Contrarian trading ideas

ValueTrend introduced a new Equity Platform called “VTAGS”- ValueTrend Aggressive Growth Strategy.

This strategy is a higher risk/ higher return model. We are buying stocks, sectors, commodities, currencies and even country indices off of a few different investment strategies. These include looking for capitulation bottoms and turnarounds, trading ranges and even buying fundamental deep-value opportunities . We are not averse to single inverse ETFs for overbought sectors or markets.

I thought it might be interesting to name 3 picks from that portfolio for my BNN show coming up this Thursday at 6:00pm.  As with all of my BNN picks: All are owned by me personally as well as for our clients who hold this strategy. I might add that these three picks are not necessarily as “safe” as most of the other positions I like to pick on the show. They also have much shorter time horizons. Do your homework on these ideas – they are not necessarily for the conservative investor. But, with risk comes return. And that is the trade-off our VTAGS strategy is attempting to capitalize on.

 

IBB-US – Biotech ETF: Coming off of support, in the seasonally strong part of the year for this sector

Strategy

Biotech does have some seasonality behind it from June until October. The sector is bouncing off of support at $100. Our target is somewhere near $114. This sector is highly volatile – if you like beta, this is the sector for you. It’s not oversold via the mid-termed RSI reading, but the strong signal on stochastics qualifies it as a pretty good short termed potential mover. So, we may not see it hit $114 resistance—but I’d expect it might go up a few bucks. And for the VTAGS strategy, that’s good enough for me. Obvious stop loss point is a break below $100 for a few days.

 

DBB- base metals ETF: Base metals, particularly copper which is a large component of the ETF, are testing support.

Strategy

Seasonality is neutral for metals right now. The base metals sector has been under pressure from a strong USD and the Chinese trade talks. Neither of those are likely to be influences forever. There’s a good chance that the China trade talks will be resolved by the fall – if not earlier. The USD continues to be strong, but it may have reason to move sideways for a while. You can see via the RSI and stochastics indicators how oversold the metals are. While the long termed MACD is not hooking up, I am not considering that indicators pattern for this trade.  We look for a 10-15% oversold bounce – perhaps to the 200 day SMA or to its last peak ($16-$17)…. then out we go. A stop below $15 might make sense.

 

SLV- Silver has not been following gold in its rebound. A small seasonal window runs from June to August for this metal

Support was successfully tested at $13, we bought about $13.50 and are looking at a sell near $15. You can see on the chart where old support at $15 is likely to come in again as resistance. You will also note that there are some significant hooks on the two quicker momentum indicators RSI and stochastics. Here for a good time, not a long time –we are looking for a quick 10% or so upside on this trade, then Hasta La Vista, baby (per Arnie’s great Terminator 2 movie). Stop below $13.

 

9 Comments

  • Hi Keith,
    I was wondering if you could comment as to why you think silver has not rebounded like gold has over the last several months. I found it surprising. And, what propels silver higher during this period of seasonal strength?
    Thanks for your insights.

    Reply
    • My guess is that silver is more of an industrial metal- thus, it was influenced by the butt-kicking that the base metals took–whereas gold is less so an industrial metal and more of a glitter metal, and, for those who follow the gold-standard concept for currency–a USD currency hedge.

      Reply
      • Thanks Keith.
        If silver is industrial related, and no longer considered the “poor” man’s gold and a precious metal, would it rally if the China/US trade settles positively? Would metals in general rally? Or would it be best to just sell sometime in August as the period of seasonality of silver draws to an end? Have been in SVR for quite some time, and I’m sitting at a loss. But, it might just be time to start looking for an exit point….
        Thoughts?

        Reply
        • Wendy–the VTAGS portfolio is all about capturing capitulation rebounds for relatively short termed (weeks to a couple of months) trades. As such, I don’t want to hold too many securities for too long–we own SLV and are looking to sell anywhere near $15 which is next resistance point. It may happen well before end of August, and it may go higher beyond that, but that for now is my target.

          Reply
          • Hi Keith,
            It appears that gold has blown through the resistance level overnight. Do you apply your 3 day rule here to see if it holds to know if it’s a true breakout? Are you buying gold stocks here now that it has broken above resistance?

          • Yes Wendy–I noted this on BNN last night–count a few days to see if 1365 holds then yes, I will be bullish. My top pick of SLV last night reflects a related trade to gold

  • Contrarian investing or trading ….. gold as it’s place in that category it’s been beaten down & shorted to kingdom for a long time.

    Spot price in on the verge of a breakout above that $1360 resistance which was reached last week which should be all good for producers & royalty streamers.

    Cheers,

    Marc in Gatineau

    Reply
    • Gold has such strong resistance in the 1360-1365 area that its going to be a challenge for it to break out. Its failed at that level many times. Yes, this time could be the breakout run – I am inclined to avoid the trade until it breaks. If it fails at $1365 or thereabouts, and declines by $10++ it might suggest a good shorting opportunity. If it blows through $1365 with conviction, this is likely a new bull market for gold. To me – this is the moment of truth for gold.

      BTW–as it is with the SPX – which needs to break 2950 in order to be back into a bull market.

      Either of those trades could materialize. Meantime, I took some money out of some higher beta names today, and would be interested to see which way to trade either of these plays (SPX or gold) –either of them could be great bullish breakouts, or great shorts upon a failure at resistance. But I am not moving until the chart tells me which way to go.

      Reply
  • Gold stocks & gold itself are doing very well holding it’s own even with its usual seasonal trade is still away later in early fall. I’ve seen that pattern happen only 2 times by since 2000 when I became a gold & it was very bullish for both.

    Also a lot of gold stocks have a fairly high ratio of shorts & they are still performing well, who knows if gold really breakouts of that $1360 resistance we could see a massive short squeeze.

    Keith you probably noticed also which I take it as a bullish indicator since I’ve been a regular follower of BNN & being a regular caller on Market Call since 2008 that more & more guests are taking calls about gold & gold stocks along with having more comments on BNN about the sector.

    Time will tell but I believe we are about to see big run in the gold sector in general & as the saying goes getting in before the heard is where we will get our biggest returns.

    Cheers & all the best,

    Ti-Butch in Gatineau

    Reply

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