Bulls vs. Bears, it’s a never-ending fight between the parties. Like two grizzled politicians struggling to win over the public’s sentiment.
But any savvy trader will tell you: there is enough room for bears and bulls to profit— that is if they can spot the trend.
And how about this market?
Do you buy it, thinking that this is the time it finally breaks out of key resistance levels…
… Or do you go against the current trend, and start leaning bearish?
Reading the news and listening to the talking heads on TV won’t help… neither will streaming through twitter or surfing the blogs. There is just too much noise in the market to trust any of it.
But, I’ll tell you this: I’m not going out on a limb to short the overall market…
… however, I am not against those who are contrarian.
For the most part, if I’m going to place a contrarian bet, I’m going to remain stock specific.
In other words, if I see a stock selling off, I will conduct my due diligence… and laser in signals that tell me there is a high chance for a bounce.
When is it time to play contrarian?
I’m going to show you two contrarian trades I recently put on in two beat-up brokerage stocks. It’s amazing how often you’ll come across this opportunity after I teach what to focus on.
I’m pretty sure you heard that many brokerage firms have introduced zero-cost trading, TD Ameritrade (AMTD), Charles Schwab (SCHW) and E*Trade (ETFC) were the big names.
To retail traders like you and me… that’s amazing news because we can trade on the cheap. However, to those Wall Street fat cats — it meant weaker revenues and earnings… and that’s what led to the massive gap down in those stocks.
Of course, many were trying to bottom pick those stocks… but how do you know exactly when to play for the reversal?
Just take a look at AMTD.
Of course, when you look at the chart now, it’s easy to see where it rebounded… but in real-time, you could’ve actually spotted that play.
For example, if you notice the blue horizontal line, AMTD found some support there and actually caught a bid after the 3-day massacre.
Basically, I saw 1,631 AMTD Oct. 25 2019 $38 calls go off for 40 cents apiece one day… this was on Oct. 2, when AMTD was trading at about $33 – $34.
That meant the trader needed the stock to move more than 14% just to break-even before the expiration date. Pretty wild bet.
But this came just the day after the news broke…
However, I knew I should wait.
So I thought about it some more and found a catalyst event…
I was able to buy those options for a heck of a lot cheaper than the “insider” who swept up over 1,600 of them.
I pretty much set it and forget, and was able to lock in about a 30% winner on AMTD.
It was a similar story with SCHW.
The stock got beat up… but it had an upcoming earnings announcement. Generally, I like to stay on the safe side, so I actually sold them after I caught a pop… since I didn’t want to hold those call options into earnings.
But it’s the same idea… find a support level, an upcoming catalyst, and another reason to solidify your thesis — for me, that was UOA in both AMTD and SCHW.
The next time you think about going against the trend and taking a contrarian bet… make sure you have reasons to back it up. It could be technical, or fundamental… or it could be based off unusual options activity.
Whatever you choose, just make sure you are patient and don’t jump the gun… wait for clear signals that tell you EXACTLY when it could start moving to your favor.
If you’re a contrarian and have been dealing with losses… it’s okay… the only thing you can do is try to manage them properly.
— Raging Bull (@RagingBull) October 23, 2019