If you read this blog regularly, have read my book Sideways, or watch my BNN appearances – you will know that I favor certain trading patterns to time my entry/exits. My favorite pattern for a mid-long termed trade is to buy out of consolidation (which I refer to as a “Phase 1 bottom” in Sideways). A recent example of this would be the Japanese Nikki exchange—which I pointed out a few weeks ago on this blog.
I also like buying into an uptrend, but prefer to wait for a pullback and successful test of a trendline. I gave readers some guidance on trading the FANG stocks (Facebook, Amazon, Netflix, Google) when identifying and comparing stocks that are trending vs. consolidating back in September.
The final way I like to spot technical entry opportunities is to identify stocks that are trading range-bound. The trick is to buy on a bounce off of a floor of support, and sell at a ceiling of resistance. If you buy and then experience a downside break of support, prepare to sell out after waiting a few days. Please refer to my book Sideways for rules surrounding that loss limitation strategy. The bottom line is take a small loss and move on. A break of long-held support is bad news most of the time. Just ask DH Corp (DH-T) stock owners!
Conversely – sometimes a stock will break through overhead resistance, and move on to new highs. Traders could consider a mental stop loss if you see a stock break out. I’m inclined to just trade the range and move on, but that’s just me.
At ValueTrend, we have been trading Fomento Economico (FMX)– Mexico’s version of Alimentation Couche-Tard (ATD.B)—which, by the way, is not a range-bound stock. FMX, on the other hand, has been stuck in a trading pattern since 2013. The stock gyrates rhythmically between the mid’$80’s to just under $100. It has not broken out of this trading zone for 3 years, and there is no end in sight for the pattern to end. While disturbing for the long termed investor, FMX offers a beautifully predictable pattern for traders. We recently exited our position in the stock at around $98 (after buying at $88), and are looking to buy back in if it gets back into the high $80s.
Here in Canada, we have a few sideways range bound stocks worthy of consideration for the adept trader. Stantec (STN-T) has been stuck trading up and down between the high $20’s and the mid- $30’s since late 2013. It’s at the bottom of that range right now.
Cogeco (CGO-T) is another Canadian name that has been stuck in limbo since 2014. Buying at just under $50 and selling in the mid-high $50’s has been a wonderful opportunity for those who like a quick & profitable trading plan.
Keep the sell discipline mentioned above (more details in my book) in mind when trading these patterns. A breakdown of support from a long-held pattern is bad news for a stock.
How are you positioning going into the U.S. election with the potential volatility? Increase position in S&P inverse ETF’s such as SH or HIU or hold cash for buy of favorite stocks on Nov. 8/9th? Thanks for all of your information-love your blog!
Cathy-thanks for the comment and question
We hold about 30% cash right now and we have 5% in HIU.
That’s comfortable for us coming into the election. We may do some buys and sells in the coming week or so, but we expect to be pretty close to that cash weighting into the Nov. 8th election date. If the market sells hard before Nov 8th we will buy.
The HIU will stay on until the election too–and then be removed if/ as/ when a selloff comes, or it will be just taken out for seasonal/electoral reasons after Nov 8
Would you consider buying Cogeco Communications (CCA-T) which has much better liquidity? I imagine that they are pretty much the same company. Thanks.
John–yes I would–very similar pattern
Although CGO-T was in a clear trading range for a while, it also looks like it’s now in a descending triangle pattern. Do you see it that way too? Because of this, I feel setting a daily close stop at 47.00 is important. Would love to hear your thoughts on this.
Because of the longevity of the sideways pattern, I wont call this a r-angle triangle at this point. CGO just cracked support of $49 today as I write this. Give it a couple of days before jumping to conclusions, but if it stays below $49 for at least the remainder of the week, it triggers that sell below support rule I mentioned in the blog.
Hi Keith- So when you say that you are 5% in HIU and 30% cash, that means that you are in effect, 60% long in the market as we head into the election?
What percent would you anticipate being long in the market a week from now if Trump wins?
Hey Randy–you are correct on the math.
We actually bought 2 stocks on Friday bringing us back to 25% cash (pus the inverse) but expect to sell some today to bring us back to 35% or so-although we also have bids on a few things that could get triggered so I cant say the precise cash level will remain at any particular level every day- we look to hold some cash, but also look for opportunities ongoing. It looks like a Hillary email investigation relief rally today.
No matter who wins, I will be fully invested within a week or two. If Trump wins and the markets sell off, that would be time to jump in–and I will do so.
Since the election FMX appears to have moved out of the trading range you described in this blog. What are your current thoughts on it regaining it’s regular pattern of regular highs and lows? Is a bit more time needed to assess the situation?
I commented on FMX on my last BNN show – basically, I’d avoid the trade given uncertainty surrounding the revamping of free trade agreements with Mexico. We sold it at $98 a while ago, and have not re-entered the trade. Stock charts can’t tell you how major material changes like an elected anti-free trade President might affect that market. Best to avoid it for now.
I watched your appearance on BNN and I like your style. Going to order your two books from Chapters and was wondering what other books you’d recommend as well on technical analysis. Also if you have read and what do you think about Thomas K Carr books (Trend Trading for a Living)?
I look forward to your reply,
Kyle I haven’t read Carr’s books. I have read Trading for a living by Alex Elder.
See my books for a list of great books–I made note of several at the back of one of them (I think it was Sideways).
Thanks for the kind words–keep on reading–and learning–best investment you will ever make!!!!