Staples - Buy the Next Pull Back

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Staples - Buy the Next Pull Back - Building out the "Portfolio" and other Short Term Moves

Understanding and reiterating that our ultimate goal is to build wealth, we are taking another look at Staples after a small win a week or so ago. Call it intuition or just an old trader’s hunch, but I have a good feeling about this company and definitely would not mind holding it long term which is against my swing trading guideline of being in and out within 7-10 days.

I already “put my money where my mouth is” and took a reasonably large position in SPLS at the opening today. I bought on today’s pull back at $16.38 so the rest of this article is justification for that move and some discussion on how the wealth building strategy is evolving.

Here’s why I like Staples more than the average company right now:

  1. The pending acquisition of Office Depot – from Bloomberg – “On February 4, 2015, Staples announced that it would acquire its remaining competitor, Office Depot Inc., in a deal valued around $6.3 billion, which would give it ownership of both the Office Depot and OfficeMax chains.
  2. The ultimate dominance in brick and mortar office superstore space. There are still plenty of small business owners who want to physically go to a store to outfit their small business and talk with a knowledgeable sales person about their technology needs.
  3. I have been shopping there for years and love the layout, the customer service and the convenience of finding whatever I need for my business all in one place.

Rounding Out the “Portfolio”

I’m also looking more closely at JMEI and Xerox with small ownership positions in both. For now they are strictly “in and out” swing trades but I want to see how they behave over the next few weeks.  I hesitate calling this a portfolio right now as most of my money is still in cash, but if it builds over time with the swing trading strategy I will be adding value to the wealth portfolio – just doing it a bit differently than the traditional fundamental investor.

For the record, I bought JMEI at $21.75 and XRX at $11.59.  They are both off a bit today, but I am not overly concerned right now as the Dow is down and when it picks up in the next few days, my stocks should rise with the tide.

With the market at an all-time high, I am still reluctant to commit very much of my capital to any long term positions right now but am instead, moving in and out as the opportunities present themselves. I tweaked my screening a bit to find stocks that historically move within a specified range, but are going sideways at the moment.

Resist Jumping of the Band Wagon with the Crowd

I made the mistake of buying a couple when they were in rally mode and caught in the down draft. I am now buying in anticipation of the up move instead of when it is already in progress.  There are tools that at least in theory help predict such moves in the Master Swing Trader discussed in previous articles.

The science of technical trading with candlesticks and other tools is relatively complex and it is taking me longer than expected to internalized them all again. One of Alan Farley’s key messages is that an experienced technical trader visualizes opportunities based on predictable patterns.  I remember being reasonably good at it in the past but am having some difficulty coming up to speed this time around. 

Relearning an Old Skill Yields Buys in JMEI and XRX

As with relearning any skill, I am going back to the basics and carefully re-reading and studying the principles of swing trading. The JMEI move was based on my determination that it is running flat right now building support for another upswing.  

After JMEI emerged from the standard screen, I looked at the 3 month and 6 month candle stick charts with Bollinger Bands in place and saw a potential upswing that precipitated the move.  

There is a strong resistance line in place, but the Bands seem to indicate the stock will break through that resistance shortly. It actually took a good run at the 22.50 resistance line on Monday but I decided to hold for a bit longer and now wish I had cashed in because it dropped later in the day. We will see if my chart reading skills are any good over the next few days!

Farley actually advises placing buy orders on either side of the resistance line and then staying with the one that materializes.  I’m not that sophisticated yet and remember getting “my hat handed to me” on more than one occasion when I sold a stock short so will avoid that for now.

The second Xerox buy within a few days was again based on my knowledge of the company and a belief they will get their act together before the next earnings report is released. From a technical stand point, it honestly doesn’t look very good right now with a widening downturn in Bollinger Bands, but a short term chart seems to show a mini rally may occur. I’ll watch this one closely and be ready to pull the plug if it goes against me in the next few days.

Combining Fundamental Analysis with Technical Insights

My core strategy is evolving into one where I am combining fundamental research with chart analysis. Once I screen for candidates within a specified size (mid to large caps) with sufficient volume (> 1 Million shares a day) and some level of historical volatility (ATR of 1 or better), I then research each candidate to assure myself that I would not mind holding the company long term if the trade goes against me. In that way, I don’t panic when the stocks goes down for the first few days (they always do!) and remind myself that I don’t have to sell. I only lose the money when I sell. Paper losses don’t hurt as long as you are trading with money you can afford to lose. (Never trade with the mortgage or grocery money!

I'm on record with several recent buys and will report how I am doing as I close out my positions. If I do well, pay attention to my moves. If I do poorly, know that I am still working to perfect the strategy and will eventually get it right!

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