Trade 2 Completed Successfully. The Search for Trade 3 Begins

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Trade 2 Completed Successfully. The Search for Trade 3 Begins

This week, having just watched Mickey’s Magical Christmas Parade in Disneyland Paris, I said, “If we stay for another hour, we will see the Christmas light switch on!”.

My wife asked my two sons and their cousin if they wanted to stay or go swimming, back at the hotel. They all started chanting, “Swimming! Swimming! Swimming!”

“We can do swimming any day of the week but we’re only going to see the light switch on once!”, I protested.

“Swimming! Swimming! Swimmng!”

I was fighting a losing battle against child democracy in action, so back to the hotel we went.

As I entered my room, I switched on my mobile and up popped a series of texts from Pete and Steve, my partner’s in our, “£1000 to £100,000 in 50 Trades or Less Experiment“.

“Look at Sky! Up over 30%. I think we should sell”

“Yes sell. All agreed?”

“Yes”

“Getting 1022.50p quoted, I’ve sold”

“Me too”

“Me too”

Within minutes of selling, Sky’s share price was down to 1000p. Good job I went with the children’s vote, to go back to the hotel.

Trade 2 Completed Successfully. The Search for Trade 3 Begins


1st Trade: easyJet (EZJ)
Bought at: 999p
Sold at: 1120p
Target Gain: 10%
Actual Gain: 12%
Stake: £1000
Gain: £120
Total Amount going on to the Next Trade: £1,120

sky_logo
2nd Trade: Sky (SKY)
Bought at: 865p
Sold at: 1022.50p
Target Gain: 10%
Actual Gain: 18%
If you add on the 2.2% final dividend, which we reinvested, then this would make the gain just over 20%.
Stake: £1120
Gain: £224
Total Amount going on to the Next Trade: £1344

We were fortunate with Sky. On Friday Rupert Murdoch’s Twenty-First Century Fox, struck a preliminary deal to buy the 61% of Sky it did not already own, for around $14 billion.

The proposed offer of 10.75 a share in cash.

Having said that, looking at the chart it seemed that Sky had put in a bottom, at around 750p and had retested it. Also the price on Thursday and Friday, pre-bid annoucement, was above the previous low of the spike down, at 773p after the Breit vote. The relative stength index was also heading towards 50 and the moving average convergence and divergence was also headed in the right direction.


(click to enlarge)

Was this because the bid rumours were already circulating?

Maybe but I also feel Sky had been way over sold, for some reason. One could also draw conclusions from this. Why was it oversold? Trading results had not been below expectations. Far be it from me to suggest market manipulation was at work here, pre-bid.

All I do know is that Sky was due a bounce. When a share price is this oversold, based on assumptions and not facts, the risk is already priced in. The hard bit is not knowing if the bounce will happen but where it will happen.

The Search for Trade 3

As we make our trades on these stocks, we’re learning all the time. Here’s some of the criteria a company has to fulfil, in order to be considered for our next trade:

1. A market capitalization of more than £1bn.

2. A dividend greater than 4%. Their dividend must also be secure and not under threat of a cut.

3. Relative strength has to be oversold, on a weekly time frame basis.

4. Relative strength has to make double bottomed on a daily time frame basis.

5. The share price should re-test a previous low, therefore showing a double bottom, with the second test being a higher than the previous low.

6. The company’s share price should only be hitting lows due to a macro or general sector issue not due to a comany specific issue.

I already have 1 stock that fulfils some of the above criteria but it has yet to satisfy some of the technical points regarding higher lows and a building relative strength.

If it does start to fulfil these points I’ll highlight the stock here.

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The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.

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The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.