Why Traders Should’t Be Afraid To Go Back To The Well…
And just like that, the S&P 500 is back to hitting new all-time highs.
This is happening thanks in large part to an accommodative Federal Reserve, who for the third time this year cut interest rates by 25 basis points on October 30. The benchmark federal funds rate now sits at 1.5% to 1.75%.
#-ad_banner-#Also helping is the fact that the trade war with China has simmered. In fact, it looks like we may get a Phase 1 agreement soon. (Although I wouldn’t hold my breath. This is far from over.) And finally, third-quarter earnings have been better than expected — granted the bar was set pretty low.
Going into earnings season, analysts believed that earnings for companies in the S&P 500 were set to decline 4% compared to the same period a year ago. It would have marked the first time the index reported three straight quarters of year-over-year earnings decline since Q4 2015 through Q2 2016.
With more than 71% of the companies in the S&P 500 reporting actual results, 76% have reported a positive earnings surprise. As it sits now, the earnings decline is -2.7%. That’s not only better than the -4% that was expected, but it’s a major improvement over the -3.7% decline that we were sitting at last week.
A Good Market For Repeat Trades
Of course, a number of companies have yet to report, but it seems that the better-than-expected results at this point have provided just enough confidence to put the tailwinds at the market’s back.
Many of our holdings in Maximum Profit have received a nice boost from the improved confidence. And I’m convinced that a disciplined, quick-strike approach is the best way for investors to navigate the market right now.
What I mean by this is that you should develop rules for buying (and more importantly) selling, and stick to them.
I write about this idea often, because it’s so important and so many investors don’t practice it.
Another thing investors fail to do is go back to the well and trade a previous winning idea again. Why? Well, there seems to be some sort of mental barrier in place that prevents a lot of us from doing it.
But as my colleague Nathan Slaughter explained in this piece, a shocking number of the market’s gains this year have come from just a handful of names.
Having a system in place helped my Maximum Profit readers realize that there’s absolutely nothing wrong trading the same stock again at a later date. We’ve done it dozens of times over the years. As a matter of fact, our most recent addition is already up double-digits since we added it to the portfolio a few weeks ago. And it’s the second time we’ve traded this name.
Since I’ve written about this pick before, I’m comfortable sharing a few details with you today. As I’ll show in a moment, our approach has worked far better than “buy and hold” in this momentum-driven market.
65.6% In 3 Months — Of Course We’ll Trade It Again!
The stock we’ve gone back to the well with is Roku, Inc. (Nasdaq: ROKU), the pioneer of TV streaming.
As a reminder, the stock was flagged as a “Buy” by my Maximum Profit system at the end of May. So we added it to the portfolio and rode it higher.
Since then, shares stumbled in September and triggered our secondary sell signal (15% trailing stop loss). We closed out of the trade for a nice 65.6% gain in a little over three months. For comparison, the S&P 500 returned only 7.9% over the same time period.
As you can see, the stock continued to drift lower after we sold.
If you read my write-up on this stock in June, you had the chance to join me and my premium readers for most of the ride. (Although free readers didn’t get the benefit of our sell signal alerts, so I hope you either signed up for Maximum Profit or had the foresight to book your gains while the getting was good.)
Action To Take
I mentioned that our system told is that it was time to buy the stock again. (The stock was sporting a Maximum Profit score of 98.) That was about three weeks ago.
Will we bag another 66% gain in three months? Well, it’s still early, but we’re not there yet. There are certainly no guarantees when it comes to investing.
The point is we had a great run with this stock the last time around, and we had absolutely no problem trading it again. Neither should you. We’ve made successful repeat trades many times, and there’s no objective reason for us not to do it.
In the meantime, if you’d like to learn more about the Maximum Profit system, you can do that here.