In the October 3rd, 2014 Seasonal Forecaster newsletter I focused on AAP's excellent setup. It looked like it was forming a steep up-trending channel, the stochastics were coming off of ‘oversold' territory and producing a buy signal, and the volume pattern strongly suggested institutions were accumulating this stock.
I covered AAP's improving earnings record. I pointed out AAP's strong seasonal track record, showing an average 6.6% gain over the next 6 weeks.
AAP opened at 133.76 that morning.
Since then the stock has advanced to the top of the longer-term channel. It has gone sideways for three days, and closed yesterday near its low for the day after setting new highs.
This stock is now up 5.2% from our 10/3 entry, 21 days ago. That represents a 91% gain, annualized, meaning if we could hit similar trades over and over, that would be our annual return. I use the annualized numbers to do apples-to-apples comparisons of the worth of entering a new stock or covered call trade, and the success of implemented trades. When in a position and the annualized return of a trade approaches triple-digit numbers, experience tells me the risk of giving some of the gains back increases.
While AAP could be building strength for another run to new highs, the higher probability bet is that it will retreat from the top of the channel. So this is a good time to take profits and let AAP either pull back to offer a new trade setup, or to show that it has the strength to set new highs (I can always re-enter the trade if it shows that).
So it is time to pocket the 5.2% gain. In the 10/3 newsletter I also covered an alternative trade using a December 125 long call. That trade is now up 57%. I certainly wouldn't want to give back that profit. Time to close out any AAP stock or option positions.
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) 2014 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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