Cycling to Another 30% Gain


In my October 7th newsletter, I covered the cyclical tendencies of the overall markets. This time I focused on DIA, the ETF that tracks the Dow Jones Industrial Average. Using Stochastics to help identify the tops and bottoms of the cycles, I showed how DIA was due to set another short-term cycle low.

In light of DIA’s strong seasonal tendencies, I stated “Short-term traders can watch for this and buy the ETF to play the rebound once there is confirmation a rebound may have started, such as a strong reversal day or a Stochastics buy signal. The safest way to trade that would be with a stop-loss just below recent lows and closing out the trade with the profit if DIA returns to recent highs.

Two days later, DIA formed a possible reversal – a doji pattern where the stock set a lower low during the day but rebounded by the close to end up with a slight gain.

On the following day, DIA gapped up at the open. This indicated a likely short-term bottom.

DIA has moved up to just short of the previous high, gaining 4.2% since the gap-up open of October 10th. With DIA now likely to set a short-term cycle high, this would be a good time to take profits.

In the October 7th newsletter I also covered a specific Bull Call Spread strategy, targeting a 30% profit. On the morning of the 10th, right after that gap-up open, a December 145/155 bull call spread could have been entered for a debit of 5.5. Targeting a 30% gain, or a 35% stop-loss, meant the trade should be closed out when the spread could be sold for either 7.15 or 3.55.

On Monday, with DIA opening at 153.69, the bull call spread hit the 30% profit target and should have been sold. 30% over 12 calendar days is a pretty decent return, and it came from recognizing an obvious cycle pattern and acting upon it.

DIA, and the many other stocks and ETFs that have obvious cycle pattern right now, won’t continue the cycling pattern forever. They will go into periods where the cycles may temporarily disappear. But when a stock or ETF that has been clearly cycling up and down, is approaching what is likely a short-term low or high, avoid entering trades that would require a continued movement in the current direction. Look for a reversal pattern, and if and only if it occurs, consider trading in the direction of the cycle.

In the current circumstances however, I am hesitant to trade the down-move portions of any cycling stock. This is the time of year when many stocks have a strong track record of upward moves, as institutions trade the upcoming earnings reports. Also, with the Fed indirectly injecting money into the market every month from its bond purchases, the odds are against you for bearish trades.

Of course, there’s much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, type in www.markettamer.com/seasonal-forecaster

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg’s passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

 

Be Sociable, Share!

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.