3/11/19:

Biotech Short Trade Closed With 20% Gain

 

The biotech sector was shorted over the last week and the trade closed out on Friday 3/8/19.

 

We shorted by going long the leveraged inverse fund LABD at the location shown.  There was a slight draw-down of less than 1% before LABD moved higher.

 

It was a modest trade with a gain of nearly 20%.  However, the more important part was the gain relative to the amount risked.

 

Although the actual low occurred after the entry, it can still be used for illustrative purposes.

 

Let's say you’re managing a modest (corporate) account of around $5-Million and decide to risk a tiny portion of this account on the trade.  We'll put it at $10,000.  This means that you would have purchased about 62,500 shares of LABD.

 

With an R-Gain of 22.47, your $10K (risk) now becomes nearly a quarter million dollar gain at $224,700 within about four days time.

 

The objective in the markets is to minimize the risk and minimize the time spent as well.

 

In the case of the LABD trade above, both objectives were accomplished.

 

Obviously, the corporate trade scenario is an idealized presentation. 

 

However, the fact that LABD was entered where volatility (and risk) was minimal and exited near the top of the move is proof in itself that Wyckoff technique still applies today in a financial world choked with obfuscation and the beast of 'artificial intelligence'. 

 

Lions and tigers and Watson ... oh my!


2/27/19 (before the open): 

IBB Up-Thrust

 

Unlike the rest of the major indices, Biotech (IBB as the proxy) made its high years ago in July of 2015.

 

Now, at this juncture, IBB is posting an up‑thrust that has potential to become a full blown reversal.

As with the other markets, we’re at the danger point. 

 

This is the area and time where risk is least.  A failure (with a short position) would likely result in minimal loss while a reversal with new lows, may yield significant gains on the short side.

 

Back in 2015, David Stockman analyzed the Biotech sector;  concluding that it was nearly ‘two trillion dollars of bottled air’. 

 

If we're posting an up-thrust and reversal, IBB may have just run into the pin that pricks the bubble.


3/4/18:  Biotech put in February nets over 1,000% gain

 

The IBB Put option trade is a good example of why downside action is preferred. 

 

While option calls may net a few hundred percent gain as in the GLD trade… puts are a different story altogether.

 

Using our near-expiration method, it’s one day to expiration for the 2/9, IBB 104.00 Put.  All hope is lost with a contract price near zero at:  0.20.

 

Understanding where one is in a price move is critical.  On February 8th, the down move in IBB does not appear to be finished.  Price action over the prior two sessions rebounded modestly and appears to be in a stall.

 

Action moved sharply lower during the 8th and the early part of the 9th.  Real time tape reading was used to determine that we’re at an extreme and the trade was exited (with over 1,000% profit) mid-session as shown.

 

No more than a few minutes later, IBB began an upward move that ultimately culminated in a 105.67, close for the session.

 

Had the IBB put been held into the close, it would have expired worthless.