By Christopher Diodato – TradersBase.com
Yes, yes, the symbol is actually HOT. The stock is Starwood Hotels & Resorts. Traditionally, it has been a growth stock, increasing over 150% since 2009, but growth stocks can not be growth stocks forever (even Apple).
Traditionally, a sure sign that a growth stock is peaking is when it gives out its first dividend after a long run up. Strangely enough, this action has been correlated to a scarcity of profitable projects in the future, decreased earnings, and subsequently, lower stock prices. A few examples of this phenomenon.
- GPI: A stock that I owned in early 2010. It gave its first dividend after a 50% upswing, and has been in a sideways trend since
- CSCO: Perhaps they thought that giving a dividend would lure investors who are dividend hungry. Apparently not.
- MSFT: Thanks to Ralph Nader, MSFT started giving out its vast quantities of cash. How long has Microsoft been going sideways?
HOT is about to join the list, giving its first dividend ever a few months back. My detailed technical analysis is in the video below. Also included is an update on JEF, which actually gave a weak short sell signal on Friday.
Here are the charts of both, and the video is last.
See where that latest blue line was broken by those red O's? That's a sell signal!
For now, this is the bullet summary of what you need to know
- Symmetrical triangle formation has not broken out yet, but has a bearish bias
- Stochastic sell last Friday
- Money flow index sell last Thursday
- Point and figure sell last Friday
And the strategy
- Enter your short sale with a $57.22 stop sell order
- Your target is 50.00 (How I got this is in the video)
- Exit by buying back your borrowed shares with a loss if it closes above $58.00
Happy trading! This market can drive anyone nuts!
~Christopher Diodato
Great find man….enjoying the videos. I am a little new to options trading but am catching on quite fast and sticking with triangle formations with pretty good success. I have a couple of questions.
1. How does one sift through thousands of stocks to find the great setups? Is there an aggregation site out there that can give you lists of stocks and be able to filter by the characteristics you’re looking for?
2. What charting software do you use? I’ve been using the Java based stuff from the brokerages which are quite lacking.
Hi JC,
Actually, a while back, I made a video on how to use the pattern finder on thinkorswim. That’s still the program I use.
http://www.youtube.com/watch?v=e3jfWQblAbo
I actually have found though that the automated services do a pretty lousy job at judging the patterns, so I only ask my charting software to provide me with a list of symbols that may have the patterns. I do not let it tell me what pattern the computer sees.
Aside from that, I’ll generally just go on the NYSE website and quickly flip through 100 stock charts each night.
Think or swim has a scanner built into it’s platform via the prophet charts component. Stockfetcher is $25 per quarter and you can create some wild scans with it using indicators as well as FA criteria. I have been a subscriber of Stockfetcher for years and recommend them. 8)
Thanks for the responses guys, that really helps. I’m digging Stockfetcher.
Chris, Excellent work. Im going to be viewing more of your material. What really impressed me was how you objectified the trade. What do you think about oco triggers? Looking forward to more videos
Thanks! The responses are really helping me to improve my own skills as well as helping the website grow.
OCO stop orders are excellent for patterns that do not have a bias, such as the symmetrical triangle or rectangle formation. I actually like using them when I see a trade setup long before I actually expect a breakout, so I can just make a GTC OCO order.