About a year ago, shortly after my decision to close up shop, I had a financial adviser hitting me up to become a client. He dropped a few "hot" suggestions that were to serve as teasers to get me interested in using him. Commissions were huge as a $30,000 "investment" would cost just north of $1,700 to transact compared to my broker commission fee of $10. I just couldn't justify the idea let alone actually use the service. It's not like he was giving me any guarantee.
The "hot stock tip" was Sun Life Financial (SLF), here is the three year chart with a couple of notations.
The suggestion was a buy and hold trade around this time last year denoted by the red vertical line. The stock was in the $27 range at the time. The first problem here is the total cost of the suggested trade. Say 1,000 shares is a $27,000 investment plus the $1,700 commission for a $28,700 total cost. Today this stock is worth $18.50 for an $8.50 loss. Total position now is worth $18,500 and I would be in the hole $10,200, a 35.5% paper loss.
I honestly don't know where the stop would have been as, like I said, this was to be a buy and hold.
Here would be one way of analyzing the stock for a technical trade given the same entry time, if I HAD to enter at that time, but I never HAVE to enter any trade until it's ripe and this was certainly not ripe..
The orange bands represent a one year linear regression with the center line being the median. Seeing as the regression is indicating a downtrend and the price is not far off of the median there is no trade. The top of the wedge (blue lines) might indicate a good place for a short but when it isn't in alignment with the top of the regression channel it is not and ideal trade.
Here is the chart as I follow the regression along and tie the top wedge line to the "current" end.
The price has hit the point where the top regression line and top wedge line meet. In fact the two lines are very close to being the same. Ideal trade setup for a short trade particularly as the wedge is still rather large. It gets tricky as the wedge tightens down just before it breaks out... which is where CTP shines.
The next chart shows the wedge and lower regression line coinciding closely which could be an indication for a long trade but, considering that I am in a short CTP trade and the wedge is getting very narrow I would just exit half and hold half for a possible move lower. The thing about the CTP strategy is to be in play as soon as the wedge first develops in order to not get caught on the wrong side which is very easy to do this late in a formation.
The current shape of things:
Taking my "possible" trades as outlined above and putting the numbers to them yields the following.
Short at $33.
Exit half at $28
Hold until today at $18.50... seeing as the regression and price are together I might go ahead and exit this trade altogether or just keep moving a trailing stop order (maybe even a VTSO)
Realized profit = $5 per share
Paper profit = $15.50
That 1,000 share trade would show a $2,500 realized profit and be sitting on another $7,750. Based on a $33,000 initial outlay (shorts are different but the money is still tied up) that is a 31% ROI in less than one year on one trade.
No, certainly not all trades go this cleanly and not all trades are of this size, it was more for a comparison as if I had to make a trading decision based on this particular stock. Based on this style of analysis I would not consider trading this one anyway. There are other methods that would suit this one better.
I also must take care in shorting as I think there is a dividend involved here so I would end up paying that out of my pocket if I held the short through distribution time. Still a nice trade even with the dividends counted out.
Jeff.
