Rise Exit Repeat. Patterns That Pay.

 

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Banner, Link to the Real

MAY 9, 2020

What’s

the market story? Saw tooth. That’s what stocks and markets do. Done. Stock price gyration nets out either up or down, eventually. Chode still sinks while cream still rises.


Meanwhile investors scheme, wait, hope, and scratch like simians. We’ve never been paid for scratching, and we’ve done a lot of that. Yes, the market action’s fun, or sickening. Someone talked about the market; “a tale told by an idiot.” Well, yeah.  That guy obviously understood price-action.


Some are slower than others. Thus finally, we’re learning to make those ass-itching gyrations pay. We’re discovering the countless paydays along the way. We’re beginning to do so by crisp design. We’re sharing it with you so you can too.  You probably already are.


Long-term investors leave bucket-loads on the table. Why? Because they ignore the majority of the movement. Yet truly savvy players invest and trade. We’re doing both now, and we’re geeked out of our minds. We hope you love it as well. The cash for our example trade’s on the way. “Rise Exit Repeat. Patterns That Pay.”

 

 

 

 

AT&T, logo
AT&T’s a stalwart dividend play. At least that’s the what people say. Is it? We know. It now yields 7.06%, if they can afford it. But what else?

T

offers all the charm of a dead car battery, along with the rectitude of Soviet education.  We find AT&T’s move into content to be misguided, extraordinarily late, and massively underfunded.  But it’s O.K.   We don’t want to marry them.  A nose clamp will do, and isn’t a lot to suffer for a winning trade.  Fact.  AT&T is our favorite dog turd, one we simply can’t steal clear of.  Why?  It’s a neon-blinking repeating pattern with a dividend backstop.  Hum.  

 

 

 

T offers perhaps the largest perhaps sustainable dividend in the market at 7.22% on a payout ratio of 78.3%.  They don’t report again until July 23, thus offer less chance of any stray bombs.  They sport a 5Y annualized Beta of 0.68, or stable vs. the S&P at 100.  SJ picked up 100 shares when it hit $29.  We should have waited for $28.50.  Yet upon this writing our position is up 2.59%, in two days.  You see where this is going.  We’re hoping for 10%, or $31.90.

 

T may be a perfect example of a great trade.  T’s business is both easy to understand and track.  It’s recession-resistant.  People don’t abandoned their phones.  People would still be paying if Zombies swarmed the neighborhood.  You gotta talk when Zombies flock.  T is also a slowly increasing player in both content and it’s provision; think HBO, Time Warner, and even antiquated Direct TV.  Reason four, relative price stability.   Why?  Investors love income and have long looked to T for exactly that.  That helps to build in a price-shock cushion.

 

 

-AT&T: T-

Crisis Performance

Mortgage meltdown to COVID. 

T history chart--08 crisis
All stocks are affected by macro events. Out of all sectors telecoms, drugs, and food companies offer relative price support and income during times like these. Yet some offer prime trading opportunity. If the trade stalls you have a relatively safe place to sit it out, and be paid for your time. T’s a good example of just that.  You about to cancel your phone?(SJChart.)

      Specifically

a trade is a defined play.  Trades have a specific target percentage move, or dollar return.  We’re keeping that simple, for example targeting 10%, or $100.00-$300.00.  Ask the question; “Would you sneer while picking that up off the parking lot?”  You’ve done the work leaning what you know.  Be paid for the effort.  It accumulates, like dividends.  For us, the above test question remains our guiding rule while evaluating potential trades.  What’s the other key rule?  Only buy things you’re willing to keep, because you may be.

 

-AT&T: T-

T trading chart
A picture’s worth 28% in one month. History proves that trading T can easily be far more beneficial than simply sitting on it(SJChart.)

 

 

-Wells: WFC-

WFC, trading chart 5-7-20
AT&T and Wells are studies for a reason. Both are heavily traded. Both pay fat dividends, at 78% and 68% payout ratios. Neither dividend nay survive Q2, yet perhaps they do. Both have just offered two very tradeable yet uncommon runs.  More will be offered. Both companies also have the size and financial push to make it through. T’s a candidate now, under $29.  Wells is not.  It’s loan book is facing serious potential losses due to COVID.(SJChart.)

 

 

-Our Alteryx Trade-

AYX trade, May 8
As long-term investors, we are just instituting a trading routine.  The above chart outlines one of our few designed trades.  W’e’re pleased, and grateful it play out.  In no way are we suggesting this is easy or reliable. With Alteryx we’re “trading around a larger core position.  We yet hold 31 more shares.  Why?  Selling only a portion is why we’re still in now as shares ended Friday up 9.83%. Were we to have simply traded it, we would have missed that huge move.  Trading around a core position creates the opportunity to win both ways.  And we are.(SJChart.)

Extended

hours trading displays true volatility.  Think after-hours earnings reports.  Spikes and plunges are the rule.  We’ve been watching extended hours price action for years, but not with the sensibilities of a trader.  That’s precisely what we’re bringing now.  And why Alteryx?  Alteryx is a great company providing a code-free and predictive analytic software platform that anyone can operate, and it works with desperate data forms.  We have a functional understanding of their product and love the Saas business model.  We’ve tracked and owned them for a couple of years.  If the trade doesn’t happen, we’re happy to stay with them because they will eventually roar.

 

 

The story here is about both investing and pattern-trading.  For us that often means “trading around a core position.”  Alteryx allowed us to take a small payday along the way, while yet being there for the monster 9.83% move on Friday.  We traded off only 10 of 41 shares.  We had simply built a larger position as prices allowed.  In turn that allowed us to sell a chunk when prices jumped.  We had a set sell point and executed.  We’ll do it again, and again.

 

 

The keys to pattern-trading success begin with having a design.  Ten percent or $100 is simply a guide.  Know your stock.  Pick quality that works in this market–not banks, airlines, etc.  Go with quality, plays you’re willing to sit on if things don’t immediately pan out.  And learn their ways, their patterns, and durability when the market sells off.

 

 

Most stocks display patterns, as the examples above demonstrate.   Use the Relative Strength Index(RSI) as your guide.  “Over-bought and over-sold” are key leading directional signals.  That’s what we’re working.  Finally, don’t be greedy.  Define your trade and show the discipline to stick to it.  And don’t fret over a few bucks left on the table.  Bombs usually go off while attempting to ransack the last dollar.  As always, good luck and good investing.  

 

 

Pick-of-the-Day

“Line of Duty”

Acorn

Line of Duty
Preeminent British police procedural set in Birmingham north of London. Anti-corruption unit working from deep inside the ranks, and suspecting it’s own. Suspense-riddled, gritty, tension-bristling, complex.

 

 

 

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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
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Be careful.  Do the work.  Have patience, with yourself.  Never put your dreams away.

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