Strategies Working in 2023
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One of the most requested blog topics in the survey was what is working in todays market.
After trading for more than a decade, I would have to say this is a wise choice of blog topics.
When trading, you have to be on what is working at the time. So its important to review all your trades and all the trading setups that are coming up in the market. Its a lot of work to track 100s of them over time and how they are performing, but it can be well worth it.
Here are a few things that have been working recently in a challenging market.
The Big IPO Nostalgia Trade
One of the big changes recently we have noticed is what I will call the IPO nostalgia trade.
The IPO market has been basically shut down over the past year or so during the bear market (this commonly occurs in bear markets). Yet many investors are always looking for the next Tesla, Enphase or Amazon.
So what are IPO traders and investors doing now with only MBLY to trade basically? Well, we just saw a recent SPAC, LUNR, ironically soar to the heavens out of a real nice high, tight flag.
Those who traded it using our high tight flag course rules made a huge profit within a couple hours as the stock nearly tripled in a few hours out of a high tight flag. They used the parabolic exit strategy taught in the course to get out with a great score before the stock crashed.
But serious IPO investors are looking to the best prospects that started trading a couple years ago. Stocks like ABNB, MNDY, AI and DUOL.
Typically, IPOs are great to trade within the first few months after they start trading. Once you get to earnings reports and closer to lockup expiration, the stock usually fades away. Not to come back to highs for years if ever.
Historically, IPOs trading after the first few months to 2 years generally do not hold earnings gaps well. In fact, these are often good short opportunities. But we are now seeing more of these stocks that have been trading only about 1 to 2 years trend higher for about 3 days after a big earnings gap.
So be sure to have these on your radar because some are still betting on a 2001 style mild recession and lower inflation and lower bond yields going forward which should help these more speculative stocks. Their earnings gaps are working for now. Probably because the new issue pipeline is shuttered for the time being except for mostly low quality, illiquid names.
The Best Trading Strategy for us in the Current Market
For those looking to swing trade part time, you have to mark earnings season on your calendar. I say this because the best trading opportunities come up after a big beat and raise quarter on the best stocks.
Ideally, we want to see stocks not too far off the 52-week highs, in a long-term uptrend and coming out of a bullish chart pattern like a double bottom with handle, cup with handle and bull flag pattern. Another great pattern that is coming up more often recently is the ascending base pattern.
Last week gave us another example of why we want to pay attention to earnings news on the best stocks in great technical patterns. Stocks that fit a theme that is working in the current market as well.
The stock was FSLR which was featured last week in the alert service just before it took off. Lets highlight what made this a great trading opportunity for us so you can learn to find more of these.
First off, First Solar is a leading US stock in a booming solar industry. Recent legislation is helping to give a decade long runway of strong growth for the company with likely ups and downs along the way. The company is expected to have strong revenue growth in the years ahead.
Secondly, FSLR has a great long-term trend. The price is well into 52-week highs and making higher lows and higher highs since the IRA legislation was passed last year. The 50 day is well above the 200 day which is sloping strongly higher.
The stock had formed a very uniform bullish ascending base pattern with falling volatility as it was about to test a trend-line support. The last wave higher in the ascending base or 3 rising valley pattern was a more narrow, “tight” formation.
Lastly, the stock had just reported a beat and raise quarter where revenue growth expectations were raised significantly for 2023 with the decade-long growth runway to look forward to as solar power grows rapidly in the US as it has for many years.
The weekly chart below shows the beautiful formation just ahead of the earnings release:
Our entry trigger was a break of a key point in the consolidation pattern and adding if it broke to new highs after the big catalyst. Again, its the great stock, long-term trend, bullish consolidation pattern and then a big catalyst that we are looking for during earnings season.
Fortunately, the price gapped higher, hit the entry trigger and the second entry trigger right after the catalyst which is ideal. Here is a daily chart after the catalyst last week after a near 18% move in just 3 trading days:
Charts courtesy of StockCharts.com
Game Changing Earnings Reports Occur Each Quarter
Other recent big winners featured to customers this earnings season include STLD, OI and SKY.
We also look for many other bullish patterns including the double bottom with handle, rounding bottom, flat base and high tight flag during earnings season. Be sure to put these on your radar during earnings season and look for a great report and outlook followed by the price reaching a good technical entry point on the daily and weekly chart.
The site and blog has plenty of other patterns and examples that you can learn from.
These come up all the time during earnings season. We should have more big earnings beats this week. Of course, you need a great trading plan and process to find these. The window of opportunity this time around has already closed on FSLR.
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