A Tale Of Two Tapes

It was the best of times, it was the worst of times... trading that is. For those that picked up on the references to the classic Dickens novel, I swapped out "Cities" for "Tapes" as it sums up my recent experience in the market lately. The term "tape" refers to the price action in the stock market, a commonly used throwback to the days when stock prices were printed out on a paper strip throughout the trading session refereed to as ticker tape. Following two extremely tradable & profitable trends early in the first quarter of the year, one bearish & one bullish, Q2 & Q3 have been marked by two of the most difficult trading environments seen in many years, both of which the market went exactly nowhere for months.

$SPX 120-min Sept 28th close

$SPX 120-min Sept 28th close


Trading just about any stock that is a component of, or closely correlated to any of the major stock indices (SPX, NDX, RUT, etc..) has proved to be unusually difficult for months now as the broad market has literally gone nowhere for the last 2½ months, trading within an even tighter trading range than the 3.2 month sideways range from April 1st through July 6th. As there has been an unprecedented shift away from actively managed fund into index tracking funds, i.e.- mutual funds & ETFs that track the SPX, NDX, MID, RUT as well as key sectors such as XLF, XLF, XLP, etc.., it has become quite evident that the price movements in the individual components (stocks) within these indices & sectors are increasing influenced by the intraday price fluctuations of the index or sector in which they belong with these stock often experiencing large intraday rips & dips largely as a result of institutional algo-driven trading of the index or sector instruments such as S&P 500 futures or index tracking ETFs such as QQQ. These intraday rips and dips, largely driven by HFT, isn't anything new but when these back & forth price swings occur during a period of sideways trading action, it leads to a marked increase in the number of whipsaw signals, such as false breaks of support & resistance on both the broad market as well as many individual stocks & sector ETFs.

When all major US stock indices made what appeared by all accounts to be a valid breakdown on Sept 9th, that also triggered a lot of breakdowns below well-defined bearish chart patterns but as most traders are acutely aware of, that proved to be just one more in a long-line of whipsaw signals, both bullish & bearish, in recent months. Personally, I can't recall the last time I've seen such an extended period of sideways trading ranges which were plagued with some many whipsaw signals. The bottom line is that the broad markets, including the majority of sectors & individual stocks have produced one of the most difficult trading environments in years. In fact, the broad market (S&P 500), although there were a few profitable/tradable rips & dips in late 2015 & early 2016, has virtually gone nowhere for almost 1½ years, closing yesterday up a mere 2.1% from where it closed back on May 20, 2015. If you think swing traders have had a tough time lately, just image how frustrated buy & hold (i.e.- hope & pray) investors must be having seen their accounts go nowhere since then. So why the title A Tale Of Two Tapes? Because while trading the broad markets & the typical stocks that move along with them has been unusually difficult lately, there has been some extremely profitable trading opportunities in some niche sectors that have virtually no correlation to the broad market, in particular the cannabis stocks.

I often preach the virtues of trading both long & short, especially when the trend isn't very clear such as it has been for most of the year so far. I also harp on how diversification, both among individual stocks as well as various sectors & asset classes, is every bit as important in trading as it is with long-term investing. Hence, the reason Right Side Of The Chart publishes analysis & trade ideas on individual stocks (equities), fixed income (typically via various bond ETFs), commodities such as oil, natural gas, grains, etc... as well as precious metals.

Most recently I have been posting, on both the front page & within the trading room, numerous trade ideas within the cannabis sector as well as some peripheral companies that aren't necessarily pure-plays on marijuana (growers, distributors, etc..) but have some exposure to the sector. Many of these trade ideas, in fact the majority of those highlighted as attractive, yet aggressive trade ideas, have played out for nothing short of explosive gains. In fact, if it weren't for those trades, I would have likely experienced one of my worst draw-down periods in years recently, with an unusually amount of market-correlated trades either stopped out or going underwater.

While my point here is not to suggest giving up on the traditional, more liquid broad market related stocks & sectors ETFs, it is merely to point out the benefits of trading a diversified mix of swing trade ideas, particularly when it has become very clear that the recent market conditions have not been very conducive to swing trading for the reasons mentioned earlier. I will say again that most, if not all of the cannabis related stocks are extremely aggressive, even speculative trades and due to their very low share price & market capitalization, the majority of those trades were & still are shared as unofficial trade ideas although I've also shared several ways to mitigate that risk such as using a shotgun approach (taking small positions across numerous trade ideas in the sector at strategic entry points such as breaks above resistance, pullbacks to support, etc...) as well as a considerable downward adjustment to one's position size (relative to a typical stock or ETF that is more correlated to the broad market with much less profit or loss potential). Here's just a few of the recent results from the cannabis trade ideas which were recently highlighted:

ACBFF (Aurora Cannabis): This one was added as both an official swing trade as well as a long-term trade first on Aug 24th, with the swing trade going on to hit the sole price target for a 47% gain in just 3 trading sessions. The stock immediately fell hard after hitting that price target, falling back to support but remaining comfortable above the original entry price (keeping the Long-term Trade profitable & in play), at which point ACBFF was once again added as a new long swing trade entry within mere basis points of the bottom of that pullback, with the stock immediately reversing & going on to hit the final (and sole) profit target for a 55% gain in just 11 trading session. While both swing trade were closed out when they hit their targets, ACBFF remains an Active Long-Term Trade which is currently up over 71% from entry after recently crossing above the 100% gain mark.

CARA: Although an unofficial trade, CARA was highlight several times on the front page & within the trading room, with entry levels & prices targets, both before the breakout & immediately following the breakdown where it was highlighted that a pullback to the breakout level would (and did) provide another objective entry. CARA hit the first profit target (7.74) for a gain of about 15% about a week later & hit the final target (8.88) for a gain of about 32% yesterday, allowing us to book full profits (as suggested in the trading room yesterday morning) with the stock printing a high of 8.90 before reversing & falling 9%.

Some gains on some of the other highlighted cannabis trade ideas (not just from where they were first highlighted but from where the objective entries such as breakouts or pullbacks to support occurred) are:

AMMJ +157%
CANN +125%
CNAB +40%
CGRW +10%AERO +8.5% (from the Aug 4th video, mentioned earlier in the year at much lower levels)
CVSI +20%
MJNA +35%
GRNH +14%

My point here is not to all of a sudden give up on the typical, more liquid, market, broad market correlated trade ideas & start focusing on the these or any other trades with a low correlation to the broad market. In fact, I closed out two of my cannabis positions yesterday & I'm more interested in continuing to reduce exposure than to add it at this point. I'm simply sharing what I believe to be some useful tips when trading which is:

1) Diversify your positions, not just among individual stocks or ETFs but also among various asset classes & stocks or sectors with little to no correlation.
2) Learn to recognize periods when the broad market or a particular sector is not conductive to trading & either refrain from trading (that sector or the broad market) or stop/reduce trading in general.

As I've been saying lately, trading ranges in the broad market don't last forever and from my experience, just as a choppy, difficult-to-trade range is coming to an end, it usually feels like that will continue to last forever or that technical analysis no longer works. However, it has also been my experience that the most profitable trading streaks come on the heels of such frustrating, difficult periods as some of the most powerful, uni-directional trends (up or down), are typically launched from such tight trading ranges (e.g.- Bollinger Band cotractions & the $VIX trading near the bottom of its range).

Sep 29, 2016 10:52am|Categories: Equity Market Analysis|Tags: , , , , , , , , , , , , , |7 Comments


  1. Art September 29, 2016 11:02 am at 11:02 am

    Good advise Randy


  2. russ66 September 29, 2016 11:05 am at 11:05 am

    Typo: The note on the chart should be Sep 28/16 rather than Jul 28/16 to represent a 2.5 month duration.


  3. snp September 29, 2016 11:42 am at 11:42 am

    so we’re scrooged?


  4. Gaucho September 29, 2016 12:13 pm at 12:13 pm

    Hi Randy @rsotc, CARA after reached the Target is going down,

    Do you see any chance that CARA will continue its ascending path breaking the downtrend lines?

    Which could be a new entry point? (Fib78,6% is $7,93)



    • rsotc September 30, 2016 10:30 am at 10:30 am

      Gaucho- Yes & no. Yes, I do think that CARA has a good shot of taking out that downtrend line on the daily chart but only after a pullback & consolidation. I think the stock has longer-term potential but I strongly expected a pullback off the T2 level & even posted before & as the target was hit ( ) that I planned to book full profits there & may look to recycle back in as a swing or trend trade later. I’d like to see how the stock trades for a bit (days or even weeks) before determining if & when to re-position as a swing trade (I might day trade it until then).
      As of right now, CARA has pulled back to dual support levels (horizontal + trendline) on this 60-minute chart, which is likely to provide at least a bounce trade (i.e.- quick day trade) although maybe this proves to be the end of the pullback with the stock going on to take out the T2 level & primary downtrend line in the coming weeks. However, I just can’t make a strong enough case to add it back as a swing trade as other than a pullback to support, I don’t see much else on the chart that would confirm another swing trade entry just yet.


  5. tmeyaart September 29, 2016 5:01 pm at 5:01 pm

    Well put, Randy. I was bored to sleep while tracking my favorite mining stocks in 2015. Just like you described; choppy trading, slim trading range. Then came the explosion in January 2016. I was asleep at the wheel.


  6. tmeyaart September 29, 2016 5:17 pm at 5:17 pm

    The calm before the storm.


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