In my September 9th, 2015 Seasonal Forecaster newsletter I covered a trade setup that stood out to me. Only two weeks before, the S&P 500 had quickly plunged 10%. It wasn't clear whether more selling would come in, or a rebound of any sort would form.
But in the newsletter I stated “There will always be quality stocks that mostly ignore the overall market environment and show indications of institutional accumulation. While I'm expecting more downside as we get into September, I am looking for a few stocks that appear to be under steady accumulation in spite of the overall market.”
“One example is Hormel Foods (HRL). If you want to add a little upside exposure to your portfolio, consider a small position in HRL and add to it if and when it breaks to new highs [if it] comes out with positive earnings (due around mid-November). It has a pretty good seasonal pattern starting in late October, going into early-summer. The next 7 weeks are pretty flat on HRL's seasonal chart, meaning it has a mixed track record of gains in the near term. But that doesn't mean this can't be a breakout year with strong gains earlier than usual. The more I think about it, the more I like it. So I'll turn it into a trade setup:
“Note that Hormel will likely pay at least a $.25 dividend to holders of record in mid-October. This may also be a good stock for a covered call trade.“
The seasonal pattern of HRL, at the time of the article, showed a mediocre track record over the next several weeks, but good gains starting 9 to 20+ weeks out:
Why would the average results suddenly jump 9 weeks from the third week of September? Hormel Foods typically announces earnings in the last week of November. This seasonal pattern showed Hormel's stock often jumps after the November earnings announcement. In fact, from mid-September into mid-December, HRL has averaged an 8+% gain, with gains in a very high 28 out of 31 years (90%).
While the S&P 500 went on to re-test lows in late September, HRL traded sideways, staying above its 50-day moving average. This stock was ignoring the rest of the market, and the volume pattern was indicating accumulation. Most likely, some institutional traders, who were quite familiar with HRL's track record going through November earnings, were picking up the stock again this year.
In early October, while the S&P 500 was still in a trading range, HRL broke above previous highs on strong volume. It fell back to retest the August high, and then rebounded nicely.
Two days ago the position was up 5.5%, which over the 35 days since the trade entry, worked out to an annualized gain of 57%.
In the September 9th trade setup for HRL, I also suggested an alternative trade using an HRL December 60 call. That call traded around 4.35 on the morning of the 9th, so this trade was up 52% (in my newsletter I said it was time to close the position).
Back in the September 9th newsletter, I also mentioned HRL may be good for a covered call. Today is the expiration of October options, and HRL is trading around the 65 level. If it closes above 65, the stock will be called away and the covered call will return a 5.5% gain. If someone holding the covered call wanted to keep the stock, in hopes the seasonal pattern will again play out, then rolling the October 65 call up and out to a November 65 call could lower the cost basis on the initial stock purchase to around $60.
And finally, Hormel Foods will pay a $0.25 dividend on 11/16, adding to our gains.
Once again, identifying a stock with good fundamentals and a strong seasonal pattern, along with recognizing technical strength compared to the market averages, produced a good trade so far, and it may keep on giving.
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
Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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.
The sender of this email 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 (http://www.optionsclearing.com/about/publications/character-risks.jsp). 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.
Past performance is no guarantee of future performance. This product is for educational purposes only. Practical application of the products herein are at your own risk and MarketTamer.com, its partners, representatives and employees assume no responsibility or liability for any use or mis-use of the product. Please contact your financial advisor for specific financial advice tailored to your personal circumstances. Any trades shown are hypothetical example and do not represent actual trades. Actual results may differ. Nothing here in constitutes a recommendation respecting the particular security illustrated.
Also on Market Tamer…
Follow Us on Facebook