Trade analysis : $ATRO

Like many investors I have a nasty habit of making emotional trades.  It’s a weakness that I’m aware of and one that I really, really want to fix.

One such trade occurred on Friday 7th June, where I made a rushed decision on $ATRO.  As the market turned from it’s recent correction I saw $ATRO had broken above it’s pivot on Wednesday, held the break on Thursday and that was all that was needed for FOMO to take over!

Needless to say as soon as my trade executed $ATRO turned right around and ran down 2%!  So it’s time to take a little look at the chart and work out whether the trade was good or there were signs that I simply overlooked or ignored.

$ATRO Analysis (Aerospace & Defense)

Fundamental review

Positives;

  • Group RS Rating of 16 which is up 23% YTD.
  • Earnings surprise was +50%.
  • The stock met my longer term screen, meaning it had 4 quarters of EPS and Sales growth, as well as meeting a number of other industry and price criteria.

Negatives or positives that were really negatives;

  • Of the 48 stocks in the group $ATRO had a composite rating of 10; as such $ATRO was outside the top 20% of stocks in the group.
  • $ATRO had an RS rating of 93 putting it 13/48 in the defense & aerospace group; the RS rating was tracking at a very slight incline and slowly flattening.
  • March 19 EPS was up 500% in the last quarter; however it wasn’t an all time high, June 18 had a higher EPS.  EPS then declined for 2 straight quarters before bouncing back in March 19.
  • 2019 EPS was expected to be +44%; but still significantly lower than 2014 and 15.
  • March 19 sales were up 16%; this is on the low side and again this wasn’t a new high.  June and September 18 sales were higher.  Revenue growth was also slowing with the last 3 quarters tracking at 42%, 18% and most recently 16%.
  • The stock was breaking above the lip of a 41 week cup with a depth of 41%; there was no obvious handle on the weekly chart.  On the daily chart the handle was 6%.
  • The breakout occurred on +75% volume; the breakout was no to an all time high, there is a significant amount of overhead resistance tracking back years.
  • There were 8 consecutive quarters of stable / increased fund ownership; however fund ownership was only at 260.  Only 19 A+ funds have a position.
  • The stock didn’t meet my mid or short term growth screens and also failed to meet the William O’Neil screen, missing on 2 of 9 criteria (77%).

Technical review

Notes can be found on the daily and weekly charts below.  The weekly tells a more positive story however the eventual failure of the breakout vs the upper trend line is a real concern and probably enough of a reason to liquidate the position.

The daily chart is scrappy and there are enough warning signs to pass.

Daily chart

$ATRO Daily

Weekly chart

$ATRO Weekly

 

 

 

Watch List W/C June 3rd

The trade war rumbles on and I’ve been patiently sitting on the sidelines.  My only holding at the moment is a NASDAQ index fund.  Beyond that I went to fully to cash 3 weeks ago.

Some may say that’s a rash decision, however given the extreme uncertainty surrounding tariffs and their recent weaponisation, I prefer book / protect a return rather than hope everything gets resolved quick smart.

Leading into next week however there are a couple of set-ups that I’m interested in;

$DOCU / Buy entry a $57.06

  • Meets my long-term fundamental screen criteria covering positive EPS growth, positive sales growth and positive guidance.
  • Fund ownership has increased for the last 3 quarters.
  • 160 A+ rated funds have a position.
  • Management owns 25% of the company, so no caretaker leaders.
  • It sits in the number #1 industry group, Computer Software.
  • It’s composite rating is 96, however it sits 15 within its group.
  • Cash flow looks positive.
  • That said, debt is a little high, although the positive sales growth off sets this.

Earnings are due on June 6th.  We’ll be looking for an earnings surprise and strong guidance.  Given the recent price action, any earnings pop needs to be held for 3 days before entry.

$DOCU

 

 

Take on the Market, May 31st 2019

Notes;

  • The market is still in correction, waiting for a follow through day.
  • YTD the S&P is +11.3%, the NASDAQ is +14.1% and the IBD 50 is +17.9%.
  • VIX has not spiked inline with the recent pullback which may suggest that more downside exists.
  • Computer Software still the #1 performing group (1/197) and is up 39.5% for the year.
  • Semi conductors have suffered over the last 6 weeks but have held up well through the week.  A group to watch.
  • Put / Call ratio starting to get to extreme levels.
  • The AAI Sentiment Survey shows 25% Bullish, 35% Neutral and 40% Bearish.
  • Fear / Greed Index showing 24 (Extreme Fear).
  • Next steps, watch and wait for the FTD.  Then ease into the market.

Four steps to becoming a CPT

If I have any chance of becoming a consistently profitable trader then I really need to start working on 4 main areas;

Planning : I need to develop a consistent approach to evaluating markets and then be ruthless in my final stock selection.  Trading average to good set-ups is not ok at this stage of my development.  Instead I need to laser in on only the very best opportunities.

Execution : A great plan can be royally f*cked up by poor execution.  I need to develop an approach to execution that puts me in more profitable positions and doesn’t have me chasing the market.

Management : Entering a market is just the beginning.  I need to develop a set of rules that will allow me to manage a trade including; building on strong positions, exiting weaker ones with minimal losses and protecting profit without missing a major move if a market starts to trend.

Review : No trade is perfect so I absolutely MUST start reviewing every trade I make and look for opportunities to improve.

The good thing is I have this little slice of the internet to capture my thinking and hold myself to account.

Improvement starts now.

#letsdothis