Patience can be one of the important factors in increasing your trading success.
For example, Disney (DIS) is currently in a consolidation period. The horizontal 50-day moving average confirms its sideways movement. Drawing support and resistance lines produces a well-defined trading range.
If DIS rebounds here, and the overall market shows some strength, a bullish trade could play the likely move by DIS to at least the upper part of the trading range. The stock itself could be bought, a covered call using the September 65 calls could be entered, or a Bull Call Spread could be entered, targeting a move to at least the 65 level.
But at this point, such trades would be speculative in nature, and as with most speculative trades, should be done as smaller trades. DIS will eventually break out of the trading range, but right now it is hard to determine if it will be on the upside or downside. DIS could be traded within the range as long as you use tight stops just outside of the range.
If you are looking for a larger move, the kind of move that makes a big difference on your end-of-year results, patience is what is needed.
Disney is a very seasonal company. Its theme parks do the strongest business during the summer months. Disney's children's products are popular for year-end holiday gift giving. And Disney's studios release major films in the fall.
One might expect DIS stock to rise in the fall from institutional anticipation of good earnings reports, and that is indeed the case.
If we look at the seasonal chart for DIS, the track record of buying the stock on the Monday of this week and selling it ‘X' weeks later, we see this is typically a quiet period for DIS stock. But you'll notice that around 11 weeks from now, or the first week in November, the average gain starts to ramp upwards. But until then, DIS is typically quiet. I've highlighted the 4-week period. Of the past 7 years for instance, DIS logged less than a 3% move in 4 of them.
So what if we waited until the first week of November? At that time, the seasonal chart for DIS will look like:
Over the 24 week period starting from the first week of November, DIS has risen an average 19.5%, with gains in 25 out of 29 years – 18 of them were double-digit gains.
DIS could certainly be traded conservatively, using small trades, over the next 2-1/2 months. The current trading range offers good possibilities. But I would keep most of my powder dry for late October, early November. The odds will be much higher for a more significant move in DIS stock. If the setup looks good at that point, and the overall market tone is positive, larger stock purchases or riskier option strategies, could be justified (with appropriate trade management).
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
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.
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