Patience Is a Virtue, Especially When It Comes to Stocks
It’s a virtue that even Captain America, the fictional big-screen character, can remind us of.
I took my son to see the latest blockbuster movie — Spider-Man: Homecoming.
After the credits rolled, my son and I sat eagerly awaiting the post-credits scene which, for these types of movies, tends to tease the next big thing.
Only it wasn’t a big tease, just Captain America giving us a final dispatch on how patience is necessary. But he also noted that it isn’t always rewarding — sometimes we wait a long time for something and it isn’t what we expected … just like his announcement.
It ended up just adding that Spider-Man will return, something we could have already guessed.
But this message resonated with me and the approach I take when it comes to investing — patience is key.
The Best Possible Time
When someone like you signs up for one of our trading services, you are eager to get trades and make money. And we, as editors, are just as eager.
But it’s important to not trade just for the sake of placing a trade — all of the stars have to align to enter a trade.
If we are throwing out trades without any discretion, it will show in our performance and confidence. But if we do our due diligence on every trade, remain patient and only recommend it when it’s the best possible time, then our performance will be better and our overall confidence about the trade will be higher as well.
I know there are those people who are extremely confident no matter what they recommend. But the negative side of that will show up in their returns.
I had an example like this come up in my premium research service, Automatic Profits Alert, which focuses on seasonality of sectors in the market to make specific stock recommendations.
Over these summer months, trading slows down a bit, and we have a few bearish trades.
But there’s one trade that is over two months past the start of its seasonally weak period, and even with readers eager for new trades, I have held off on entering it — and it was the right call.
Waiting for a Break
The sector is the materials sector, and it’s a bearish seasonal pattern that typically starts around May 10 and lasts until October 1. However, today is July 17, and I still haven’t given the green light on the trade. In fact, I have only recommended one new trade in the past two months, so readers are extremely eager for a new trade — but the timing just isn’t right yet.
Along with our seasonality measures, I also pay close attention to our entries and exits on trades. I use a momentum indicator to assist us, and also key support or resistance levels for the respective stock.
In this case, I was tracking the Materials Select Sector SPDR ETF (NYSE Arca: XLB) to look for weakness. In particular, I kept a close eye on a trend line that was supporting prices at that level, and sure enough, it acted as support two more times since May 10.
Take a look:
You can see that this trend line starts from the bottom in January 2016, and is tested and created on October 2016. From there, it isn’t tested again until April of this year, and it holds.
On May 10 we were supposed to enter a bearish position on the sector, but I noticed the strong trend line and made that my deciding factor. I told my readers we would remain patient and wait for it to break below that.
The prices did break below that, but only for one day, and the next day they closed above the trend line — noted above as the third arrow from the bottom.
So we stayed patient, and prices have tested that trend line one more time in June. The sector rallied higher.
Now, here we are, more than two months beyond when the bearish season for the sector should have begun. Readers are demanding a new trade, but I continue to preach patience.
Not because at the end of this there may be something worth waiting for, but because being patient in investing is how we gain confidence and boost our track record.
Had I gone with readers’ eagerness and hurried this trade, we would have entered well before now. Yet this is the highest point for the sector since May 10 — so any point prior to now wouldn’t have been the best entry point.
I don’t know how this trade will end by the time we enter it. But I do know that by us being patient to enter the trade, we are going to have an ideal entry point, and one that I’m confident will give us the best return during this seasonal trend.
Chad Shoop, CMT
Editor, Automatic Profits Alert