Jordan Kahn, President and CIO of ACM Funds, joined the Investing with IBD podcast this week to discuss strategies for managing risk in the current market. He also talked about how he uses CAN SLIM principles to uncover leading growth stocks poised to make big gains. Plus, we take a look at a few examples of stocks that had high-volume breakouts: Canopy Growth (CGC), Mosaic (MOS) and Trade Desk (TTD). Kahn rode TTD stock to a quadruple-digit gain over a two-year period after a high-volume breakout in 2018.
Audio Version Of Podcast
Video Version Of Podcast
Nasdaq Advances; TTD Stock Looks For Support
Stocks rose in the stock market today as investors reacted to weak jobs data and expected remarks from Fed Chairman Jerome Powell.
The Nasdaq composite rallied almost 1% early Thursday, closing on all-time highs. The move comes after a slight pause in market action as the index notched tight closes following a strong move above that key level. Another positive sign? The Nasdaq was able to break above the 13,600 price mark which had been a previous resistance level.
“In terms of the correction in the NASDAQ, it does look like for the most part it has run its course,” Kahn said. “I think what’s likely to continue with the market; it takes two steps forward and one step back periodically.”
The S&P 500 also rallied to new highs while the Dow Jones Industrial Average hovered near all-time high levels. Small caps also made gains as they inched back into positive territory. The Russell 2000 was up around 0.7% by late afternoon Thursday, back above its 50-day line.
Tech stocks continued their recovery in today’s trading action. The Invesco QQQ Trust ETF (QQQ) gained 1% as it builds a cup base. Computer software security provider Okta (OKTA) made the biggest move on the day with nearly an 8% gain. TTD stock also had three straight days of positive action as it looked to rebound off its 10-week line.
Strategies For Managing Risk
In addition to the current market, Kahn also discussed strategies for managing risk in uncertain market conditions. One strategy he employs for his fund is a hedge model. This model allows Kahn to adjust his fund exposure to overall market conditions.
“When those indices are in an uptrend and they’re trading above all of these respective moving averages in our model, our portfolio is basically unhedged,” Kahn said. “And then as each one of these indices begins to roll over and break down below these moving averages that we’ve used as overlays, then we start layering in our hedges, and we hedge them using the index ETFs.”
Listen to the full podcast to hear Kahn’s strategies for managing risk in the markets, including how the fund manager utilizes options calls and puts to stay in long-term leaders.
High-Volume Breakout Stocks
Finally, Kahn offered several examples of how he handled stocks that experienced high-volume breakouts. These include: TTD stock, CGC stock and Mosaic Stock.
Trade Desk stock has become one of Kahn’s biggest long-term winners. The advertising data platform yielded a quadruple-digit return for the ACM Funds manager after a monster run over the last two years.
Kahn says TTD stock first came on his radar after a high-volume breakout in May 2018. He began building a position around the 85 price point when TTD stock pulled back to its 50-day line in July 2018. Shares then went on what Kahn called “a historic run” to top out at 972.80 on Dec. 25 — yielding him a gain of 1,000%.
He added that he employed two risk management strategies in handling TTD stock to be able to hold shares through volatile price action.
“We trade around the name so when it has big run ups, we’ll trim our position and take some profits,” said Kahn. He explained the second way he managed risk with TTD stock was to use a put option strategy.
“Last year when we had the lockdown and the market really fell out of bed Trade Desk came down a huge amount,” Kahn said. “We wouldn’t have been able to stay in the name were it not for those protective puts that we had put on underneath.”
While TTD stock appears to be having a slight correction, Kahn believes it still retains a number of qualities that make it a sector leader.
“If (TTD stock) holds at the 200-day line, I think that there’s a good chance that this could come back. And we still own the name for that,” Kahn said.
Kahn said CGC stock was an example of an investment that turned out to be a short-term trade for his fund. The popular marijuana stock saw a high-volume breakout out of consolidation on Nov. 6. He noted that high-volume breakouts are often followed by periods of sideways consolidation.
“We entered the stock as it pulled back towards its 50-day line in early January,” Kahn said. That pullback was quickly followed by another high-volume breakout on Jan. 6 when CGC stock surged more than 11%. Shares quickly ran up to what Kahn called a “parabolic” peak.
“(CGC stock) had gone up 100% in just five weeks,” Kahn said. He added that the climactic move reminded him of Yahoo stock action from 2001. “We figured at that point, because of the volume spike, that it probably wasn’t a sustainable move. So we took most of our profits, then hedged our remaining position.”
Since hitting a 56.50 high on Feb 10, CGC stock has entered a prolonged downtrend. Shares have essentially round-tripped on the year and are trading well below the 10-week line.
Mosaic stock is a reopening play that Kahn currently holds. The fertilizer company first came on his radar back after a high-volume breakout on Aug. 4. Kahn added that Mosaic’s recent earnings growth into positive territory was a bullish signal for the stock.
“We’re looking for a big explosion in earnings,” Kahn said of Mosaic stock. He added that his fund entered Mosaic in early November as the stock was coming out of a monthlong consolidation at a 20.30 buy point. Shares ran up more than 70% to hit a March 18 high of 35.20.
“We took some partial profits, but the stock is still acting right,” Kahn said after Mosaic stock hit recent highs. “We’re sticking with this name and hoping that we can hang in there and have this be a long-term holding as it continues to benefit from this global reopening.”
Mosaic stock is currently pulling back to its 50-day line. A strong rebound off this key resistance level could offer investors an opportunity to enter or add to their position in the stock.
Interested In TTD Stock?
YOU MIGHT ALSO LIKE: