I have something special and out-of-the-ordinary for you this week. I wanted you to see the insider analysis I sent my Trading Trainer “Learning Community” program participants, on Monday (4 June 2018) evening. It resulted in me earning an easy 13.9% yesterday, Tuesday (5 June 2018) on Akamai Technologies (AKAM) breaking out. It also resulted in me entering into a long position with a stock replacement option strategy for the long term.
I wanted to share this analysis today because it features me looking at price patterns in two different ways. Then I planned out option strategies, pre-selected options and created timing follow through rules.
We’re used to planning out different option strategies on the same recognized pattern. In this analysis, we see that it’s okay to recognize more than one pattern, and how to reconcile these two views.
Basically it shows that it is correct to not just try to “bucket” what you’re seeing in one way. Things in the market are not black and white. Being flexible always wins.
For me to share and inside analysis public ally, there has to be some special insights in it. Please go through this analysis a few times. Watch the video. Read the transcript. Review the images. You will pick up some great insights. Thank you in advance for humoring me.
Hi team. This is A.J. Brown with Trading Trainer on the evening of Monday, June 4, with your Trading Trainer ‘Daily Insights’. What we’re going to do here is take a look at our Trading Trainer ‘Daily Picks’ report generation tool. We’re actually going to create for ourselves a pick list. From this pick list, we’re going to find a candidate, do a full analysis on it, see if it deserves to be on our hot list. If it does, we’re going to craft follow through rules, pick option trading strategies, preselect options, and put together preliminary exits.
Let’s look at our ‘Trend Continuation’ templates. I want to take a look at Chaiken because I found Akamai Technologies. $77.07, up 1.41%. The main thing is its got 85 days of an uptrend. Correlated with my naked chart analysis, it’s inconclusive. We confirmed today so I want to check this out deeper. Let’s go ahead and take a deeper dive here. I also, just for laughs and giggles, will bring up our ‘Pattern Alteration’ template.
Here’s Akamai Technologies. $77.07, up 1.41%. $77.07 is a little bit overpriced compared to the volume-weighted average price (VWAP). Volume was okay. We’ve had good volume so far. Here it is. Four for our Bollinger Band Width Index and 15 for our Candlestick Count, so we’re not quite channeling. We’re not quite converging either. Earnings per share (EPS) is 87. Relative price strength (RPS) is 97. Industry group strength (IGS) is A+. Hover over the ticker symbol, we get a short description of what this company does. “The delivery of content and applications over the internet.” They’re a tech stock.
They’re neutral in the short and the long duration. The subsector is Internet Services, which is bullish in the short and the long duration. The sector is Software and Computer Services, which is bullish in the short and the long duration. The supersector is Technology, which is also the industry, bullish in the short and the long duration.
Let’s pull up a quote. Here’s Akamai Technologies. Here are our price statistics and our company statistics. We have our competitors over here. Related companies. News headlines. Earnings. They beat them, beat them, top, top, top. Let’s do a deeper dive on the description. Here we’ve got our full description. We’ve got our mailing address and our phone number and our fax number, and our webpage, where you’ll find the investor relations link or tab. From there, you click over and they’ll have electronic methods to communicate with folks from the right department in the company.
Let’s do a deeper dive on the officers and board of directors. Here you can see who they are, their age, how long they’ve been with the company, their position, their compensation and option compensation as well. Good biographies. Let’s look at insider trading. I want to pay attention to what these officers and board of directors are buying and selling. They know more about this company than we do. If you see anything out of the ordinary, we want to go back to their address, write them a letter. Go back to their phone number, phone them. Go back to their fax number, fax them. Go back to their website, communicate with them electronically. They do have to answer your questions, especially about insider trading, it is the law. Take a good look at insider trading.
Then we’re going to go to our analysts. We don’t see them piling on a buy or sell, so we’re going to move on. It’s only when the analysts pile on buy and sell that I want to take notice. Now I’m going to go to the news headlines and I’m going to read a little bit deeper. I’m going to read from the most recent, to the farthest back, paying attention to the scoop, the skinny, the gossip, the current events with respect to Akamai. That’s going to give me an advantage. Then I’m going to go to charts.
From the charts, I want to take a look at a five-year, weekly chart. We’ve got a little bit of sideways chop over last years. I’m going to pull up what splits came about. None. Dividends? They don’t give out dividends. This is an asset appreciation play all together. Earnings. Key developments.
Now I’m going to move into a one-month, daily chart. Here I’m going to pay attention to the headlines. I’m going to pay attention to those headlines that accompany price pops and drops. Those type of headlines cycle, and as they do, investors react the same way each time, as if they’ve never seen those headlines before. We want to be in-tune to those particular types of headlines that go along with price pops and drops. That’s also going to be an advantage.
In fact, the only disadvantage to all of this soft data research is if we formed a trading bias, either consciously or more likely subconsciously towards Akamai Technologies, so let’s not do that. Let’s have an awareness. Let’s have an understanding. Let’s build a relationship with Akamai technologies, the company, the stock and the option chain. Not only is that going to give me an advantage, that’s going to give me a leg up against other technical and quantitative analysis traders out there.
With that said, let’s switch gears. Let’s put on our technician’s hat. Let’s plot this thing. I’m going to plot it on a six-month, daily chart with a linear scale, open-high-low-close (OHLC) bars. We’re going to have a separate pane for volume and volume average. We’re going to have a separate pane for the Williams %R. We’re going to have a separate pane for the Chaiken Oscillator . On the main pane, we’re going to have a 200-day simple moving average. Once this chart loads, I’m going to expand it to full screen.
Because of the missing alignment with my naked chart analysis, I’m also going to simultaneously plot this on a three-month, daily chart, linear scale, candlestick bars, Bollinger Bands on the 20-day, and a separate pane for volume and volume average. We call that our breakout template. I’m using my Chaiken template and my breakout template. Once this chart loads, I’m going to expand it to full screen.
Let’s start off with the Chaiken template and let’s start off with a line-on-close and do our best-fit trend line, and since this is Akamai Technologies and we see here in our quote that it’s traded against the NASDAQ, let’s go ahead and on a separate axis, plot COMPX. We want to see if there’s any correlation. When the NASDAQ goes up, does Akamai? When they go down, up, down? Magnitude doesn’t matter. It’s more of direction. I think there’s a good correlation, so let’s go ahead and use the NASDAQ as a reference price index.
In the meantime, the 200-day is running parallel to our best-fit trend line. We’re clearly over the 200-day simple moving average, so that’s a bullish trend. Let’s look at our Willams %R. We went to an extremely oversold and then our Chaiken Oscillator has crossed above its zero, so there is something of a bullish trend going on there. I also see the consolidation, so let’s bring our other template up.
I see the Bollinger Bands are compressing. I see the candlestick count is high. I see the five and the 10-day simple moving averages have caught up with each other. Look at the butterfly patterns. This is the wing leading up to butterfly body. We’re expecting another butterfly body but it’s a little bit immature. I see it here too in the point and figure chart. Currently, our implied volatility is just about right where the historical is, so it’s right priced. I think we’re going to have to set up on this in two different ways, so let’s go back to our Chaiken template and let’s set up on it that way, first.
The last time we set up on this was July 25th last year (2017), so here’s our last Akamai Technologies’ evaluation. Now I want to do this a little bit more formal, so I’m going to set it up very similar to how we set up on Hess recently. We’re going to look for follow through by looking for “Harmony”. We’ll bring our evaluation on Hess up right here. We’ll evaluate Akamai Technologies during professional hour. Akamai has to be greater than the confirming day high, which is $77.09. The NASDAQ has to be greater than its close, $7,606.46. Akamai is forming an S bar. Again, taking a hint from our set up on Hess, which is very formal, we call this needing to see “Harmony”, we look for NASDAQ to trend up, going into and during professional hour on five-minute bars.
We’ve got to preselect an option. Let’s compare August to November. With our August, we would go with the $75 strike price. There is a pretty large bid-ask spread, but I am seeing volume. So $4.90 to $6.05. Then the November. In this case, I might go with the November. A little bit better bid-ask spread, and in addition to that, even though our open interest is a little bit on the lower side, the price isn’t that much more expensive than the August, and it looks like Akamai doesn’t appreciate super fast, so I might be in this for the long term. Why don’t we plan on just going with our November?
So Akamai November 75 call. Let’s actually go with the 77.50. I think that’s going to be our best bet. Remember how low that implied volatility was? Let’s go with the 77.50. Now, at the same time, back to Akamai as a “Pattern Alteration”.
Notice, I’ve got all my setups from the past on all tickers, saved. I think you should too.
If I’m doing my support and resistance lines here, it looks like I’ve got resistance at $77.50, and support at $75. Our middle price is $76.25, times 6/10ths of a percent is 46 cents. Let’s use 46 cents for our Equity Trader Momentum (ETM) threshold. Good.
Let’s see. We’ve got to preselect some options here. Let’s bring back our option chain. The upper threshold, $77.96. The lower threshold, 74.54. We’ll come back here to our June options, which are still good to go. We can use these pretty much all the way up to a week before expiration. I think we’ll use the $77.50 here for our call. We have liquidity. We’ll use our $75 put. We’re not going to need to do a last minute liquidity check. All right.
There we go. Let’s review our plans. Let’s take a look at both of our setups because we looked at this in two different ways and we’re going to set up on it in two different ways.
First, evaluate it during professional hour, if it’s greater than $77.09, which is the confirming day high and the NASDAQ is greater than $7,606.46, which is its previous day close, and Akamai is forming an S bar on its daily bar like it did today, and the NASDAQ is trending up, going into and during professional hour on five minute bars, I’ll open this position. To get me to the end of the day, I’ll put a risk stop on it.
If it breaks out… if it goes above $77.96, or below $74.54, those are the threshold crossings, we’ll need to see smooth and consistent price movement over the previous six five-minute bars, where the previous half-hour high-low range is greater than 46 cents. If not, check back every 30 minutes. In this case, if we get into the trade, we’re going to set a trailing stop-loss exit sell alert, contingent on tracking the lows for a breakout up or tracking the highs for a breakout down, three 30 minute bars back, on the underlying stock. We also talked about perhaps setting an additional percentage based trailing stop and using the most conservative. I think that’s a good plan to lock-in gains for symbols that breakout very quickly.
With that said, if we wanted to take it one step farther and I do recommend that you do, I would suggest for these two setups, which are stock replacement setups, we use some sort of automation. I’m talking about automatic trading and/or automatic alerts. I’m partial to our Trading Trainer ‘Advanced Alerts’ add-on tool. It watches your candidates in real time, which is much more accurate than doing it manually and mechanically. It also watches all of your candidates for you, not just the one. The best part about our ‘Advanced Alerts’ is it is made with our follow through rules built in here. As you can see, you just simply select which ones you want, fill in the blank with the value, and it watches those complex patterns. Not only that, for these candidates that we feature in our ‘Charts of Interest’ videos, we set them up for you in the tool, so you don’t have to do anything besides just trade it. It really becomes a no-brainer.
What do you have to do? You have to set up the trade with your broker. Cue it up. If and when you get the alert, I usually take out my mobile device. It usually buzzes because I set the ‘Advanced Alerts’ to send me a text message. I use my broker app. I open it up and I do my last minute checks. I like to check open range. Sometimes I like to check liquidity. If all is good, I’ll pop the trade. If not, I’ll drop the trade. I’ll put that mobile device right back in my pocket. Three to five minutes go by, maybe 10 at the most, and then I’m back doing whatever. It is a no-brainer. Long gone are those days where we needed to have terminals or servers, or even laptops or desktops wired into the exchanges and watching them in real time. Now it’s a no-brainer. People who trade real money and pay for the ‘Advanced Alerts’ tool say that it pays for itself month in and month out. I’d like to have you please click on support and ask them to provision your Trading Trainer ‘Advanced Alerts’ add-on tool.
With that said, I’d like you to take a look at this pattern. Then take a look at these stock replacement strategies. We always create stock replacement strategies first because they force us to fully analyze and recognize the underlying symbol from every different aspect. Then when we go to our options trading tool chest, to select and populate our stock replacement strategies, we can look for additional strategies above and beyond. I’m going to let you do that on your own. It’s always easier to profit from the same ticker in multiple ways, not just looking at the pattern in different ways like we did here but also with different options strategies, than it is to go find a new symbol to trade on.