With markets pointing higher (if you follow price and ignore the headlines, like a responsible trader), it makes sense to take good looks at stocks coming out of strong bases. One hospital stock recently caught our attention as it is beginning to quietly emerge out of a 4-year base.
Imagine being in a business where you take a nearly risk-free slice of every transaction, world-wide. That would be a lot of money. Well, companies which do just that do exist, and they likely take up some real estate in your wallet...
Yep.
And it just so happens the charts agree with this sentiment, so much so that $VISA is fixing on (another) significant breakout. So let's see if we can take a slice out of the toll collectors ride.
The headlines certainly haven't been kind to any stock whose company does business in China. You wouldn't be faulted for being cautious in this space. That said, there is one very familiar name that in spite of it all has continued to hang in there, setting up for what could quite possibly become a headlines grabbing upside move of its own.
It's that time of the cycle where we begin to evaluate our open positions that are soon expiring. We had a number of September expiration trades that have already closed -- either because their profit target was achieved ($XLB $XLE) or their stop loss level was violated ($AVGO $CSX $HFC $XLY), but we still have four open positions that require our attention as the calendar transitions to September.
We'll talk more about these in our upcoming monthly All Star Options conference call, but I'll give you a head start on our current thinking here:
Continuing a theme that we started the week with, we're still on the hunt for attractive long opportunities in the strongest sectors. When markets get choppy and uncertainty about market regime change looms, I seek relative safety in the corners of the market that have continued to hold up well. And since the beginning of August, one of those sectors has been the Medical Devices sector.
And here's one of the names showing signs of a developing breakout.
Back in April, we attempted to get long Texas Instruments $TXN, but the stock gapped higher at the open on our entry day and it didn't come back for a month. So we missed it. And that was a bummer. But sometimes, life (and markets) gives us a second chance. And here we are.
Let's not waste any more time. We're getting to work!
While many stocks and indices are attempting to repair themselves from recent August volatility, the Energy sector continues to be mired in a year-long downtrend. And considering many of our current positions are leaning long, it is always good to have some counterbalancing positions in the portfolio. We've got a conservatively bearish play on deck to help accomplish this mission.
One area in the market that has been maintaining a pocket of strength is the Home Builders sector. And with the Federal Reserve cutting interest rates recently (with the possibility of more to come), it's likely mortgage originations will remain strong and therefore new home builds will continue their firm pace. Of course, to price-action watchers like us, all that fundamental and economic data is mostly noise...
Judging by the price action of the stocks in this space (the only indicator that really matters), it seems investors are betting on housing remaining a powerful economic driver into the near future. So, to ride this wave, we've identified a nice situation offering us great potential reward for limited risk.
In a recent blog post on All Star Charts, we discussed the importance of big bases. In a nutshell, we like big bases because it reveals levels of "price memory" and indicates institutional support. You can read the post here.
At times of market uncertainty, indecision, or stress, it can be constructive to focus our attention to stocks in the process of building bases or just emerging from them. Today's market environment certainly qualifies as uncertain if not also indecisive. As such, we're digging into stocks that have recently broken out from significant bases.
While we haven't raised the Bear Flag quite yet, we have noticed some outperformance in stocks that often are referred to as "defensive." And the recent outperformance of the Aerospace and Defense industries has been particularly noticeable.
As geopolitics tosses and turns from tweet to tweet, we'll focus on the downstream side effects in public markets that offer nimble players the opportunity to profit. And we've got a name lined up that appears to be directly benefiting from recent global "uncertainty."
