In the October 7th Seasonal Forecaster newsletter I was cautious, with the partial government shutdown in effect. I was expecting a deal to be worked out in time to prevent default, but that it would likely be rough seas getting there. I focused on three stocks that were showing good setups with potential, and could be considered by traders who aren't prone to seasickness.
Royal Cruise Lines (RCL)
I stated “This hasn't been a big mover so far this year. But it is showing accumulation, and it has a good seasonal track record. Over the next 8 weeks, RCL has gained an average 9.7%, with gains in 17 out of 20 years (85%). Out of the last 12 years, there was only one loss during that time period, a 48.7% loss in 2008 (it seems that after the September 2008 crash, few people were interested in taking cruises). But over the past 12 years, there have been 7 double-digit gains.”
RCL's chart at the time showed a pullback to the 50-day MA, a Stochastic crossover in the middle of the range which can be a sign of strength, and a strongly rising On Balance Volume (OBV), an indication of accumulation. I follow the Up/Down Volume Ratio, a value that can be found in Investor's Business Daily's ‘Stock Checkup'. Also an indicator of accumulation or distribution, the current value of 1.9 indicated strong accumulation at the time.
Past performance is no guarantee of future results, but how did RCL turn out? It has been only 7 weeks, but RCL responded strongly to the late October earnings announcement, and is now up 14.2% from the October 7th open. While the seasonal pattern from here is not as strong as on 10/7, RCL still had a good track record for the next few months. OBV is still increasing, U/D ratio remains at 1.7, and RCL has been consolidating sideways in a narrow range of 42-44. A break above 44 could bring further gains.
The next stock I covered on 10/7 was Mednax, stating “Mednax has good fundamentals and good earnings growth. It has been a steady riser since late 2008. The seasonal track record shows an average 6.6% gain over the next 9 weeks, gains in 14 out of 18 years, and 11 gains out of the past 12 years, all but 2 were 7% or greater. At $101, small stock purchases can be considered. I would avoid any trade involving options, as they are not actively traded. MD's 50-day Moving Average is at 99.09. I might use a 6% stop-loss, which currently would be at 94.95, just below previous support at 95. Earnings are due around 11/1.“.
MD is up 10.1% from the October 7th open, its OBV and U/D ratios continue to show accumulation, and the seasonal pattern from here is still strong (MD has gained an average 11.2% over the next 10 weeks, with gains in 15 out of the past 18 years). If the overall market provides encouragement, this stock may have more to go.
US Steel (X)
The third stock I mentioned on 10/7 was US Steel, saying “I do not often mention a stock with poor fundamentals. But US Steel is in a segment that is strengthening, and it is showing accumulation. A new CEO took over on 9/1/2013 and there is insider buying. X is showing signs of breaking out upwards. Seasonally, X has gained an average 18.7% over the next 15 weeks, with gains in 19 out of 22 years (86%). Earnings are due 10/29.
Small stock-only trades here, for pure speculation. A stop-loss just below the 50-day MA at 19.20 would limit losses to 10%.“.
X is up 27.9% from 10/7, and OBV and U/D ratio continue to show accumulation.
What is the seasonal track record for X over the next several weeks? It's something that every trader of X should be aware of, but I have to save something for today's newsletter.
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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