Santa Claus Rally Is ON!
When my kids were little, I used to take them to the Kenilworth Mall in Towson. They had the most amazing Christmas village train set up. It was huge, wrapping around one of those big mall fountains. I vaguely remember that it took over a decade to complete. It was the labor of love of a retired Baltimore City cop, who would add a bit on every year.
There were buttons you could push that lit up buildings and put the ice skaters in motion...
They had the obligatory mall Santa, so kids could get their toy orders in directly to the man in charge. One year — I think my kids were 8 and 6 — I was standing off to the side as parents do, letting the kids have their uninterrupted consult, when I heard Santa practically yell, “Snakes?!?!? Snakes????”
Yep, that's right: My kids told Santa they wanted snakes for Christmas. Just fantastic. And if you're wondering, I did buy them a couple beautiful corn snakes that year...
I'm sure we've all had some unusual ideas about what we wanted for Christmas. But what I wanna know is: who sat on Santa's lap and said they wanted a moratorium on the U.S./China trade war for Christmas?
Whoever it was, thanks. Nothing like some extra Christmas loot in the account.
I had my Real Income Trader subscribers in some Bank of America call options. We sold them this morning for a nice 116% gain. We also took a 55% gain on some AMD call options last Wednesday. And then we jumped right back in on some early weakness Friday.
AMD shares are up 8% today. The call options we bought are up about 140%, and I think there's more coming, so we're gonna hold these for a couple more days and see if we can get that 140% to 200%...
Thanks for Nothing, Santa!
OK, maybe that's a little harsh. Dude's just trying to spread a little holiday cheer.
But I didn't really need a gift from Santa to get some pre-Christmas profits in the old bank account. All I needed was a few charts, some detailed sector analysis, and 20 years of experience trading options.
Some traders run chart screens every day, looking for certain setups based on defined criteria. They'll come up with a bunch of candidates every time they run their screens. Then they have to either take all the trades or go through the possibilities and decide which one they like best.
That is not how I operate. I've used the screening process before. I found it overwhelming. Because I would get 10 or even 20 stocks that had similar charts, and I'd never even heard of many of the companies that would show up. I do NOT like trading companies that I don't know anything about.
I've found that individual stocks have their own rhythm, an ebb and flow that is unique. Like, Gilead Sciences (NASDAQ: GILD) likes to trade lower early in the day and rally later in the day. Or Bank of America (NYSE: BAC) tends to lose large opening upside gaps. That is, if it opens the trading day up $0.50, it will probably lose most or all of that (which is why we took our gains this morning).
I've been doing this a long time, and I've learned that I get the best results when I have a small universe to consider. So I keep a stable of stocks that I know very well, and I trade their swings. I like stocks that I think are cheap or undervalued.
Like with AMD, I've written to you several times about it over the last 18 months or so. On August 28th, I said:
I can tell you that you're gonna hear the bears get kind of loud about how the current run has gone too far and the stock is due for pullback (or a "mean reversion," if you wanna sound really smart). And they are probably right, the stock probably will pull back. I wouldn't be shocked to see $20 sometime soon.
There's no need to run out and get AMD shares now. But put it on your radar. There's gonna be a good spot to buy it over the next six weeks or so. September is usually not the best month for stocks. At the same time, Wall Street's gonna want good stories to ignite a nice end-of-2018 rally. I bet AMD is one of those stories.
AMD shares were about $25 then. They made it as highs as $33 or so before the October correction took them down. I said six weeks; it was actually just about eight weeks before the stock dipped below $20...
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Right now, my stable is pretty small. Gilead Sciences, Bank of America, and AMD. I had Twitter in there earlier in the year, but once the stock ran over $30 in early summer, it got less predictable (and it didn't seem undervalued anymore, either). Our last trade on Twitter in August, a clean 100% gain.
Same thing with Micron Technology (NASDAQ: MU). Undervalued, predictable, we did really well trading that one, too. Our last trade was also in August, and we made a nice 90%.
Both of these stocks were precursors to the correction: great fundamental stories that finally hit their limit. I've clearly put AMD back in the stable. Analysts are saying it could get its market share in the high margin data center chip space up to 15% by the end of 2019 (share is less than 5% now). That's huge.
Micron hasn't traded this low in a year and a half. I am currently reviewing its application for re-admittance to the stable. I'll let you know when my application review committee reaches a decision. The committee is a little backed up with a first-time applicant: FireEye (NASDAQ: FEYE).
FireEye is a cybersecurity company. It helped Facebook track down a bunch of Russian accounts a little while back. The chart shows an incredibly long consolidation between $15 and $20...
I've put it in the Real Income Trader Covered Call portfolio at $16 a share back in August. We've got 25% gains. But once this baby breaks solidly over $20, it'll be quickly back to the $27–$30 level.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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