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Tuesday, July 8, 2014

BACK TO BASICS: Are you a trader?

Welcome to the first episode of 'Back to Basics' on VDM Trading. Hopefully it's going to be one of your valuable sources to become a better trader. This information is mainly for people who want to learn to trade the financial markets themselves ('DIY' traders), without the assistance of an adviser, so they retain complete control over their portfolio, and hopefully make profitable trades consistently.

Answer my first question, and let's see if it's worth your time.

Monday, July 7, 2014

Lower unemployment, higher interest rates?

For the past couple of months, one of the main topics of conversation in the financial press is currently under which conditions the buyback program in the United States should be rolled back, and when the Fed will/should raise interest rates again. The most important aspect regarding this issue has been unemployment.

In the meantime, the official unemployment rate in the United States has decreased to 6.1 percent, according to the BLS (Bureau of Labor Statistics). For the fifth consecutive month about 288,000 jobs were created, the best progression since 2000! However, there's still the issue of low wages. One of the reasons why the Dow closed above a historic 17,000 points is that companies are raking in profits due to fact that there are low wages, and they're collecting profits from (still growing) emerging markets. Of course they're also still taking advantage of next-to-zero interest rates.

Saturday, June 28, 2014

Apple, an (almost) perfect dividend stock

Almost everyone I talk to has an opinion when it comes to Apple (AAPL). Plenty of critics out there: Apple's innovation is lacking, profits are stagnating and Tim Cook, Steve Job's successor, would not be good enough to lead the company to a better tomorrow. They're valid points that worries traders, but the fact remains that Apple is simply a great company and an almost perfect dividend stock.

Monday, June 9, 2014

Bullish on VIX, Bearish on XIV, volatility WILL happen

 TRADING ALERT 
The volatility index (VIX), also known as the panic index, or fear gauge, is at its lowest level since a long time. At 10.73 to be precise, at this time of writing. Around January 2007 it was around these levels - more than 7 years ago! In fact, I don't remember it even dipping below 10. In any case it looks very interesting to me. This is mainly due to the fact that this level strikes me as insane. Civil war in Syria, unrest in the Middle East, Europe not being able to keep its currency under control and tensions in Asia, yet the volatility index is at it lowest level (ever?). I think any range in the 10 'zone' is a reason to look at this index and be optimistic.


How to play?

But how do we play this trade? I personally like the XIV (VelocityShares' Daily Inverse VIX Short-Term ETN), the VIX backwards (get it) index. This ETN trades like a stock, and goes up when the VIX goes down. The XIV is a short term exchange traded note, which means less risk than the VXX (mid term, not inverse so keep in mind that if the VIX goes up, the VXX goes up as well). The XIV doesn't have options, unlike the VXX that does allow you to trade options contracts.

Thursday, May 22, 2014

What kind of trader are you?

In order to trade stocks or other equities effectively, it's important to know and understand what kind of trader you are. Have you ever looked at a stock chart and thought you saw a bullish pattern (an upward trend)? Select a different time frame with the same stock and you might find yourself not so confident anymore. Different time frames tell different stories.

Basically figuring out which kind of trader you are determines which time frame you 'like' to trade. Do you think you can profit from quick drops or peaks in the market, you may fall under the category 'scalper'. A scalper applies the so called 'fade strategy' in trading. When there's a quick drop in the markets the scalper buys at the low and sells it quickly when the price of the security goes up just a bit, or the other way around, short selling when there's a spike in the security's price with the underlying thought that the security is too overbought, or previous traders who bought the stock are cashing in on profits. The scalper won't last very long though. It takes a tremendous amount of stress, and it's simply an exhausting technique.

Tuesday, May 20, 2014

Finding good stocks to short

Shorting is a risky trading strategy. Shorting means betting against a company, in other words you'll make money when the stock price of the company you're shorting goes down. Remember, you can lose more than you 'invest', but sometimes it's simply easier to find stocks to short than it is stocks to buy. Not to mention, it's often very rewarding since there's a higher risk involved. A successful short is like taking out a credit card without having to pay back a dime. An unsuccessful short - well you'll have to pay back more than the credit card's worth. 

Anyway, finding good stocks to short isn't as hard as you think. Sometimes all you need is some common sense, and see a downward trend - not just on a stock chart, but in real life. There's a few stocks on my list I'm going to short this week, and with some I'll stay short. RadioShack (RSH) for instance is a fine example of a stock on my short list at the moment, which I shorted at $1.90; I wrote about that in a blog post when RadioShack stock was hitting a new all time low. Picking stocks to short isn't difficult to do when you look at the retail sector for instance. The traditional retail sector, as we know it today, will eventually collapse I think. Fierce competition from online retailers will likely wipe their ancient business model from the map. Merely a few companies and strip malls will survive, but it'll remain a tough situation for them due to the latter mentioned. The good news for traders is that this scenario is unfolding right in front of their eyes. Better yet, it's accelerating by the day. 

The Blockbuster Effect

Think about this logically. Right before Blockbuster video went out of business it did everything it could to stay alive. Promotions, free rentals etc. Yet the competition didn't have expensive stores to maintain. Redbox and such was/is merely a kiosk, a soda-machine like kiosk that pops out DVD's and Blurays. Netflix (NFLX) offers streaming video, no need to physically go to a store and pick out something and then bring it back, many like Netflix followed - leaving Blockbuster in the dust. We all could see this Blockbuster scenario coming from afar. Many other companies had similar dilemma's. Unfortunately, one of my favorite stores, Borders Books coped with the same problem - online competition.

The Trend

That was all in the past. But what can we learn from it? Well, look around you. We have to keep a close eye on companies that are susceptible to online competition. I think these companies are mainly in the retail sector. Take Staples ($SPLS) for instance. What I said about Blockbuster and Borders back in the day, I say about Staples today. How a company like Staples can survive is beyond me. By the way, that's exactly what they are doing, surviving - that's no way of doing business. Closing stores is usually a bad sign - not so much a cost cutting issue. But doesn't it make sense? Can't you buy the majority, if not all, office supplies - you guessed it - online? Therefore Staples has no future, a good stock to short? You bet! Same goes for RadioShack, which is even more susceptible to online competition, not to mention the competition from other major electronic retailers which offer the same - or better products - for cheaper. The same goes for Sears Holding (SHLD). When I started writing blog posts about Sears a few years ago, telling how this company is going nowhere, it was trading well over $80 a share.

So, most likely companies that mainly sell products that can also be bought online, will go under sooner or later. Another fine example is GameStop (GME) or BestBuy (BBY), all retail companies that will go extinct within the next 5 years, if not sooner. Because why would you buy a product from a specialty store if you can buy the same product for the same price, or even cheaper, from a store 'where you can buy something else too', like Walmart (WMT), Target (TGT) etc. In fact I want to say that Target offers promotions like if you buy electronic product X, you get a $20 or more gift card for free.

Retailers like Home Depot (HD) are less likely to suffer from online competition since their customers are less likely to buy lumber on the internet for example. So use common sense when you look in the retail sector to short stocks.

Conclusion

Whatever the case is, when it comes to shorting stocks, I'm not looking at any other industry but the retail industry. Just for the simple fact it's an industry that's rapidly changing and offers clear direction when it comes to shorting stocks. My shorts this week are Staples (SPLS) and JC Penney (JCP), as soon as the rally on Wallstreet is over, these are the first stocks that will be affected the most. What are some stocks on your short list, or companies that you think will go under in the near future?

By: +John van der Munnik

Friday, April 25, 2014

Candy Crush Saga, (KING) investing in a dream world?

Actual screen shot taken from my iPod
Candy Crush Saga, Level: 1
King Digital Entertainment Plc (KING), the creator of the popular Candy Crush saga app, continues to amaze me. Recently they went public. It's truly incredible that this stock currently trades for $18.70, all because of a few popular apps like Candy Crush saga and Farm Heroes for instance. Play in a 'dream world', as stated on the official page of Candy Crush Saga. Investors seem to have high hopes, the stock even jumped another 5+ percent yesterday. The truth is that KING does have a large number of players, almost 100 million players each day on average - and that's just for the game Candy Crush Saga - though that's very impressive - you've got to wonder how long they'll be able to keep those numbers up. But what is so fascinating about this company and its games anyway? Somehow the market believes this stock price is 'fair', so they must have some incredible addicting app that sucks you in as soon as you load it up - even better, you just can't stop buying the upgrades! Stop making me buy the extra's! Just for the hell of it I decided to download 'KING's Candy Crush Saga' myself on my iPod, if something is this incredible, I definitely want to know what all the fuss is all about. After I downloaded the app I anxiously waited for the game to load up. It crashed (no joke). I took me about 4 tries (mind you, all the other apps on my iPod work perfectly), I cleared the memory, and even had to reset my iPod, soon I dubbed it KING's Candy Crash saga. After the iPod reset, the game finally loaded up. For those who are familiar with the 'Bejeweled' puzzle game, it's kind of similar. Except for the fact that you play on a huge map which contain the levels - like Super Mario World for Super Nintendo (yes I know my games!), but instead of a side scrolling game each dot is a 'Bejeweled' rip off world. Seriously? KING honestly is trading at almost $20 because they made a 'Bejeweled' rip off? The answer is yes, and how do they make their money you wonder? Well, they sell 'turns' (no joke, again). You only get a certain amount of turns, when you used up all your turns - you have to wait 20 minutes, then you can play again.. UNLESS... you guessed it right you BUY turns. I'm not making this up, I swear. This is why KING trades higher than Zynga (ZNGA), a much more established game company. Is the market learning from mistakes made in the past? Has the market gone mad?? This has got to be the biggest flop, and the most obvious 'soon to pop tech bubble' I've ever seen! How can KING's stock price be almost at $20, all based on a few games that do (supposedly) well at the moment. How are they able to sustain their company? Are they able to consistently produce games that are as popular as Candy Crush saga? The problem is that there's a very high chance that this is just a one hit wonder. They went public at the peak of their hay day. Impressive numbers, like the amount of average players each day, but it's going to be a very tough task to keep this level of performance up. On top of that they have to deal with an incredible amount of competition, not to mention that people may eventually get burned out by the games. This is a very high risk company to invest in. For me, it's the most obvious trade of the year. You guessed it right, I'm going short (betting against the stock). My target? Rather ask what my stop loss is, let me tell you now that I'll be amazed if this stock trades over $20 in the near future. The next earnings report for KING Digital Entertainment Plc is May 7th, I'm curious to see what their earnings are going to be. What is your opinion? Do you think this stock is going to tank as well, or do you see potential in King Digital?


Disclaimer:

All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.