Forgotten Profits Trade Setup Archive

Weeks after taking nice gains from the Micron put side of the hedge, we’re ready to exit the MU October 20 calls for respectable gains, too.

The October 20 call now trades at $1.62 x $1.66, per eTrade.

Let’s sell to close that position here to secure the gain.

Ian L. Cooper
Forgotten Profits

On July 22, 2015, I noted, “The worst is far from over.”

I recommended a buy on the DIA November 2015 177 put up to $6 with that note. Since then, the Dow fell another 300 points to the downside.

Still, the worst is far from over…

The Dow just broke previous support and could easily plunge to 17,250 unless something miraculous happens.

Our DIA put now trades at $7.75. I’m recommending that you sell to close half of the position to secure gains today.

As for new trades, I’ve had my eye on Facebook (FB) for quite some time. Now well into overbought territory on RSI, MACD and Money Flow, I’m recommending that you take a small position in the FB September 2015 92.50 put up to $5.

We’ll talk again soon.

Until then, take good care… and be safe out there.

Ian L. Cooper
Forgotten Profits

There’s just no rhyme or reason to the market these days…

China, Puerto Rico, Greece, Russia, Iran, oil, gold… you name it. And it’s making a mess of the market.

The Dow fell 200 yesterday. We’re down another 90 today… after challenging historic resistance that’s given way to downside many times in the past. Unfortunately, foolish bulls just don’t pay attention all the time at nosebleed levels.

While I’d like to say we’ve bottomed out, we haven’t. We could easily test June lows of 17,500 before we even begin to see signs of an end. Even then, we’re still overvalued.

The worst is far from over.

One of the best ways to protect yourself from downside potential is buy buying to open the DIA November 2015 177 put up to $6. Consider taking a small position these days.

At the same time, consider selling to close the second half of the Micron (MU) October 20 put for solid gains. We exited the first half on July 9 for up to 59% gains. Be sure to hold the MU October 20 call on potential buy out news.

Until next time… stay safe.

The market is even more chaotic as usual. Fears of a recession are laughable in a modern day depression.

Ian L. Cooper
Forgotten Profits

Like a bat out of hell, Micron (MU) came screaming back, as hoped.

Just days after taking as much as 59% on half of the MU put options, the MU calls are back as the underlying stock jumps $2 a share.

Apparently, China’s Tsinghua Unigroup is preparing a $23 billion bid for the company, or $21 a share. That would be a 19% premium to Monday’s close.

Hold the calls, as well as the second half of the put for protection.

As for new trades, online restaurant ordering service, GRUB took a nasty beating since missing earnings in April 2015. Shares are down 33% since it failed at double top resistance just under $48.

But as our technical pivot points – MACD, RSI and MFI – have kindly told us, this stock is oversold… ready to bounce in a big way.

And we’re not the only ones that think so.

Northland Securities recently initiated the stock with an Outperform rating with a $40 price target. RBC Capital upgraded the stock from Sector Perform to Outperform. And Guggenheim Securities initiated coverage with a Buy rating, too.

There’s plenty of reason for excitement. As Investopedia explains, “with GrubHub generating upwards of $73 million in trailing free cash flow, according to data from S&P Capital IQ, the company is actually churning out more than twice as much cash as its GAAP net income would suggest ($30.5 million). In other words, the company may be much more profitable than meets the eye.”

“GrubHub is generating so much cash, in fact, as to reduce its price-to-free cash flow ratio to 34.4 times. From the perspective of a “PEG” investor, or in this case, a price-to-free cash flow-growth investor, the fact that the price-to-free cash flow number is just 0.9 times the expected growth rate suggests the stock is cheap.”

We’re buyers on the cheap valuation. Consider buying to open the GRUB December 2015 35 calls up to $2.90.

We’ll talk again soon. If you have any questions, any comments, I’m always happy to help you.

Ian L. Cooper
Forgotten Profits

My apologies for not writing to you sooner… I had a bad death in the family.

While it’s a bit painful, I have a job to do. And I’m going to do it well. Life happens. He had a great life so I can’t be too down.

I wish I could say I am shocked by recent market behavior…

But I’m not. I’ve warned of impending doom for quite some time. It’s the reason we’ve asked that you not risk the house, or more than you can afford to lose at any given time.

The market has been nothing short of a mess.

We were well aware of the market deficiencies and what was likely the whole time. The only thing we’re shocked by is the amount of bulls that rushed in as toppy conditions told us to run for cover.

We knew Greece was in trouble. We knew things wouldn’t work out. And we didn’t need a crystal ball to tell us. The writing was on the wall.

Now we have to hope that Puerto Rico doesn’t default… Or, we’re in a heap of trouble there, too. It’s a wait-and-see, though.

Along the way, we’ve broken through significant support levels, most notably the 200-day moving average that we’ve spoken about, too.

Having just broken through the 200-day moving average, we’ve also just moved below prior May 2015 support. Unless something miraculous happens, the S&P 500 could move to 2000 — a 3% decline. It’s a wait-and-see at this point.

For the time being, hold all open positions. And consider selling to close half of the MU October 20 put for gains of up to 59%. Hold the call side of the hedge.

Before we part ways today, I wanted to share some educational tools with you, too, for use on your own moving forward.

If you pull a rubber band too far, too tight, what happens?

It snaps back.

Well… the same thing happens with stocks driven by two of the most powerful forces on Wall Street – fear and greed.

If traders get too greedy, they send stocks too high, too fast. And it becomes an unsustainable move. Eventually, a stock will pull back, allowing us to profit.

If traders get too fearful, they send stocks down too much, too fast. And again, it becomes an unsustainable move. Eventually, the stock bottoms out, allowing us to profit.

Sounds simple, right?

So how can the average trader – you – spot these excessive moves?

That’s the easy part. You can find them just about anywhere, especially after news has been released.

Opportunities like these happen all the time.

One of the best ways to catch them is by watching for massive volume spikes, anticipatory momentum, news dissemination and the death of news, to name a few.

For example, when the Ebola story hit, panic sent related stocks – like Tekmira (TKMR) – up 333% in no time at all.

No one knew how high it was headed…

But we did.

After that sizable run, look at what momentum indicator, Relative Strength (RSI) was telling us. It was screaming, “Sell me.”

Once RSI topped out above that 70-line, we knew the stock would reverse, as it did.

Historically, an RSI read above the 70-line tells us it’s overbought. A read at or below the 30-line tells us it’s oversold.

But we can’t just rely on a sole indicator for directional change. That’s not safe.

So we move to confirm what RSI is telling us by looking at another popular momentum indicator known as moving average convergence divergence (MACD).

All we’re looking for here are obscene moves from the mean.

Massive spikes in either direction give us an indication that a reversal is likely on a mean reversion in MACD, as you can see here. Look at the spikes in MACD above 2.0. Each time that happened here – with confirmation from RSI – the stock reversed.

We can strengthen our argument a bit more by looking at the momentum of money flowing in and out of the name with the Money Flow Index (MFI).

Notice what happens when MFI moves above its 80-line or below its 20-line. It reverses.

While these three indicators work well in determining the death and rebirth of momentum, we can confirm a bit more by seeing just how far we can pull the rubber band.

To do so, we identify the Bollinger Bands, which let us know how far we can “pull” the stock. As we can see in this example, about 80% of the time, the lower and upper Bollinger Bands told us exactly how far we could pull the stock.

Coupled with the above-mentioned indicators, our chances for success increase substantially.

We can confirm even more, though, with the ultimate momentum indictor, Williams % Range (W%R). Here, look at what happens when Williams % Range reaches zero, considered overbought.

It reverses.

Now look at what happens when Williams % Range reaches -100, considered oversold.

It reverses.

Granted, there are hundreds of indicators and patterns to watch when identifying reversal patterns. But when used together, these indicators alone are some of the most powerful because they look at the momentum generated by the crowd.

They allowed us to exploit crowd mentality, driven by two of the most psychologically powerful tools of the market – fear and greed,

All stocks, indexes, ETFs – are all driven by fear and greed.

If we can identify where and when those reach an extreme, we increase our chances of success.

Using these tools, traders had an opportunity to make 186% gains in just 14 trading days.

Watch this. In early June 2015, shares of Zumiez, Inc. (ZUMZ) were sent down $6 in a day on a sales report. It was an unnecessary overreaction.

Once MFI fell under its 20-line…

Once MACD pulled back to -2…

Once RSI fell under its 30-line… I knew the stock was greatly oversold and ready to bounce. So, I recommended a buy on the ZUMZ August 25 calls at $1.05.

By June 22, 2015, the stock gapped to just under $28 a share, sending my option to $3 a contract for 186% profits in 14 trading days.

What did my Bollinger Bands (2,20) and Williams % Range indicators tell me at the same time? That this stock was insanely oversold…

Take a look.

I’m not tempted to buy a near-term put option on ZUMZ as W%R reaches overbought reads coupled with over-extensions on my Money Flow indicator.

Good Investing,

Ian L. Cooper
Forgotten Profits

While I wish all trades could be as easy as the ZUMZ trade – which returned a quick 152% gain – that’s not always the case. We may have had some great success stories over the years, but recently losses take their toll, too. I’m not concerned, though.

I’m finding a great deal of potential movers in the market, despite recent sell-offs on Greek worries, fears of a Fed hike, a government shutdown… even news that Donald Trump is running for office (I kid… he’s a good guy).

In Forgotten Profits, we still hold the AXP July 80 call, the ERIC July 11 call, the PG July 80 call, the MCD August 97.50 call, and the COH January 36 call after closing the ZUMZ trade for 152% in 14 days.

As for new trades, consider Micron (MU).

The stock took a massive beating, acting like a biotech stock with no revenue stream. I’m betting on a near-term dead cat bounce from an oversold situation. RSI sits at a ridiculous 13.4. MACD and Money Flow are both on the floor, too.

While I’m willing to bet on quick near-term reversal, we need to trade this smart.

To do so, I’m recommending a hedged bet with one put option picked up for every two calls purchased. If interested, consider buying to open the MU August 20 call up to $1 and, or the October 20 call up to $1.70. Hedge with the MU October 20 put up to $1.90.

This should be a quick, fun trade… I’m hoping for a repeat of the ZUMZ return.

Good Investing,

Ian L. Cooper
Forgotten Profits

It’s sad when “smart” traders ignore great trading opportunities. When we picked up the ZUMZ August 25 calls, the underlying stock had just crashed $6. It was nothing more than an overreaction spotted with my six technical pivot tools I’ll discuss in upcoming webinars.

Today, after running up another 74 cents on the day, our calls now trade around $2.60. Sell to close. That’s quite a gain since June 8, 2015.

Congratulations on the quick gain. Stay tuned for new trade ideas shortly.

Have a great week. To the fathers, I hope you had a great Father’s Day.

Best wishes to you.

Ian L. Cooper
Forgotten Profits

While holding all open positions, consider selling to close half of the ZUMZ August 25 calls. The underlying stock is just beginning to claw its way out of oversold conditions.

Even though MCD (put option) and QCOM (put option) did exactly what we thought they would do – fall – the options failed to pan out well. Close both positions by tomorrow. We still hold the MCD August 97.50 call.

As for new positions, consider a position in Coach (COH).

Money Flow has increased significantly here… and the stock has some catching up to do. MACD and RSI are also on the floor telling me we could see a respectable move well off the lows with some patience.

Consider buying to open the COH January 2016 36 call up to $2.90.

After closing many, many wins over the years, the markets have lost their minds. There’s no reason for the markets to be anywhere near all time highs, given economic instability, a wacky Federal Reserve that can’t make up its mind, oh… and who can forget about Greece?

What’s Happening on Wall Street?

After breaking to new high of 2130, the S&P 500 found heavy resistance, as persistent economic fears and worries of a 2015 rate hike gave way to selling pressure. We knew that if the 50-day was broken to the downside, the next area of support was 2075.

That’s exactly where it found support over the last few days, testing triple bottom support dating back to early May 2015. If 2075 fails to hold near-term, we could easily test April 2015 support of 2060, and quite possibly March 2015 support at 2040.

Of course, that’s worst-case scenario.

I’m not so sure today’s 19 point move on the beloved index is sustainable, given Fed, Greece and underlying economic concerns.

At the same time, we don’t believe we’ll see a September rate hike, as many fear. Even Goldman Sachs, which we rarely agree with, has said there are “persuasive” reasons for the Fed to wait until 2016.

A September rate hike “remains a close call,” they note. That’s because there’s a great deal of economic uncertainty. And there’s no real danger of the Fed being behind the curve of inflation. The Fed also knows it runs the risk of crashing the markets.
The smart money isn’t betting on a rate hike either.

It all depends on the health of the economy. We also have to consider that a September hike makes no sense politically, given budget wars and a potential government shutdown.

Again, it’s all a wait-and-see. I’ve never seen a market this disconnected from reality… and I’ve been a trader for 16 years.

It is what it is… and we’ll find our way through.

Have a great rest of the week.

Ian

Just last week, we closed the second half of the DIA July 182 put and the KORS July 47.50 call for respectable gains.

We still hold a MCD June 95 put and a new MCD August 97.50 call. We hold the AXP July 80 call, the QCOM June 67.50 put, the ERIC July 11 call, and the second half of the PG July 80 call. All remain on hold at this time. We are constantly watching each position for potential exits.

As for new trade ideas, consider Zumiez (ZUMZ) the retail accessory stock. The stock fell close to $6 on Friday on a Q2 earnings outlook disaster. But it’s an overreaction that we can profit from quickly. All we want to do is buy a call, and get out once the stock bounces from oversold MACD, RSI and MFI.

Consider buying to open the ZUMZ August 2015 25 call up to $1.60.

Take good care…

Ian L. Cooper
Forgotten Profits

In May, I recommended a buy on the DIA July 182 put, exiting half for gains of 16%. Today, I’m recommending that you sell to close the second half for gains, as well.

In late May, I also recommended a buy on the KORS July 47.50 call, exiting half for gains of 47% shortly after. Today, as the underlying stock continues to climb, I’m recommending that you sell to close the second half to secure the gain.

Stay tuned for more.

Ian L. Cooper
Forgotten Profits