Stock of the Week: Locking in Gains in G-III Apparel Group
What would it be like to trade stocks every day and not care for a moment what happens in Europe?
That might seem like a fantasy to many traders, for whom “depending on Europe” has become a heroic simile on the end of every comment, observation or prognostication about near-term market behavior made in the past several weeks and months. But for data-driven traders, for whom the idea of “see the trade, take the trade” is paramount, news from Europe – and Washington, too, for that matter – is just noise.
Recently overbought conditions in the market for shares of ^GIII^ were an example of how traders can find quality, short-term trading opportunities even amid anxiety over the global economy and domestic politics. Shares of GIII spiked higher in the first half of December after closing higher for four days in a row below the 200-day moving average. Already trading at overbought levels before the surge of nearly 18% higher, GIII continued higher, closing in overbought territory for another two sessions.
And while many traders might have looked at the rally in GIII as an opportunity to buy a “sure thing”, at least in the short term, the stock actually had become much more vulnerable to moving lower than contiuning much higher for long.
As the chart below shows, GIII earned significant ratings downgrades to our lowest “consider avoiding” level of 1 out of 10 in the days leading up to what turned out to be a short-term, tradable top.
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Traders who took advantage of these extremely low ratings and extremely overbought conditions were able to sell short shares near the top of GIII’s bounce higher. Covering that position after the stock sold off just a few days later meant traders could realize gains of 6% or more depending on their short entry level.
Data-driven trading allows traders to focus only on what matters every trading day. By following a “see the trade, take the trade” approach – and letting the algorithms behind the ratings do the rest – traders can ask and answer the only question that makes a difference to their bottom line: are there edges in the stock market today? How can I best take advantage of them?
And in a world in which traders are too often battling the irresistable forces of finance and the immovable objects of politics, being able to simply answer that question every day can be more than enough.
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David Penn is Editor in Chief of TradingMarkets.com