Only the Strongest Survive


The markets are trying to drum up sellers, but so far, not many are showing up for the parade. It is time for the markets to take a breather and we all know it. The markets are edgy, which makes holding positions riskier.

The usual ways of dealing with increased risk apply, including taking profits, decreasing positions, and buying protection in the form of puts or inverse market ETFs.

In a market where a pause is overdue yet buying seems to keep coming in, you never know how long the good times will continue. The best approach is to take profits and wait for a solid pullback followed by a rebound to re-establish bullish positions. Sitting out and not being a participant is one of the hardest things for an active trader to learn. Few get good at it.

If you are comfortable with the increased risk and want to remain in the market, another way to approach it is to look for strength among peers. Even in a pullback, the strongest seem to find a way to survive.

I focused on Crane Co, a manufacturer of fluid handling, engineered materials, merchandising systems, aerospace and controls, back on July 1st. Showing evidence of institutional accumulation, a large volume spike three weeks before earnings were due caught my attention.

CR had a few characteristics I like to see for high probability trading – a ‘stair-stepping’ upward climb, respect for staying above the 50-day moving average, and an obvious cycle.

In this chart, CR’s 1-1/2 to 2-month cycle is pretty evident, especially when you look at the Stochastics indicator to confirm cycle lows. Note that it is not uncommon, within a well-defined cyclical pattern, for one cycle low to just not appear. The ‘missing in action’ label below shows a point where CR should have set another short-term cycle low but the stock was too strong to pull back (the overall market was strong in January through February).

As long as concerted selling doesn’t take hold in the overall market and drag CR down with it, this looks like another high probability trade, a good time to initiate new positions in CR or add-to-existing positions. I would wait for CR to rebound above 63.39, which is the brief high set 6 trading days ago. I would then consider buying the stock, entering a covered call, or doing a delayed covered call, which is buying the stock now and selling a slightly out of the money call against it as soon as it rose to just below the next strike price (which is 65).

Crane does not have actively traded options, so only calls at or near the money are worth trading, and even then, with the wide Bid/Ask prices, limit prices should be used.

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.

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