EEM, the iShares ETF based on an ‘Emerging Markets' portfolio (typically holding Asian stocks), is a good cycling stock. I've covered the rather reliable trades that can be made based on its weekly chart (see Is EEM Off And Running for Another 20-plus %?).
But EEM's daily chart can also produce some good trades. EEM may have just set another cycle low on its daily chart, and the stochastics indicator may be about to produce a ‘buy' signal.
Granted, this is not the highest probability setup you'll ever see. But a good reward-to-risk trade can be set up with a stop-loss a little below the uptrend line, and a target price up in the mid-40's.
What is the track record of EEM this time of year? Is it typically biased to the upside, downside, or does it have a tendency to just sit and mope?
EEM has an upward bias. Over the next 6 weeks EEM has increased an average 3.1%, with only one loss in the past 12 years. In addition, 8 of those 11 years of gains were 2% or more, 7 of the 11 produced 3% or more.
What can you do with a 3%-minimum move over 6 weeks?
With EEM currently at 40.24, and the EEM July 39.5 call currently priced around $1.19, a +3% move would take EEM to 41.45. That 39.5 call, 6 weeks from now, could theoretically be up about 60% if EEM made it to just 41.45.
If you are an option trader, but a bit more conservative and bought a longer term call, more in-the-money, like a September 39 call, you would have a little more time for the trade to work. EEM has averaged a 4.4% gain over the next 13 weeks, where only 3 times did it not gain at least 3.5%.
If the EEM September 39 call is bought at the current price of $2.07, and EEM gained 4.4% by the second week of September, that call could be up 46%.
If EEM breaks below the uptrend line you just close the trade. No trade setup is 100% guaranteed, and trades like this should only be done in small quantities, even with large accounts. But with a stock (ETF actually) that has a history of cycling up and down, and you accurately identify likely cycle lows and the seasonal pattern works in your favor, then these trades can add nicely to your year-end results.
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, please click on the following link: www.markettamer.com/seasonal
Copyright (C) 2015 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.
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