Stock Exchange: Buy the Dip (VOYA) or Buy the RIP (DPZ)?

The Stock Exchange highlights the results from different technical trading methods. We also provide contrast, and often dissent, from a fundamental analyst. While the methods sometimes agree, our emphasis is on trading.

Review

Our last Stock Exchange took up an important question – how to deal with a losing trade. Any trader who has not planned for this in advance is headed for trouble. If you missed last week’s edition, check it out.

This Week— Buy the Dip or the Rip?

This is not the famous favorite slogan, but it fits today’s choices.

Road Runner: I have another great opportunity to buy a stock at the bottom of an up-trending channel. Domino’s Pizza (DPZ) shows great overall strength with an occasional buying opportunity. Now is the time.

RR: I suppose you will once again invoke Chuck Carnevale and F.A.S.T. graphs.

J: Naturally. Unlike last week, you are once again way out over the cliff.

RR: I am sorry that Mr. Carnevale does not appreciate my chart reading.

J: You do have some support. The research team at Société Financiers likes the explosive growth in revenue. Michael Vinci concludes that the stock is 22% undervalued. Julian Robertson’s Tiger Fund has increased its position.

RR: You see? I am not the only expert! Beep Beep!

 

Oscar: I have a new sector choice: 3D Printing. While I have my own basket of stocks for this sector, we can look at ExOne (XONE) as an illustration for the group.

This chart combines the best of little ball and big ball.

J: I knew you would get around to baseball.

O: It is relevant. When the stock declines a bit, it is as if they are playing in a one-run game. Bunting and sacrificing are OK.

J: Hmm-maybe. I suppose you do not care about earnings. I am not even going to post the F.A.S.T. chart since you would see a string of negative values. This is just a story stock.

O: And it has a good story.

J: Let’s turn to your responses to readers?

O: OK. Here is the current list.

J: Thanks. Let’s see what Holmes has to say.

 

 

 

 

Holmes: I buy dips, not rips. I take profits as stocks rise and always protect my gains. Here is an interesting opportunity – Voya Financial (VOYA).

This is a great setup.

J: Are you expecting higher interest rates? A takeover? Have you been watching those TV commercials with little orange rabbits?

H: I expect the chart to tell a story. I have no knowledge of interest rates or takeovers (whatever those are). I certainly don’t watch TV commercials. I don’t even watch TV.

J: I wouldn’t have noticed the commercials except for Allison Janney, a favorite for both Mrs. Oldprof and me. Turning to the data, you actually have some support from our fundamental analysts. Eric Gregg, a deep value investor, explains why he likes this one. Chuck’s methods also suggest some value here.

 

Felix: I have nothing new this week.

J: Again? I guess I am not surprised. It is still mostly a sideways market. I see that you still hold some big winners.

F: Yes, I have been doing fine. That does not always require a lot of trading.

F: Just so. We continue to follow your directions.

J: We? I suppose you mean that Athena has nothing fresh either?

F: Right. She said to tell you that you will see her again when something is happening.

J: The longest vacation in company history gets even longer. How about your weekly stock rankings? Still buy, hold, or sell, depending on the color?

F: Yes, and I welcome new questions. That is how the list is built.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

The natural trader psychology is to buy dips and sell rips. It is fun to lock in profits. You get to score up the little gains that you have booked.

In fact, trend-following methods are among the most successful. If you are a trader who does not know the story of the Turtles, you should spend a few minutes learning about this great experiment. Trend-following can be a psychological challenge, but done correctly it is very profitable.

 

Here is a summary of the cast of our characters. Find your own favorite!

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 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!