It has been another great week for our recent trade ideas generated using our Checklist process. In last week’s blog I shared with you the rather contrarian short setup that we highlighted in equity indices this month. Whilst the S&P 500 has partially recovered its losses, our process captured the -4.5% decline that very few investors saw coming. However, select trades in high quality companies have faired much better, including our example of the pharmaceutical stock from a couple of weeks back (its still too early to reveal the name publicly, but our Trading Club members have the full information). Let’s take a look at how it is fairing amidst the market volatility this month...
Firstly, here’s why we liked the stock. The fundamentals looked sound; with great management, products and financial health metrics. The market valuation was also attractive, and appeared to be under-appreciated by investors. Our Checklist score arrived at a +5, highlighting this company as a potential long idea.
With the fundamentals looking good, we also needed to evaluate the technicals. The long term chart looked primed for a breakout following a multi year consolidation...
Although the technicals looked good, the idea was generated during a generally falling market this month.
But despite this, the stock has displayed impressive relative strength, and looks coiled for a breakout of the 'bull flag’ formation on the daily chart.
With a gain of 4% month-to-date, compared to a loss of 1.7% for the market, the stock has become the best performing name on my watch list in August.
Time will tell how this continues to play out, but with encouraging price action and the weight of fundamental evidence underpinning the idea, I have conviction that this will be a name to watch closely!
To reveal the name of this stock, and be better informed than retail investors who do not employ the same process that we teach as professional fund managers, join us at the Academy to become a member of our Trading Club, and learn from Lex himself with our Million Dollar Traders Online Course.
Have a great weekend,
James Helliwell | Chief Investment Strategist