Should You Trust @CNBCFastMoney’s Chartmaster? Trading $IBB and $GOOGL

So, if you watch Fast Money and Options Action on CNBC. You are undoubtedly aware of Carter Worth. CBW , as they sometimes call him, appears calm and level headed on the show and when he is ‘at the plasma’ presents some very compelling charts. This week he made the case for trading Alphabet , specifically those shares that have some voting rights, GOOGL. 

This week he is bullish on GOOGL. He makes his case based on relative performance to other large cap tech names such as AAPL, MSFT, AMZN, FB and NFLX. NFLX is a bit of an outlier here as the five other names including GOOGL are the top 5 S&P stocks by market capitalization. These 6 names have a market cap of $3.7 TRILLION and are 14% of the S&P.  

CBW states that GOOGL has underperformed these other 5 stocks for the last two years and is just beginning to break out. He sees it breaking to the top of its rising channel another 10-12% which would place it at 1305 to 1330. 

I agree, and I am long GOOGL using 5 debit call spreads, 4 of which are either calendar call spreads or diagonal calendars. I am also slightly hedged with one put spread. 

But here’s the deal, I’m not long based on what CBW thinks about relative underperformance being a reason to be long. I have heard him countless times use relative underperformance to be BEARISH on a stock or even and index/sector. 

You see, sometimes these analysts will use technical analysis like this to bolster a claim and you can use it EITHER WAY. Sometimes analysts will use fundamental analysis and eschew the technicals saying they are of no use ‘in this circumstance’. 

Bottom line: if technical analysis was truly predictive virtually all the technicians would be in agreement about the interpretation of price action. And we would all make money just by subscribing to their newsletter. But more often than not, the analyst has made up his or her mind and using confirmation bias then goes to the chart to argue their point. 

So, you ask why am I BULLISH on GOOGL? Mostly because virtually everything is moving up these days (except AAPL which may help to explain why GOOGL is starting to catch up) and I don’t see GOOGL bucking the trend.  Tax cuts for corporations should be boosting earnings for at least a couple more quarters and has poured gasoline on bullish sentiment. I can see being long (and I am, 5:1), or being out. But what I can’t see anyone being short GOOGL here. 

Michael Khouw‘s trade is the Feb16 1185/1270 call spread for $26.5 ($2650 per contract spread).  This will break even at 1211.5. This can potentially make $8500.  

I like this idea but I want to pay less for this and give me more time to make money so I may buy a butterfly buying the Mar16 1200 call, selling 2 Mar16 1270 calls and buying the Mar16 1300 call for about $1,700 total. This breaks even at 1217 and gives another month to pay off. 

Trading $IBB 

Also in this episode of OA (the CNBC show, not the NFLX series, which is good BTW) Dan Nathan makes a case that biotech stocks are charging ahead. 

For the same reason I stated above with GOOGL, I agree that IBB moves higher. 

Dan’s trade is a straight up call spread, buying the Mar16 120/130 call spread paying about $225 for each contract spread. 

I like this trade and would put it on next week, and I may. I am already pretty long with 9 different call positions and 3 different put positions. 

What I might consider doing on top of Dan’s trade is to buy a calendar call spread in addition. You could buy the Mar16 131.67 call and sell the Feb16 132 call for about $25-30 which would make it easy to convert to a butterfly should it stay below 132 till Feb 16. 

The reason for these wack-a-doodle strike prices is based on the split the ETF went through a while back and 132 is the highest strike price available for the Feb16 expiration. 

Have a great weekend! 

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