A 6-Week Stock Trading System
|Written by Rob Goldman|
Instead of blathering on about the market last week or providing some vague counsel, you are in for a treat. We are providing you with a strategy and tactics to deal with the market from now through the first week of June. We start with some great buys this week, followed by some sells and sector buys, and ending with profit-taking in June. As a bonus, we even provide guidance as to how to play sector rotation and seasonality all the way through August.
A 6-Week Trading System
We live in the now. As a result, we spend too much time worrying about how we are going to trade based on news of the day. We view this approach as tactical rather than strategic thinking. While both methods are worthwhile and one cannot do without the other, the strategic approach seems to have been forgotten altogether. Big mistake.
Week of April 22nd:
This week’s stock market action is likely to be the epitome of a tactical approach to the stock market. On one side, the cover of Barron’s touts Dow 16,000 and a bunch of bullish money managers. On the other side, only 27% interviewed for the weekly AAII Consumer Survey (retail investors) are bullish. Earnings have not been so great, growth is slowing, and gold is collapsing. Yet, this week we have a bunch of key earnings reports, including Apple (NASDAQ—AAPL) after he close on Tuesday, which could be a real barometer for the stock market.
What to do: The market will be on pins and needles so you better be prepared to be nimble on sales and buys. It may take too much to get the Street optimistic about AAPL again anytime soon, so tech remains an area to avoid, for the most part. Stick with stocks under real accumulation and that are working.
For example, last week in these pages we gave you 2 great ones that did very well hitting new highs by week’s end despite the lousy market. Linktone (NASDAQ—LTON—$3.35) hit $3.47, and our profile price was $3.04. It has room to go much higher. Rite Aid (NYSE—RAD—$2.46) hit $2.48, up from our $2.31 profile price and looks like it could go to 3.00.
First 2 weeks of May
We should note, however, that since 1950, May has actually experienced an average return of 0.05% and was up 35 times. Nonetheless, the past 3 years have been brutal, declining by an average of 5.4%. We expect that recent trends will likely continue. Take profits where you can but be ready to buy some beaten down stocks in certain sectors. (See below.)
May is also chock full of key economic reports, including auto sales on May 1st, along with PPI and CPI updates mid-month. It is not uncommon that these last two index reports prompt sharp moves in either direction. Finally, GDP for the most recent quarter is announced at the end of the month. This announcement gives us a glimpse into what June may bring, stock market-wise.
So, Buy These Sectors in the first half of the month…
Last Half of May
Beginning in the latter part of May, anti-cancer biotech stocks will be the place to be.
Plan of Action: Buy biotechs in late May, Sell them in early June
Bonus Plan for the Summer:
In the meantime, retail stocks should be avoided, as should materials and industrials. Stick again with the winners and those with rising volumes through early-mid-August.
As you get to the beginning of August, dabble in retail stocks, which should benefit from back-to-school purchases, as would consumer tech as well. Some of the tech companies will seasonally about to turn the corner and valuations will begin to creep up.Look, we cannot be certain that this crystal ball and seasonality works exactly like this. However, if you use this system, which combines seasonality of sectors and their rotation, seasonality in the market, and key events, along with stocks under accumulation, you should do well. After all, strategy needs tactics and vice-versa in order to reach full potential.
Until next week….
Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research (GSCR) in 2009. Rob has over 20 years of investment and research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell-side analyst, he was a senior member of Piper Jaffray's Technology team. Prior to joining Piper, Rob led Josephthal & Co.'s Emerging Growth Research Group. Rob has also served as Chief Investment Officer of two boutique investment management firms, where he managed Small Cap Growth and Balanced portfolios and The Blue and White Fund. As an investment manager, Rob's model portfolio was once ranked the 4th best small cap growth performer in the U.S. by Money Manager Review. In addition to his work at GSCR, Rob is the editor of Penny Stock Junction (www.pennystockjunction.com.)
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