Irish Born Investor's avatar
$16.6m follower assets
16th June 2022 - Trading Journal & Market Breadth
Today's trading journal is brought to you by IBKR. I use them as my main brokerage for both investing and trading. As a European investor I have tried several different platforms and I can safely say they have the most comprehensive platform available to any EU based investor. In terms of platform power, safety and products (Stocks, Options, Futures etc.) You can check out the platform here.

Market Outlook:

I want to develop this section somewhat along with the tools I use to measure the market. I have been building some simple market breadth indicators and charts. These could be very useful to any trader or investor. h/t to StageAnalysis on Twitter for some inspiration on these. All of these are built in Tradingview.

$QQQ Stocks Above 100 Day, 150 Day & 50 Day

$SPXC Stocks Above 100Day, 150 Day & 50 Day

$SPXC $QQQ $IWM Stocks Above Short Term 20 Day Moving Average

$SPXC $QQQ New Highs/New Lows

The above charts are useful warning or buy signals. For the moving averages you want to see at least 30% of stocks move above the main averages before considering a buy and you want to see that trending upward. Same for New High/Lows. As you can see today we have made 618 New Lows while only making 2 New Highs! That is not a market you want to buy!

Pre Market Work:
Only stock that caught my eye today was $GO. But not looking for any swings while this level of selling is happening. Trimmed all my watchlists with the stocks that have been badly broken the past week.

Trading Day:
Executed a small but good $SPXC futures trade toward the end of the day today. I entered at $3642.00 with a stop at $3635 and a profit target of $3665. I sold after a few minutes at $3670 exactly. Perfect in and out trade. It's really nice when they work like this.
End of day Thoughts:

It's very important in a market like this not to force trades. I've said before that if I try to consistently day trade I get frustrated. When I am working toward swing trading it's interesting I find the one or two hit and run day trades much easier. It's as if there is no pressure and I am far more patient. It is such a different feeling to sitting down at the beginning of the day searching for trades to make.

I hope we begin to level out soon however for now I will remain patient and look to make small moves or none at all. Tomorrow is a large options expiry date volatility and shenanigans will be high!
Notes & Open Trades:
  • No Positions

Please note I operate my risk with options that I can lose 100% of the premium. This is the safest way to trade them in my opinion. Even if I cut at 50% once I am setup to lose 100% within my risk threshold then I will stay ahead of my required R:R.
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Good on your for keeping a trading journal. I've started at least 3 times but it never sticks. Do you journal daily?
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Pat Connolly's avatar
$118.9m follower assets
Are Discount Retailers a Robust Business?
When I initially read about supply chain disruptions I assumed this would hurt discount retailer's ability to source inventory. This Wall Street Journal Article seems to disprove my assumption. GroceryOutlet echoed the reporting from the WSJ article where they said the supply chain issues provided opportunity.

I understand how shifts in fashion can render existing inventory obsolete creating opportunities to source discounted clothing but for other categories I am beginning to question why so much discounted inventory exists.

Are discount retailers levered to the notion that traditional retailers will always be error prone in their demand forecasts? There are a host of multi-billion dollar businesses reliant upon sourcing inventory from traditional retailers that couldn't sell the items on their shelves.

Do improved data insights & more effective inventory management techniques shrink the overall pool of discounted inventory?

Overall the stock performance of these businesses hasn't been great the last year. To dig deeper one could track inventory trends for each company to see if they have in fact struggled to source inventory. It all seems very counterintuitive to me.

A high level view of how some of the businesses source inventory;

$OLLI - "Brand name and closeout merchandise represented approximately 65% and non-closeout goods and private label products collectively"

$TJX - "We take advantage of opportunities to acquire merchandise at substantial discounts that regularly arise from the production and flow of inventory in the apparel and home fashions marketplace"

$GO - "Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers"

$BIG - "we purchased approximately 24% of our merchandise, at cost, directly from overseas vendors, including approximately 15% from vendors located in China"
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Social Media Armies
These armies consist of individuals or businesses who genuinely promote a large corporation's product or service to their local communities. The large corporation benefits from free advertising.

When do individuals devote their time and effort to promote a company's product? When their incentives are aligned. $SKIN & $INMD are two examples where a medical office purchases a device from the company and then share information about these procedures with their online communities. Medical offices need to educate consumers on the benefits of these procedures in order to recoup their investment in these devices. By promoting these products on their social media pages the medical offices are doing their part to ensure they are running a profitable business while $SKIN & $INMD benefit from free brand exposure.

Another example of aligned incentives is with $GO. These grocery stores are owned and operated by Independent Operators who are members of the community they serve. Most grocery locations are represented online by the Independent Operators who are uniquely positioned to share posts that are only relevant to that particular community. These aren't cheesy PR stunts by a faceless corporation but genuine attempts to connect the grocery store with the community.
What are other examples of companies benefiting from free advertising across social media?
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Passing on the costs
With worrisome prints from the CPI index I'm trying to think of companies best positioned to pass on additional costs to consumers.

  • Distributors should fare better than suppliers - I think of $FAST and grocery stores as consumers tend to shift toward store brands when prices get high -- Breakdown of discount grocer $GO can be seen here

  • Leaders in consolidated markets with steady or increasing demand - $SHW is a beneficiary of continued home renovations + infrastructure bill

  • $V and $MA take a cut of every transaction so they should at least track inflation
  • $GLD has to become in vogue at some point (right?!)

What companies may not be able to pass on the costs?

  • Auto manufactures are already dealing with supply chain issues/ labor wage issues/ chip shortages so a weaker consumer can't be good. Perhaps spending on vehicles shifts more towards the used car market and benefits the likes of $KMX or $CVNA
  • Cruise liners are dependent on discretionary spending from those with disposable income $CCL $RCL

I'm surely overlooking a lot of industries effected by a presumably weaker consumer. Some may say that a higher CPI print signals that the fed should raise rates but the combination of higher costs & higher rates surely disproportionately effects the poor who depend on financing.

A lot to unpack here but I'm interested to hear how others are positioning themselves for higher inflation. I'm also interested if anyone is in the camp that inflation is in fact transitory and how you're positioning yourself to fade the news.
Technology companies in particular should be able to pass on the costs because of the nature of the industry. Companies with strong competitive positioning should also fair well. In changing market dynamics, it is important to invest in high quality companies. I think $FB and $GOOGL are in particularly good spots for passing on costs.
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I Dare Pat Conolly to buy Grocery Outlet
Inspired by the portfolio share / repost / best trade chains, I wanted to start my own chain: "I Dare You to Buy..."

Here's how it works:

1) Tag someone and dare them to buy a particular asset.
2) That person has to repost and either:

Link a trade proving they bought (and why):

Or:

Post why they didn't buy and then tag someone else to buy the asset.

The chain continues until we find someone to buy the asset.

I'll start:

I dare @pat_connolly to buy Grocery Outlet
Pat recently did a conversation on $GO where it sounded like the operating margins weren't good enough to warrant an investment. I dare Pat to buy $GO anyway.

Your move Pat! Do it or dish it!

Love this idea— but it doesn't look like Pat has a connected portfolio. What happens if they can't link a trade because their portfolio isn't supported?
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Preview of $GO discussion

There will be a new video released each week where local Commonstock celebrity @nathanworden & I join Ross Klein the CIO of ChangeBridge Capital to discuss a company in depth. Ross brings real world experience, as he currently manages 2 active ETFs ( $CBLS $CBSE ).

This is an exercise of "learning in public" where the end goal is to identify the key drivers behind a stock & hone our investment research process.

Subscribe & give us feedback!
I've been loving these conversations— Ross is a real wealth of knowledge and Pat you're a fantastic stock detective if I do say so myself. Looking forward to these!
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