Risk cycle, opportunity & how I’m building my TWLO stock position
Back in late September, I started to give a soft warning about how the market might be a little more difficult coming into October. Partially due to the fact that October has been incredible over the last few years. The other reasoning was that I’ve been on an incredible run all year, and at some point some of these easy trends have to shift gears.
Well, October has been a little more difficult, but the market metrics I use as a warning to switch style never signaled. This means that the market is still in the state that I want it, however the difficulty has come from the rotations that have occurred within the market. This confused me a bit in the process, and has cost me a bit over the last couple weeks.
I use this chart below to describe how the market’s appetite for risk changes gradually in a trend. Over the last few weeks, the China stocks were ripping, Marijuana stocks have been trading awesome, and frankly the best performing stocks were not of the best quality.
As we hit oversold on the McClellan last week, it seems that my high beta favorites were sold the hardest. The stocks that held up the best, or had the best relative strength were stocks of a higher quality. Stocks like $SBUX, $WHR, $TGT, and several other long term trade candidates we’ve been following lately.
When the market makes a rotation like this, it’s important to pay attention and to follow its lead.
If you jump back into the same old stocks as they’ve been correcting, they might not be the first to bounce back. This is especially important if you are trading short term options.
However, if you are trading stock and there’s a high beta name you want to own at these lower price points, start accumulating.I’ll give you an example…
Last week I sold a chunk of $BABA I had bought late last year. With the proceeds I wanted to start buying blocks of new issue $TWLO.
I planned to split my intended position into 3 or 4 buys:
- I made my first on 10/13 at $48.15.
- I bought my second block 10/17 at $45.30
- I have one last piece to add, and am hoping to get it under $44.
This year’s IPO class has been amazing. They’re following the same patterns that the IPO class of 2012 had. So many stocks that opened in 2012 more than doubled that year and went on to be big names. I feel the same way about this year’s IPO stocks, for the most part.