Einstein Thinks You'd Be Nuts to Pass Up This Trade
So you aren’t a number-crunching brainiac…
You don’t need to be a mathematical genius to figure out why a simple trade could make you 20% gains in the next 78 trading days — even though it’s a strategy that ties in with one of Albert Einstein’s most famous quotes.
You’ve probably heard the old quote before: “Insanity is doing the same thing over and over again and expecting a different result.”
It’s typically attributed to Albert Einstein. But even if everyone’s favorite theoretical physicist never said it, it’s pretty good advice.
But what most people don’t realize is that it applies to the stock market…
“Certain stocks have something called seasonal bias,” stat man Jonas Elmerraji explains. “In other words, they tend to rise and fall consistently during the same timeframes year after year.”
That’s not a new concept. For decades, market participants have noticed seasonal cycles in the financial markets. Think of demand for natural gas going up in the winter months, or supply for corn and wheat ebbing and flowing with the growing cycles.
Stocks have their own cycles too. But they get complicated, Jonas says.
“Stock cycles aren’t just ruled by supply and demand for their products and services. They’re also impacted by earnings call dates, and insider trading calendars, and even the types of investors drawn to invest in the particular stock you’re looking at,” explains Jonas. “We can try to guess at some of them, but it’s usually a waste of time.”
For instance, you might guess that Halloween helps drive a seasonal price bump in candy giant Hershey Co. (NYSE:HSY). But you’d be wrong. (Hershey does get a seasonal bump around Valentine’s Day, but not a very big one, Jonas says. It’s only good for about a 4% gain.)
“The good news is that we don’t need to know about all of those endless inputs to find tradable cycles in the stock market,” Jonas continues. “Instead, all we need to do is analyze the historical price data and find the stocks with statistics that can’t be explained by random market movements alone.”
The best part? You don’t need to take a crash-course in data science to figure out which stock cycles to buy.
Jonas has even agreed to share one with you today…
Adobe Systems (NASDAQ:ADBE) has been off to a strong start in 2017. This software company is already 5.6% higher than it ended 2016, and the data suggests that that winning streak is about to accelerate.
“That’s because Adobe has a profit pattern that starts in the tail-end of January and lasts through the middle of May,” Jonas says. “It’s worked out in 19 out of the last 22 years, and paid off for an average profit of 20%.”
The fact that Adobe’s price action is trending higher in 2017, paired with a statistical profit pattern that kicks off in January makes this a very attractive name to own to start the year.
If you decide to buy ADBE here, consider parking a 10% trailing stop below your entry price. According to Jonas’ data, in the few calendar years when the Adobe cycle hasn’t panned out, the average drawdown has been that 10% number.
Adobe’s a textbook example of a “heads I win; tails I don’t lose much” trade. It’s the perfect play to add to our portfolio right now…