Altria Group Inc is consumer goods and services juggernaut with a market cap of $70.41 billion with a dividend yield of 5.47%.
Today’s installment of Trading Lessons From A Hedge Fund Trader will focus on a simple technical filter. Our goal as a trader is to quickly look at a stock’s technical or fundamental position and to quickly asses if the stock is presenting us with an optimal risk reward scenario to make money.
The long term weekly chart below shows you what is going on with the stock in question. If the stock is clearly moving DOWN then don’t be a hero and be LONG stocks. If the stock is clearly moving UP then don’t be foolish and be SHORT stocks. Don’t fight the trend because you will lose in the end.
I believe that the fundamentals of a company give us an overview as to where the stock should move in the perfect world but the stock’s technical picture gives us the tools necessary to create the actual pre-trade risk reward scenario. We should only take the trades get give us the greatest probability to make money.
Let’s take a look at Altria Group (MO.NYSE) and learn how to apply our simple technical filter. We won’t be using fundamental analysis today because I want to teach you how to quickly scan a stock before getting down and dirty in a company’s financial statement.
We will be using 2 charts to analyze Altria Group (MO.NYSE):
Let’s take a look at the 2yr chart of Altria Group (MO.NYSE).
I created 2 trend zones that clearly show a change in the chart’s behavior.
The 1st zone is from Aug 2011 to Aug 2012 where MO.NYSE moved over $12 in a powerful uptrend. The stock moved about 50% in a 1 year span and that type of move for a $70.41B Market Cap stock is unsustainable.
The stock provided us with a classic Fibonacci trading lesson: The 38.2% retracement (Nov 2012) from a powerful move provides a great entry point for a with-Trend trade (using a dip to go LONG only AFTER the stock cleanly bounces from a 38.2% retracement).
Most people like to anticipate the bounce and try to buy the dip, DON’T buy the dip, be patient and wait for the stock to bounce where you expected it to bounce and GO LONG after the bounce LOW is in set in at a level higher than the 38.2% retracement zone. Then you can use the LOW of the retracement move as a STOP zone for the WITH-TREND trade.
The 2nd trend zone is from May 2013 to now where MO.NYSE is stuck in a $5 trading range. When you see a stock put on the breaks then that means you should lighten your exposure and take partial profits. The stock is going to consolidate and we don’t want to hold stocks in a consolidation zone.
Now it’s time to drill down into the details of the most recent price action.
You can clearly see that the Altria Group (MO.NYSE) is in a $4 consolidation zone. I expect the stock to linger here for some time until a new catalyst develops.
The lingering or the consolidation process gives the stock the pent up energy needed to explode to the upside. After a huge move up, I’d prefer the long only after a lengthy stay in this $4 consolidation zone.
Mr. Fibonacci offers us a risky SHORT play in this area but I reserve that trade for the highly disciplined trader. The SHORT set up offers a beautiful risk reward setup, other than that, it’s time for the stock to rest and that means take your profits and run.
We learned that it makes senses to keep your strategies as simple as possible.
When the long term chart looks like it has been going UP consistently on the same trajectory then only be LONG stocks.
When the long term chart looks like it has been going DOWN consistently on the same trajectory then only be SHORT stocks.
When the long term trajectory slows down and appears to consolidate then take your profits and run.
Don’t under estimate the power of a simple trading strategy. Little do you know that it has taken me over a decade of institutional trading experience to refine a lot of complex trading ideas into easy to understand simple trading strategies.
You can layer more sophisticated Fibonacci strategy’s to the mix but master the basics before you add the complicated trading ideas
This is a cursory look at Altria Group (MO.NYSE) and we are not making any specific buy or sell recommendation but merely voicing our opinion of the current situation. Each individual investor must conduct their own due diligence of both the company, the market sector as well as their own financial situation and risk parameters.
If you would like to know how we would create a trading strategy using companies like Altria Group (MO.NYSE).then check out our Flagship Newsletter.
Originally published September 17, 2013 BehindWallStreet.com