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Shit Happens, and Wall Street Gives it To You in a Bag

I put VRTX on the Technical Trader chart pick list on September 28. The chart had a near perfect low risk setup, and it continued to look promising right up until Wednesday October 14.

Shit happens. And it happens especially with biotechs. VRTX is a biotech. When a fuxxxxxx biotech company announces after hours something about a drug trial failure, or discontinuing a promising drug, it happens.

Liquidity moves markets!

Follow the money. Find the profits! 

When it happens, it becomes patently obvious that the “promising” chart pattern wasn’t promising at all. It was a motherfxxxxxx giant head and shoulders top.

vrtx.png

You know I hate stops, right? I’ve backtested all types of stop methods, from the most mundane 10% rule, to some pretty esoteric ones that I dreamed up. And guess what. Over time, any test I could think of, using thousands of stocks over over short term to intermediate periods, always underperformed a control group with no stops.

Same stocks. Same periods. No-stops did better than any stop method.  The profits on stocks that recovered were greater than the losses on those that did not.

The dealers know where the stops are. Most of the time they’ll take a stock in a bull trend down in a correction to the price where they can hoover up all the sell stops. Then they take it back up, and we’re left holding an empty bag. The dealers fill that bag with shit as they take the stock back to all time highs.

What Wall Street has been telling everyone about stops forever, is, like everything else that Wall Street says, is absolute bullshit.

There are rare occasions that surprise the crap out over everybody excepy the crooks in the corporate C-suites.

Those times look like the chart above.

So, yeah, maybe VRTX will go to zero. Maybe it won’t find support at 210 or 200 and have a humongous bounce. The conventional measured move implication is around 205. Traders like round numbers, so 200 will be like a magnet.

Of course you have to figure out when to bail on a situation.  Regardless of the fact that this time the TA didn’t work on the setup. It’s still the best game going to figure it out. In this case, I don’t see the point of waiting to find out what kind of bounce we see from around 200. fornicate it. Move on.

Because my chart picks are only once a week, I have acquiesced to the Wall Street rule to always use stops. But when stocks crap their pants in extended trading, too bad for you, sucker. I had recommended a stop at 261 for this baby.  What happened? It opened yesterday at 227.50. SCREWED!

Because I had 13 picks on the list, overall, we’re still ok– +2.1% (no leverage applied) on an average 9 calendar day holding period, both long and short. That’s not too bad for a week and two days. But this was definitely a bit of a flesh wound in the montypythonian sense. Without VRTX, the list average would be ahead by 3.2%.

And there was nothing we could have done about it other than to be diversified. Sure concentration can make you richer, faster, if you are both good, and lucky. But the only way normal traders can protect themselves from shit like this is to be sure that that the shit risk is widely spread. That way it won’t kill you.

Yeah, there was a nice icky red bar on the VRTX chart on Wednesday, the day before the stock took a dump,  as insiders squirted out a few shares ahead of the announcement. But it wasn’t enough to trigger sell signals ahead of the event itself.

There are times when TA can’t foreshadow a violent change of trend. Most of the time it helps. This time, it didn’t.

Shit happens.

 

Scheduled liquidity data has told us for a couple of months that October would be bullish. That played out like a charm in terms of the technical analysis last week. We also know that liquidity only gets more bullish this week. The technical picture confirms that outlook. We must give the bullish factors the benefit of the doubt.

My stock pick screens confirm that. I’m adding 7 picks from those screens this week, 5 long and 2 short. That will leave 13 open picks, including 11 longs, and the 2 new shorts.

Four chart picks were stopped out last week. Needless to say, all were shorts. The two older picks had nice gains, partly offset by small losses in the short side picks from last week.

The list performance improved sharply last week as the average holding time increased a bit. Gains doubled from an average 3.2% to an average of 6.4%. The average holding period last week was 20 calendar days, up from 17 days the previous week. The average holding period has ranged from 16 to 22 days, or just over two to three weeks.

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Past performance doesn’t indicate future results. There’s always risk of loss. Chart picks are for informational purposes only. These reports are geared toward professional investors and experienced individual traders. Do your own due diligence before trading.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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