Looking for outperformers? Here’s how you find ’em. (December 27, 2017)
FB SP-500 SPY FB MDPYX SPY FB AMZN AAPL NFLX NVDA GOOGL AMZN TNLX NFLX FND PIRS SYX TECCX TECK FB SP-500 SPY
The FANG stocks have been pretty prominent this year and, hey, why not? A really nice move in Facebook ( NASDAQ: FB ), 50 percent, right? I don’t think these are where you need to be looking. Frankly, I think these are the lazy trader’s stocks. It is kind of like everybody says, at the end of the day, blah, blah, blah. That is kind of lazy talking there. This is lazy trading; you are not going to make any money on these. If you want to do that buy the SPY ( NYSEARCA: SPY ), it works just fine.
Where is the relative strength line on the SPY ( NYSEARCA: SPY )? It is flat right here on the bottom. Do you know why? Because this is the gauge against which stocks are measured to see whether they are strong or weak. Flat line means it is not stronger or weaker than the S&P ( INDEXCBOE: .INX ) because it is the S&P ( INDEXCBOE: .INX ). When the line is trending down that means that whatever stock we are looking at is worse than just owning the S&P ( INDEXCBOE: .INX ). When it is trending higher it is better than owning the S&P ( INDEXCBOE: .INX ).
Let’s look at the FANG stocks. First of all, Facebook ( NASDAQ: FB ). A nice 50 percent move, if we could go back here we would probably buy some calls on this stock, long-dated. Over the last couple months it has been trading sideways, you haven’t been making any money. Meanwhile, the S&P ( INDEXCBOE: .INX ) has been making all-time highs. Since the stock gapped up here on strong earnings at the end of July, let’s go pre-earnings here, since they reported stellar earnings it is up 7.25, it has been going on 5 months. Since August the Facebook ( NASDAQ: FB ) stock has just been trending sideways and is now starting to be worse than the S&P ( INDEXCBOE: .INX ).
The point of this video is to tell you this: The SPY ( NYSEARCA: SPY ) is the new FANG. I am not saying, own the S&P ( INDEXCBOE: .INX ). What I am telling you is, don’t own the FANGs here, this is not working. Ultimately Facebook ( NASDAQ: FB ) will probably go higher but we don’t know when. At the end of the day we are going to be lazy and hold them right? No.
Let’s find something else. Amazon ( NASDAQ: AMZN ). The same deal here, sideways drift. A nice move back here but over the last however many months trading sideways. By the way, I actually have a pretty large position in this stock but it is only because I bought it at much lower levels. I darn sure will not be selling it now. This is a stock that has been drifting sideways, it has been marking time.
Apple ( NASDAQ: AAPL ), not so much either; a sideways drift. Netflix ( NASDAQ: NFLX ). No thanks, though I will say I love The Crown, Claire Foy is perfect for that role, Queen Elizabeth. It almost makes me feel like moving to England, almost. Actually, it doesn’t, it is too cloudy there. And then NVIDIA ( NASDAQ: NVDA ), no, that is not working. And then finally Google ( NASDAQ: GOOGL ); it is really choppy, that is not working.
My point is, if you are looking at IBD, one of my criteria for stocks to even consider is that the relative strength rankings as they are in IBD, and that is not measured against the S&P ( INDEXCBOE: .INX ) it is measured against all stocks, be in the top 80 percent, 90 would be preferable. They are all above 80 so they all technically fit that criteria. Only Amazon ( NASDAQ: AMZN ) is at 90. And frankly of all of these, I have a bull put spread on Amazon ( NASDAQ: AMZN ), you can see the strikes here, I always put these on my charts to remind me of where the heck this thing is. Like Netflix ( NASDAQ: NFLX ), you have got quite a few things going here. As long as it stays in this box that is a good thing.
My point for this video is this, look at relative strength. If you are scratching your head as you get towards the end of the year here and wonder why it seems like you have had some pretty good trades hopefully but you haven’t outperformed the S&P ( INDEXCBOE: .INX ). By the way, it is hard for most traders to make 20 percent a year unless they are really good. If you are really good then it is hard for you not to make at least 20 percent a year because you don’t take losses. But, you are looking at your trades and you are wondering, how come I am not up more? I say, start looking at relative strength and only be buying stocks that have a high relative strength. A relative strength that is trending higher.
Here are four stocks that I own, and I don’t own that many stocks right now. We are coming into the end of the year and I am in profit protection mode but check this out: This is what we are looking at ( NYSE: FND ), uptrending RSI (relative strength index), this works. This works ( NASDAQ: PIRS ), relative strength. This one ( NYSE: SYX) is moving higher as well. And then finally, ( NYSE: TECK). All of these work, they are all trending higher whereas this ( NASDAQ: FB ) is not. Go on and look at the rest of them. So don’t just buy a stock because you think it is going higher. I think the S&P ( INDEXCBOE: .INX ) is going higher too. That doesn’t mean that I just want to buy the S&P ( INDEXCBOE: .INX ) because it is going higher. Use some imagination, find some stocks with some strong relative strength, relative to the S&P ( INDEXCBOE: .INX ) and relative to other stocks. You are going to find out that you are going to outperform.
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