Trading the Trend - A look at online retailers

Last week’s trading ideas both proved profitable (so far) with Shearwater Group slicing through the resistance like a hot knife through butter, and Intercede Group also offering an entry and now moving towards the next resistance point. 

It’s worth mentioning that Shearwater Group announced an ABB this morning at a price of 240p. Given that the closing price was 290p this is a 17.2% discount – could the company not have done this higher? I’ve put in for this given that the current spot spread is 260-270p. Usually, placings tend to trade down to their placing price immediately as traders build in profit by shorting the equity once their allotment is confirmed. That may still be the case, and if there is no support towards the placing price I’ll dump the shares (assuming I get an allocation).

The issue with SETSqx stocks is that the Normal Market Size is low and unless you’re playing for a longer term move it’s pointless buying them as the spread will impale any scalpers.

Boohoo plc

Liquidity is not an issue with online behemoth Boohoo though. I had fun a few weeks ago trading this for scalps on the intraday, and since then it’s zoomed up over 50% from where I was playing. Clearly, this is an error of mine and an area where I need to improve. I was in a volatile stock but one swing trade would’ve brought far more profit than I made closing my positions out at the end of the day. Everything is always easier in hindsight of course, but from now on I have made a note that any stocks that are tradeable as a scalp I should attempt a swing trade from the volatility too. If I look back at many of the stocks I was trading a few weeks ago, many are also much higher and so this has cost me in terms of alpha. The market will always offer us new lessons though, and every day is always different. 

Boohoo has had a turbulent several years, with the stock selling off on high volume on a trading update in 2017. Volume kills trends, as it indicates increased activity but also indecision, and so in over two years the stock failed to make a new high. For investors, this was a long and extended drawdown, but a trader who focuses on risk management would have exited the stock and put the capital to work elsewhere. 

Boohoo is currently grinding its way upwards to a new high. The company did release results this week, and I briefly scanned these to see if they contained an ahead statement (they didn’t). Earnings upgrade cycles are great trending stocks as they consistently beat broker forecasts. Brokers tend to be conservative and huddle together in their forecasts so as to avoid looking wrong – I believe Ed talked about this in one of his talks at the UK Investor Show – and he’s right. Why take a risk in looking wrong, when to secure your job all you have to do is what everyone else is doing? For this reason, I’m sure fund managers often own stocks not because they want to but because they’re safe. Who is ever going to get fired owning a bunch of pension fund blue chips?

With the recent run in Boohoo I believe there is a possibility for the all time high to act as resistance as it is a natural profit taking point. But a break of that resistance could see a new upwards trend confirmed. 

ASOS plc

ASOS is a competitor, and a stock I would not be interested in trading long here. Look at the chart.

Why trade a chart like that, when there are so many other options? People get attached to stocks, and attached to stories, but once you start thinking of a stock as just a chart that goes up and down and not an actual business the game suddenly becomes a lot simpler. There are many ways to skin a cat, and every method has its own advantages and disadvantages.

The stock has hugged the support zone, and doubled from the recent lows, but look at how far away the stock is from its highs. That’s a lot of overhead supply to churn through, and with a market cap of £2bn I think it’s safe to assume that the market is probably quite efficient on this stock. To put it bluntly: if the stock was worth 4000p then it would be trading around there – not at 2000p. Therefore, I have no tradeable edge here unless the stock shows a sign of an uptrend or breaks to the downside. 

Sosandar  

This is a stock that causes strong opinions from many. 

Looking at the chart, I’m wondering if we have reached Peak Hate for Sosandar. 

However, the price is going to need to rise significantly more before I believe it. The 30p market was a struggle and I’d want to see the price break through the black line I’ve drawn on the stock too. 

There will be many stale bulls here who are looking to exit, and I don’t fancy being liquidity for them to dump. The stock is also relatively illiquid, and when there are stocks with larger volatility there is no reason to take a position unless volumes improve and the spread narrows. 

My own opinion is that this stock will have a binary outcome. Either it fails and enters the spiral of a declining share price and increasing amount of shares in issue (the business is unlikely to go bust as many companies have been on AIM for over a decade and not delivered a shred of value yet still get equity funding) or it will emerge a roaring success at some point. 

If the latter is the case, I intend to jump onboard – though this will be at much higher levels. 

The StockRank is a paltry 3. That sounds about right. But it can always change. 

You can download your free copy of Ten Habits of Highly Profitable Traders from Michael’s website at www.shiftingshares.com 

Twitter: @shiftingshares