. Let’s review my recent foray into Advanced Micro Devices (AMD).

I recommended this stock back on 2/9/17, just after a huge spike in price. Put lightly, this was not my most-loved pick. That was fine by me. Because I had the right time frame in mind, I was able to collect a tidy sum and close out this position near the end of the month.

Brian: A semiconductor company that was a serial capital destroyer for most of its life and long an “also-ran” to Intel, AMD had an impressive string of “earnings beats” and raises in 2016. On the other hand, the valuation is stretched with the Street looking for $0.07 and $0.26 thus AMD is trading at 50(x) next year’s earnings.

Athena: Would you say something like this might be due for another pop in the near future? How hot is this trend?

Brian: The semiconductor space looks good both technically and fundamentally, and AMD is a resurgent laggard in the space.

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 it out 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 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. Each week features a different expert or stock.

Questions

If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You can choose me, although my feelings will not be hurt very much if you prefer one of the models).

Conclusion

The growing establishment of High Frequency Trading algorithms has changed the investment landscape. However, that doesn’t spell doom for the individual investor. Overreactions to trivial matters, like a POTUS tweet, can actually create bargain opportunities. Keep these ideas in mind:

  • Do not compete directly by trying to react more quickly to news.
  • Find a method that differs in time frame.
  • Do not use stops that become limit orders.  A random move can take you out of a position at a poor price.
  • If possible, use the HFT algorithms to your advantage.  If a stock is solid, consider buying dips by having some standing buy orders.

Take what the market is giving you.