BUY ALERT: Autodesk
17th July 2017 |
An opportunity has arisen to re-enter a winning position – Autodesk.
I’d also like to explain our use of stops in more detail.
I am extremely leery of placing stops when thousands of individual investors could be taking the advice. It would be the equivalent of erecting an “I’m over here” sign, a mile high for just about every algorithmic trading system in the world to come target your positions.
That means we need to hold on for conclusive evidence a trend has ended before we sell, or we must manage our positions so that we take profits when the going is good, hoping to buy in again after a pullback in price.
Stops often don’t even work unless you are willing to pay a significant premium for a guaranteed stop. In a fast-moving market, there may not be any bids for what you’re attempting to sell, so the order gets filled when it can be, not when you want it to be. That’s referred to as “slippage” and is a significant risk when many stops are triggered at once.
That puts individual investors in a catch-22 situation. Either you have to eschew stops altogether or you need to employ a more nuanced approach.
In the interests of full disclosure I do not use stops in my personal trading. That means I pay closer attention to the size of the positions and have found my results have improved because I am not outsourcing the decision to sell.
Considering the risk represented by large numbers of people having their stops at the same price, we must employ a hybrid strategy.
I have created alerts on my Bloomberg for all our positions so that I get an email when the price drops below a level where I believe a stop would have been appropriate.
The problem with this approach is that a stop needs to be sufficiently far away from the price so that it can consolidate following a large run-up and still leave the potential open for additional upside without being triggered – this sacrifices profit when the stop is eventually triggered.
The alternative is to monitor the price for when it becomes significantly overextended relative to the trend mean, and choose to exit or lighten the position with the aim of buying back following a reversion. I deployed this strategy when I sold Intuitive Surgical and Autodesk from the portfolio on 28 June.
The macro picture has evolved somewhat in the last week, which has led me to reconsider that decision. An increasing number of global markets are breaking up out of lengthy ranges, most particularly in the ASEAN region.
Two weeks ago, we heard increasingly hawkish comments from central banks like the Bank of England, European Central Bank and Bank of Canada. However, Janet Yellen at the US Federal Reserve came out of last week’s meetings sounding more dovish than many had expected.
This is because she wants to experiment with reducing the size of the Fed’s balance sheet, but the inflation figures that would support such experimentation have not emerged. That means that if the Fed is going to try out shrinking the size of its $4.4 trillion balance sheet, it will not aggressively raise rates at the same time.
This was interpreted as good news by the investment community and the majority of stockmarkets rallied into the end of last week.
Autodesk has now bounced impressively from the psychological $100 level and I rate it a buy once more up to $120. The risk is that it spends more time consolidating and that the more bullish tone on stockmarkets witnessed over the last couple of days reverses. The investment case for Autodesk remains the same as described in my original recommendation – synthetic biology has huge potential for the future.
Meanwhile, I am keeping my eye on Intuitive Surgical. It is so close to the psychological $1,000 level and is likely to continue to consolidate in much the same way that the both Amazon and Alphabet did when they got to the $1,000 level.
I still stand by my decision to wait on investing in mining cryptocurrencies. There is a significant correction underway in bitcoin and Ethereum prices at present, which was in my opinion presaged by Chinese monetary policy decisions to defend the currency from mid-June.
Right now there is increasing speculation about the possibility of a hard fork in bitcoin which will create two competing cryptocurrencies. This has already occurred in the Ethereum market so we know it can be overcome, but the reality is that it represents a source of uncertainty until the event actually transpires.
BUY Autodesk
Name: Autodesk Inc. (ADSK) (figures accurate as of last market close – 14/07/2017)
Ticker: ADSK:US
Current price: $108.83
Market cap: $23.96 billion
52-week high/low: 114.68-56.8
Buy below: $120
Past performance: |2012: 16.55%|2013: 42.35%|2014: 19.36%|2015: 1.45%|2016: 21.47%|Year to date: 46.93%|
All the best,
Eoin Treacy
Investment Director, Frontier Tech Investor
