Archives for April 2018

April 20th Daily Market Comments

As somewhat anticipated, the markets are continuing to consolidate back to the support levels of the 50 day moving average and the T-line. The uptrend remains in progress as long as the indexes stay above the T-line. These are type of days where the uptrend remains in progress but profit-taking is occurring, making the analysis of each individual stock chart more important. Continue to stay predominantly long.

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Trending Stocks: DVN, FSLR, ISRG

Devon Energy (DVN)

Chart for DVN

Over the next 13 weeks, Devon Energy has on average historically risen by 7.5% based on the past 29 years of stock performance.

Devon Energy has risen higher by an average 7.5% in 20 of those 29 years over the subsequent 13 week period,corresponding to a historical probability of 68%

The holding period that leads to the greatest annualized return for Devon Energy, based on historical prices, is 4 weeks. Should Devon Energy stock move in the future similarly to its average historical movement over this duration, an annualized return of 67% could result.

First Solar (FSLR)

Chart for FSLR

Over the next 13 weeks, First Solar has on average historically risen by 8.9% based on the past 11 years of stock performance.

First Solar has risen higher by an average 8.9% in 4 of those 11 years over the subsequent 13 week period,corresponding to a historical probability of 36%

The holding period that leads to the greatest annualized return for First Solar, based on historical prices, is 1 week. Should First Solar stock move in the future similarly to its average historical movement over this duration, an annualized return of 144% could result.

ISRG (ISRG)

Chart for ISRG

Over the next 13 weeks, ISRG has on average historically risen by 16.1% based on the past 17 years of stock performance.

ISRG has risen higher by an average 16.1% in 10 of those 17 years over the subsequent 13 week period,corresponding to a historical probability of 58%

The holding period that leads to the greatest annualized return for ISRG, based on historical prices, is 12 weeks. Should ISRG stock move in the future similarly to its average historical movement over this duration, an annualized return of 74% could result.

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Slow Curve & Fry Pan Bottom Patterns Workshop Replay

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4-hour Online Training Workshop – Saturday, June 2nd, 2018

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April 19th Daily Market Comments

Why is today looking like a consolidation day? Many uptrending stocks are pulling back but they are not doing candlestick reversal signals. That indicates there is no major change of investor sentiment in those trends, merely profit-taking. It would not be unexpected to see the indexes come back and test the 50 day moving average to see if it is going to act as support. These are the type of days were all you can do is sit through the day waiting for the continuation of the overall trend.

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When to Sell: It’s No Longer  the Hardest Decision

When to Sell: It’s No Longer
the Hardest Decision
By Bill Johnson

It’s often said the hardest decision an investor must make is when to sell. Sell too soon, and you miss out on a potentially skyrocketing stock price. Sell too late, and you could sink with the ship. Buying is easy; selling is difficult. However, options can make the difficult challenge of selling a thing of the past. It’s done with a strategy called a stock swap.

Here’s how it works. Let’s say you purchased 500 shares of stock at $45 and it’s now trading for $56. You think the stock will continue higher, but at the same time, don’t want to see your gains turn to losses. The most common approach investors take when faced with this dilemma is to sell the stock and look for another opportunity.

The problem with this approach is that the new stock you pick is equally likely end up heading south as the one you currently own. If you always try to sell your stock at the top and look for another to buy at the bottom, you’ll end up generating a ton of commissions and probably be worse off than if you had just stuck with the original company in the first place. Trends last longer than people expect, and the better approach is to hedge your position and get your money back – plus a return – and maintain the position. That’s what hedging is all about.

Protecting Profits with Stock Swaps

The underlying stock is $56 and the following option quotes are available:

To enter the stock swap, sell your shares of stock and simultaneously replace them with a share-equivalent number of call options. In this example, you may sell 500 shares of stock at $56 and simultaneously buy five $55 calls for $3.38. The net credit is $52.62 per share:

Sell 500 shares at $56
Buy 5 $55 calls at $3.38
Net credit = $52.62

The effect of this hedge is that you’ve swapped your shares for a call option – and collected a net credit of $52.62, or $26,310 for 500 shares, which is sitting safely in cash. Your original purchase price was $45, or $22,500 for the 500 shares. The swap guarantees a return of $26,310 – $22,500, or $3,810. That’s a 17% guaranteed return on your money – but still leaves you with unlimited upside potential. However, you’re still effectively long 500 shares of stock if it should continue to rally. If it crashes, the worst that can happen is you made $3,810.

The strike you choose is a matter of preference. If you buy a lower strike call, such as the $45 or $50, the good news is that it’ll behave more like the stock and move closer to dollar for dollar with the underlying stock. The bad news is that lower strike calls won’t recoup as much of your original principal since lower strike calls are more expensive. Because the goal of the stock swap is the recoup your principal, or at least a good portion of it, most investors use at-the-money or slightly out-of-the-money call options.

Stock swaps prevent you from trying to time the market. When you sold the stock for $56, was that the very top? Probably not. At the same time, it’s not easy to hold a position when substantial profits start to build. The stock swap provides a solution to both problems. The following profit and loss diagram shows the effect of our stock swap hedge:

You can see that the original stock position (red line) assumes risk all the way down to a stock price of zero. The stock swap (blue line) not only removes all of that risk, but it also guarantees a minimum of $7.62 per share, or $3,810 in profits for the 500 shares.

The tradeoff is that the stock swap will not be as profitable as the shares alone if the stock should rise. The reason is you paid $3.38 for the call options, which is an unnecessary expense if the stock continues higher. But since we don’t know what will happen to the stock in the future, the hedged tradeoff provides a very comfortable and reasonable strategy for investors. You’re simply sacrificing the $3.38 time premium in exchange for a guaranteed $3,810 profit – but still have the potential to make more money if the stock continues to rise. Once you’re in a guaranteed position, the decision to hold the position is much easier. The difficult decision of when to sell is eliminated and you can now hold on for serious profits. Options give all investors – including stock owners – better choices. The stock swap ensures you’ll never have to worry about when to sell.

Good Investing!

Bill Johnson, Steve Bigalow
and The Candlestick Forum Team

P.S. Bill Johnson’s Alpha Trader Options Course takes you from the very beginning, step-by-step, through an exciting journey into the world of options. At the end, you’ll have the necessary knowledge and confidence to start investing and hedging with options. In addition, you’ll have a rock-solid foundation from which to continue your options education.

Click here for more information about Bill’s Alpha Trader Options course, now with multi-pay options!

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April 18th Daily Market Comments

The market indexes consolidated early today but is now trading above where they opened. This reveals the lack of any selling pressure as of yet in this market. The trend channel that has developed since late January implies the uptrend will remain in progress. Continue to stay predominantly long with any short positions showing compelling reasons to stay short. This is why we recommend Trend Analysis.

 

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April 17th Daily Market Comments

Does a gap up in a stock like NFLX warrant a rally in the whole market? Definitely not, but think of the environment of investor sentiment. Even as an investor that may not be investing in Netflix, seeing that everything is working great in that stock, a stock that is in the investment limelight, and that it is showing good bullish news as well has strong price movement, does that influence confidence or doubt in what all other stocks might be doing?

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Trending Stocks: COUP, HLG, INCY, NOVT

Coupa Software (COUP)

Chart for COUP

Over the next 13 weeks, Coupa Software has on average historically risen by 11.6% based on the past 3 years of stock performance.

Coupa Software has risen higher by an average 11.6% in 3 of those 3 years over the subsequent 13 week period,corresponding to a historical probability of 100%

The holding period that leads to the greatest annualized return for Coupa Software, based on historical prices, is 10 weeks. Should Coupa Software stock move in the future similarly to its average historical movement over this duration, an annualized return of 106% could result.

Hailiang Education Group (HLG)

Chart for HLG

Over the next 13 weeks, Hailiang Education Group has on average historically fallen by 4.9% based on the past 2 years of stock performance.

Hailiang Education Group has fallen lower by an average 4.9% in 2 of those 2 years over the subsequent 13 week period,corresponding to a historical probability of 100%

The holding period that leads to the greatest annualized return for Hailiang Education Group, based on historical prices, is 51 weeks. Should Hailiang Education Group stock move in the future similarly to its average historical movement over this duration, an annualized return of 340% could result.

Incyte Corporation (INCY)

Chart for INCY

Over the next 13 weeks, Incyte Corporation has on average historically risen by 6.7% based on the past 24 years of stock performance.

Incyte Corporation has risen higher by an average 6.7% in 14 of those 24 years over the subsequent 13 week period,corresponding to a historical probability of 58%

The holding period that leads to the greatest annualized return for Incyte Corporation, based on historical prices, is 47 weeks. Should Incyte Corporation stock move in the future similarly to its average historical movement over this duration, an annualized return of 103% could result.

Novanta (NOVT)

Chart for NOVT

Over the next 13 weeks, Novanta has on average historically risen by 8.1% based on the past 19 years of stock performance.

Novanta has risen higher by an average 8.1% in 10 of those 19 years over the subsequent 13 week period,corresponding to a historical probability of 52%

The holding period that leads to the greatest annualized return for Novanta, based on historical prices, is 7 weeks. Should Novanta stock move in the future similarly to its average historical movement over this duration, an annualized return of 59% could result.

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April 16th Daily Market Comments

Today’s positive trading does not take the markets out of a indecisive nature, the major indexes continuing to trade below the 50 day moving average but above the T-line. The most compelling chart has formed in the transportation index, a bullish Doji sandwich breakout through the 50 day moving average. This adds confirmation to the analysis of the markets are in a slow upward basing mode but not yet with any dramatic bullish force coming back into the market.

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April 13th Daily Market Comments

The waffling nature of the market still persist but with one consistency, the indexes continue to now to trade above the T-line. The force of the market is not necessarily anything rampant, as seen in the Dow today where it hit the 50 day moving average and has backed off. The other indexes have the same potential resistance levels to contend with. Continue to hold both long and short positions with a bias toward the long side.

 

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