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How to Stay Sharp in a Dull Market

The only thing that worries investors more than a volatile market is a calm one.

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With stocks in their least volatile period seasonally (June to August), now is the perfect time to gear your portfolio up for the second half of the year — when things really get moving.

Here are three strategic moves you can make today…

1) Fatten up Your Watch List

Louis Pasteur famously once said, “Chance favors the prepared mind.”

I couldn’t agree more.

The better prepared you are for what the market hands you, your chances of bagging big gains on stocks increase.

As such, an investor should always have a list of well-researched stocks ready to go when an opportunity presents itself.

This goes for long-term buy-and-hold investors and short-term traders alike.

For me, a good stock list has five to ten stocks from different market sectors. I also note the price I’m willing to pay for them and determine a near-term price target (usually one year).

Now, long-term investors don’t really need a price target. But if you’re planning on holding a stock for less than two years, having an upside target can help you to build an appropriate reward-to-risk ratio.

This ratio is simply a trade’s net profit divided by total exposure.

At a minimum, most traders are looking for a 2:1 return on capital. The most aggressive traders are often trading setups of 4:1 or more.

For a price target, you could easily use Wall Street’s consensus one-year price target (which can be found on sites like Yahoo or Google Finance). You could also craft one using your own valuation model, or use an online calculator.

Any way you slice it, armed with a watch list ahead of time, you’ll know exactly what to buy — and when it’s time to pull the trigger.

2) Mind Your Stop Losses

The second most important thing to do in a calm period is to adjust your stop losses.

After all, the best way to make money is not to lose it in the first place.

Most buy-and-hold investors use trailing stops, which automatically trail a stock by a percentage (like 25% or 35%).

And generally speaking, you shouldn’t need to adjust them unless a stock becomes more volatile than usual.

But if you’re sitting on a sizeable profit and you’ve got a hard stop (which is a manually set limit price) on a stock, you might consider raising your stop to lock in your gains.

This is especially true during long periods of low volatility, as they tend to be followed by large moves in stocks.

Louis Basenese uses strict stop losses at our flagship publication, True Alpha. To learn more about this research service — along with a list of new currencies now available to trade — click here.

3) Consider Options to Increase Alpha

Options are one of the best tools available to investors to pull outsized gains out of the market, yet they are widely misunderstood — and, as a result, misused.

When used correctly, however, they don’t only magnify gains over regular stock returns but actually are safer instruments than stocks.

As you may know, volatility is one of the biggest factors in the pricing of options. And when volatility is low, options get cheaper.

So let’s say you’re sitting on a stock that’s doubled in price over the last five years. Furthermore, you think shares have a bit more room to run but you want to take some profit off the table.

Consider selling your shares and using some of the proceeds to purchase a deep-in-the-money call option.

This strategy is called stock replacement, and it allows you capture a stock’s upside at a fraction of the cost to owning shares.

Bottom line: Don’t let this dull market lull you into sleeping on stocks. Let your winners ride and use the time — and these strategies — to prepare yourself for when stocks really start moving again.

On the hunt,

Jonathan Rodriguez
Senior Analyst, Wall Street Daily

Photo: “Hands Sharpening Blade with Sparks, Mumbai India” by AdamCohn is licensed under CC BY-NC-ND

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5 Retail Stocks to Buy Ahead of Black Friday

It’s that time of year again. The winter chill sets in. The nights get darker. And the smell of turkey dinners, cinnamon and pumpkins fill the air.

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It’s that time of year again. The winter chill sets in. The nights get darker. And the smell of turkey dinners, cinnamon and pumpkins fill the air.

And, of course: The Black Friday kickoff of the holiday shopping season. Which actually starts on Thursday evenings in more and more locales.

The retail sector is ready. Since peaking in early 2015, the Retail SPDR ETF (NYSEARCA:XRT) has lost roughly 20% amid reports of empty malls, competition from Amazon.com, Inc. (NASDAQ:AMZN) and tepid shopping traffic.

Soul searching, and corporate strategy shakeups, have followed. Now, many familiar names in the industry are down to their fighting weight and ready for a solid holiday season.

Here are five to watch:

Retail Stocks to Buy for Black Friday: Gap (GPS)

Gap Inc (NYSE:GPS) shares are surging higher after the company reported better-than-expected comp-store sales for the prior quarter, ending a long string of negative results.

Overall sales increased 1.1% to $3.84 billion. Barclays analysts raised their price target in response, highlighting underlying momentum in GPS stock.

Gap will next report results on Feb. 15. On Nov. 16, earnings of 58 cents per share beat estimates by four cents on a 1.1% rise in revenues. Forward guidance was solid as well.



Retail Stocks to Buy for Black Friday: Foot Locker

Foot Locker, Inc. (NYSE:FL) shares are surging nearly 30% on Friday, closing the gap from the post-earnings wipeout in August, after reporting better-than-expected earnings of 87 cents per share, seven cents ahead of estimates.

This despite a 0.8% decline in revenues. Forward guidance was strong as well, with smaller comp-store sales decline anticipated.

What really got investors excited was the announcement of an “elevated partnership model” with Nike, with a pop-up store in New York focused on Nike products and the hiring of Nike-focused employees to elevate the shopping experience across the brand’s stores.

The move is unlocking short-covering buying, with 10.5% of the float sold short.



Retail Stocks to Buy for Black Friday: Abercrombie

Abercrombie & Fitch Co. (NYSE:ANF) is surging nearly 30% on Friday after reporting better-than-expected earnings of 30 cents per share vs. the 21 cents expected.

Revenues grew 4.6% from last year. This is a decisive change in the positive direction from the previous two quarters, with losses of 16 cents and 72 cents per share reported.

Short-covering is in play here as well, with nearly 23% of the share float sold short. Top-line growth is turning around for the company, which is trying to reimagine itself after its old preppy-chic image grew tired: Comp-store sales increased 4% vs. the 0.5% analysts were expecting.



Retail Stocks to Buy for Black Friday: Best Buy

Best Buy Co Inc (NYSE:BBY) shares look ready for an upside breakout from a multi-month consolidation range going back to May after reporting solid quarterly results on Thursday.

Earnings of 78 cents per share matched estimates on a 4.2% rise in revenues. Impressive considering the drag on mobile sales from a delayed iPhone X launch.

The company will next report results on Feb. 15 before the bell. Momentum is increasing, with same-store sales up 4.4% last quarter after increasing 1.8% in the year-ago period.

With aggressive Black Friday sales on 4K TVs and other goods, the company is well positioned to have a solid holiday season.



Retail Stocks to Buy for Black Friday: Walmart

Wal-Mart Stores Inc (NYSE:WMT) shares jumped 10% this week after reporting better-than-expected quarterly results.

Up more than 40% from its March lows, the company has enjoyed increased investor interest thanks to its renewed focus on lower prices and aggressive e-commerce push with Jet.com and an upcoming high-end store brand offering; taking the fight to Amazon in a big way.

Earnings of $1.00 per share beat estimates by three cents on a 4.2% rise in revenues. Forward guidance for the holiday quarter was strong. The company will next report results on Feb. 15 before the bell.

Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.



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How to Protect Your Stock Portfolio in the Next Bear Market

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Originally Published at InvestingDaily 

The stock market is hitting new all-time highs on almost a daily basis. Good news for now, but the faster something goes up, the faster it can come crashing back down if the bullish music stops. What’s worrisome is that stocks have not even paused long enough to experience a run-of-the-mill 3% correction for than 255 trading days, which is the longest stretch of stock tranquility in history (i.e., at least since 1928). Stock valuations are also stretched, with some measures showing the current stock market as the second-most expensive in history.

Let this bake in: the stock market is more expensive now than in 1929 and more expensive than in 2007 – both time periods right before soul-crushing bear markets!

We’ve all made good money during this relentless 8 1/2 year bull market since the 2009 market lows, but much of these gains could be taken away if a bear market takes hold. Hedging your stock portfolio to protect against a bear market has never been more important!

U.S. Treasury Bonds Cannot Be Relied Upon in the Future as a Hedge

Investors have often used long-term U.S. Treasury bonds as a downside hedge because historically there has been a negative correlation between bond returns and stock returns. When the economy is faltering, bond prices historically go up and interest rates fall, whereas stock prices go down because corporate earnings will decline. The rise in bond prices will help compensate an investor for the drop in stock prices.

Sounds simple, right? Not so fast . . .

Math geniuses at PIMCO (bond king Bill Gross’ old company) have issued a warning that U.S. Treasuries can no longer be relied upon to protect a crashing stock portfolio. The reason is that the global economy has never fully recovered from the 2008-09 financial crisis caused by sub-prime mortgage defaults.

Long-term interest rates are so ultra-low right now after years of the Federal Reserve’s zero interest-rate policy and billions in quantitative easing – not to mention the negative long-term interest rates which exist in Europe and Japan – that there simply is not any more room for bond prices to rise or for interest rates to fall.

Furthermore, with commodities such as oil looking set to rise in price again after several years of a supply glut, inflation could come roaring back which would cause bond prices to fall even if stocks are crashing.

You simply cannot expect bonds to bail out your stock portfolio. The PIMCO quants describe the situation this way:

“The key to mitigating equity risk in portfolios is investing in assets that are negatively correlated with equity markets yet exhibit the potential for a positive expected return. For most of the past 20-plus years, bonds have fulfilled this role in portfolios, aided by a substantial tailwind of stable or falling inflation. On a forward-looking basis, bonds will continue to be a key part of portfolios, but the potential for both positive expected return and negative correlation with equities may be tested at times. Beyond fixed income, the search for positive-expected-return, risk-mitigating assets becomes more challenging.”

Stock Options are the Solution to Hedging Your Stock Portfolio

One of the asset classes that PIMCO suggests investors could use as a hedge to replace bonds is options, either buying puts or selling calls. Unlike bonds, which can get overvalued and useless as a hedge, options never go out of style and always work if used correctly. The reason is that options are derivatives of an underlying asset, and if that underlying asset declines in price, options on that asset can profit BIG TIME.

You see, options are leveraged tools that don’t cost much money but can offer turbocharged rates of return based on small price changes in the underlying asset. For example, the PIMCO quants say that a decline of 5% in a stock can translate into an option return of 33.2% or more. Perhaps most importantly, the positive gains from options can occur in reaction to negative price changes in stocks, making options the perfect downside hedge.

In both of my option trading services, Options for Income and Velocity Trader, I often recommend option positions that benefit from a stock price decline. In Options for Income, my preferred bearish strategy is a call credit spread and in Velocity Trader, I focus more on bearish put debit spreads. Both types of option strategies do a great job of hedging.

To learn more about these hedging option strategies, take a risk-free trial today to either Options for Income or Velocity Trader.


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New Device Spreading 5X Faster than the iPhone

The iPhone is the fastest-spreading technology in history. Faster than the PC, TV, or radio. Which makes what I’m about to share with you all the more astonishing…

A new device has emerged that is now spreading 5X faster than the iPhone!

Almost overnight, you’ll see this device everywhere. Homes, schools, businesses, hospitals… there’s no place this device is not entering. Or rapidly changing.

This device is so game-changing, and its future so lucrative, that everyone from Mark Zuckerberg to Bill Gates, along with every Silicon Valley giant, big bank, and media conglomerate is investing money in it.

And one cutting-edge company that makes the must-have components powering this device is about to deliver investors the windfall of their lives. Because right now, it’s positioned to reap a massive share of the $150 billion this device will generate.

If you want to lock in shares for a reasonable price, you need to make your move now. Click here to get the details you need to know.

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Nano-Cap Stock Of The Day – Why Is This China Construction Company Up 300% Today?

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Yesterday, it was CHF Solutions – a $10 million market cap medical device-maker – that exploded 500% higher on no news, no catalyst, no event. Today it is the turn of China Advanced Construction…

China Advanced Construction Materials Group, Inc. produces construction materials for large-scale commercial, residential, and infrastructure developments. The Company is focused on ready-mix concrete materials.

The $14.8 million market cap company is now up 300% on 4 million shares traded…

Notably, the machines can’t get enough of CHF Solutions again today – up 20% back to yesterday’s highs…

Caveat fucking emptor!

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

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