Miguel Ferreir (WizDayTrader)
Mar 6, 20224 min
Updated: Nov 28, 2022
Trade Ideas: Shorting $BRK.B
Thanks for taking the time to read today's blog post where we talk about a trade idea from our esteemed CEO, Miguel Ferreira. Miguel has been trading and investing for 15 years.
He joined Citigroup the year of the Financial Crisis and has had immense experience trading and investing in the markets with his most recent gain on Tesla last year of $1,000% IN profits. So let's get into it!
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In a most recent Bloomberg article by Katherine Chiglinsky it is stated the 'Warren Buffett’s Berkshire Hathaway Inc. has amassed $158 billion of domestic infrastructure assets, a feat the billionaire investor said underscored the conglomerate’s stature as an industrial powerhouse which he only expects to grow.'
“Many people perceive Berkshire as a large and somewhat strange collection of financial assets,” Buffett said. “In truth, Berkshire owns and operates more U.S.-based infrastructure assets -- classified on our balance sheet as property, plant and equipment -- than are owned and operated by any other American corporation.”
“We think about Berkshire as kind of a tollbooth on the American economy,” Jim Shanahan, an analyst at Edward Jones, said in a phone interview. “There’s broad exposure here across the U.S. economy.”
If your a trader, investor or pretty much anybody in America you know who The Oracle of Omaha is and the impact that he has had on America. He is widely considered one of the best investors of all time with a stunning track record of returns. So my trade idea is not betting against on any of that, I am in awe of Buffet and his ability to consistently generate excellent return for his clients. I am approaching this trade idea purely on a technical basis as we are seeing a failed breakout in Berkshire Hathaway Class A & B shares ($BRK.A/$BRK.B) after an attempted 'W Breakout Pattern'.
Below, is the daily chart of Berkshire Hathaway Class B shares, $BRK.B after a W breakout setup has formed the past two months we are failing to break out higher of this range and were seeing a negative divergence in relative strength (RSI) and the moving average convergence divergence line (MACD) while the Williams %R is an area to start selling shares and taking on a short trade.
You can see (the white line in the RSI - 2nd half of chart) the RSI is failing to get overbought here (over 70) while making new highs. This means that despite the strength we are seeing in every area of the market they are selling more shares of $BRK.B. We want to be short below $325 with an target of $300.
Even the monthly chart of Berkshire Hathaway is hitting an important fibonacci level! We are hitting the 38.2% fibonacci level on the monthly chart from the 1996 lows in $BRK.B and we don't know about you but the market respects these important levels and that's why we love fibonacci. In addition, the RSI is diverging negatively on the monthly chart why hitting this important level.
So what's the trade?
We want to be short the Class B, $BRK.B, shares below $325 with a target of $300 and can even look to put on some $325 March and April monthly puts. If the trade starts working in our favor we'll be looking to get more aggressive with lower targets. For now let's keep it simple and use proper risk management.
We think this trade starts working as the impact of the Ukraine/Russia conflict becomes worse and has a bigger affect on the U.S. Economy than originally expected. In fact, Buffett is having trouble finding new investments that he likes and maintains a heavy cash position according to the Bloomberg article and there continues to be questions around the sustainability practices of the companies he owns which I also find very concerning.
From failed breakouts come fast moves in the other direction so we should this trade start working immediately.
Trade update: We quickly got stopped out on March 11th 2022 as we followed our rules! The most important thing to do in trading and investing. 13 Days later $BRK.B hit the 61.8% Monthly fibonacci retracement on our chart above when we launched our 'Meme Challenge' as I was coined the Meat King by the @slimjim Twitter Social media account. After that $BRK.B stopped going up, as well as $MSFT, $AAPL, etc... just a lucky coincidence I guess!
We entered our short position and covered three quarters of pour position when our target hit $300 Friday! Below is an updated chart of $BRK.B on daily basis. We can see how it's trying to hold the 200 SMA and long term uptrend (lower bottom white line near the 200 SMA). Should we fail this could mean a disaster for the market!
We took our profits now we sit and wait with the rest of the short position. Follow me @wizdaytrader to find out what happens next! Have great trading week!
Trade Confidently,
Essex's Trading Quote of the Day (QotD)
"Price is what you pay. Value is what you get."
Warren Buffett