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The Stock of the Week: BBBY, GG, HON, CAT

“Buy, Sell, or Hold” has always been the traditional mantra for Wall Street, but the traditional approach has not worked for over a decade.  The Market has been strong from the bottoms, but it has also been weak from the tops, and since 2000 (12 years) the Dow Jones Industrial average is up a whopping 10%.  In addition, since 2007 the Dow is down about 10%.

My longer term macroeconomic analysis, “The Investment Rate” told us that 2007 would be a longer term peak in the market (It warned us in 2002), so we started a proactive strategy in December of 2007 which was designed to allow investors to stop being ‘traditional’ and start being ‘proactive.’

Between 2002-2007 we were arguably ‘buy and hold’ investors, but since 2007 we became 100% proactive.  One Strategy that we began in December 2007 is called “The Stock of the Week.”  During a time when the general markets have been down, the Stock of the Week is up 214% (compound return). 

The comparative returns are impressive, but they only work because we follow a strict set of rules, and within those rules risk controls are integral.  Ultimately, that is the definition of proactive.

Here are the rules:

  1. Start every week in cash
  2. Develop a focus list of about 100 large cap highly liquid stocks.
  3. Every weekend evaluate likely conditions in the market for the week ahead (up or down).
  4. Using those results, find the stocks in the focus list that will probably correlate to the market.
  5. Define a trading plan for that stock to be used in the week ahead (buy, sell, stop loss targets).
  6. Use conditional orders through your online brokerage account to manage the trade.
  7. Allow the trade to work all week (you do not need to make any manual trades)
  8. At the end of the day on Friday, close the trade and revert to cash.
  9. End every week in cash.
  10. Repeat the process every weekend.

For example, over the past four weeks we have traded these stocks:  BBBY, GG, HON, and CAT.  Using BBY as an example, the trading plan was:  Short near 72.20, target 69.94, Stop Loss @ 72.46.

This mechanical approach is incredibly powerful because it also helps to remove the emotional burden of the market from the shoulders of individual investors.  In this case market direction becomes far less important, because if the market does not move as you expected often times the trade does not fire, and the week is spent in cash.  When the analysis is correct the trade fires and the opportunity to profit comes instead, but the trade occurs automatically using the tools already available from most online brokerages, so the requirement of watching the market does not exist like it might for other persons.

Removing the emotional burdens is very important because the traditional concept of “Buy and Hold” have not worked for over a decade, and they will not likely work for many years according to The Investment Rate.  Proactive strategies like this work very well in markets like the one we are in now. 

On Saturday, June 23, we will host a free webinar to explain this in greater detail and answer questions in a live forum.  Everyone is welcome:  Stock of the Week Webinar.

About us:  Stock Traders Daily is ranked #1 for “Trading Advice” by Google.  Our services include the most accurate leading longer term stock market and economic indicator ever developed (The Investment Rate), and proactive strategies that help people manage risk and realize positive returns in any market environment, regardless of economic conditions, and without sacrificing time or lifestyle. 

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