Thirsty Finance Official Blog

Two Long Trade Ideas: AB and GLD

July 6, 2014, 9:49 am

The monthly charts for Alliance Bernstein, above, and gold suggest there may be rumblings of powerful new uptrends.

Trade Idea #1, Stock Symbol AB

The above monthly chart for Alliance Bernstein, a company that manages investment funds, suggests that the stock may be about to recover to the upside from its epic downturn during the 2008 financial crisis.

The cause for optimism in the stock AB is the long base following its severe bear market. This base indicates high turnover -- a classic signal of market bottoms and tops -- and shows what's known in technical trading as a "cup and handle" trading pattern. First identified by growth investor William O'Neil, cup and handle patterns appear in early bull markets, where the incipient trend is still weak and market participants are unsure about the market's direction.

Learn more about cup and handle patterns here:

An investment based on this set-up would be a long-term investment, one that may last up to 5 years. To enter this investment, one may buy at the current breakout price of $26.57 and use a mental stop of $23.50 to demonstrate the trade was wrong. This investment is attractive because of great:

  1. Technical chart set-up (cup and handle)
  2. Company & fundamentals (this company is a proven winner and not going anywhere)
  3. Risk-reward ratio, since the upside is a re-test of all-time highs near $100, while the downside is about $3 per share

Trade Idea #2, Stock Symbol GLD

The next possible long-term trade idea is gold, which trades on the stock market under ETF symbol GLD. In the above monthly chart of GLD, it can be seen that gold's headline-grabbing bull market of 2010 and 2011 has been fully digested, and in fact there has already been a 50% retracement back down from those bull market highs. This is a bullish signal, suggesting that weak speculative hands who chased the bull market higher have since been shaken out, meaning the tide is ready to shift from sellers hitting the "panic" button to buyers hitting the "greed" button.

A trade in gold would look for the commodity to re-test its 2011 highs above $180. One looking to enter this trade would buy a breakout of the current trading range at about $127.50, and place a mental stop loss beneath the current trading range at about $115. It's clearly-defined risk management like this that provides investors and traders the favorable risk-reward ratios necessary to perform well.

Where to Learn More

To learn more about the investing and trading topics discussed here, check out the following Thirsty Finance lessons:

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