In my Quantum Edge Pro portfolio, we had a stock with one of the most beautiful Fundamental Scores you’re likely to find: 87.5 out of 100 in my Quantum Edge system.
Then, on Wednesday, we SOLD that stock. Cashed out and walked away for 25.5% total gains.
I share this story with you today as a helpful example of how to think, how to act and how to move in this messy, uncertain market.
When we return on Monday for another trading week, that next “surprise” is sure to be hiding in the shadows… Just like it was this week, with yet another regional-bank catastrophe at First Republic.
But in today’s edition of Power Trends, I’ll show that you can make money – even big money – come what may.
Just as we did with our 25.5% stock: Old Dominion Freight Line (ODFL).
“When the Big Money flows into a stock as fundamentally strong as Old Dominion, good things happen,” I wrote in my Quantum Edge Pro buy alert for ODFL when I recommended it in September.
“Just look at how ODFL shares have accelerated since 2016, with repeated Big Money buy-in.”
And I showed folks this chart:
Knowing when to sell a stock – especially one as promising as ODFL – can be a much bigger challenge than knowing when to buy. Even for a seasoned pro.
Once your position’s up 25%, those profits feel like they’re really yours … that they really belong to you.
And the only “losses” on your mind are opportunity losses – you know, the additional profits that seem to be there for the taking. Hypothetical gains you’ll leave on the table if you take a profit and sell out now.
That’s emotion talking. And emotion leads to mistakes. I learned this in my own journey long ago – and created my Quantum Edge system to excise emotion completely.
From now on, managing your profits – and managing risk – will be a whole lot easier.
How to Give Your Stocks Wiggle Room Without Too Much Risk
When I recommend stocks in Quantum Edge Pro, I always include a Risk Point. Similar to a stop-loss – but it gives the stock a little more room than just one, arbitrary exit price.
I start by determining a stock’s average true range. As you’ll guess from the name, it’s a true range of volatility between the open and the close and the high and the low of the stock.
Then my proprietary system applies a couple of more layers of statistics to determine my Risk Point.
If a stock goes down, this Risk Point aims to cap our losses.
And if the stock moves higher, this also protects my profits – by doing one (or both) of two things.
First, you need to raise the Risk Point so it becomes a trailing stop.In other words, the Risk Point moves higher as your stock moves higher.
If that stock turns into a big winner, that stop price eventually moves above your purchase price.
If you do this – no matter what wild cards the market tosses your way – you have as good as shot as possible at a profitable trade.
That’s just what happened with Old Dominion Freight Line.
We bought ODFL at $259.78.
And we liked the numbers and the narrative.
When those changed – because of a change in the company’s financial picture – we acted.
When the stock closed at $305.52, I sent an alert email that said: “The stock closed below our raised Risk Point today after sliding following disappointing earnings, so you can go ahead and sell the remaining two-thirds of your shares tomorrow.”
The original one-third we actually sold back in February…
Which brings me to the second profit-taking strategy I’m going suggest to you today:
Consider selling a portion of shares – a third of your stake, or even half – when you get to a 30% gain.
In a market as uncertain as this one, that’s a particularly shrewd strategy.
Through 15 years of using my stock-picking system, my goal is very simple:
“Have your cake and eat it, too.”
I love cake. I want to keep it, and I want to eat it. I’m sure you feel the same way.
And we want to be just as smart and analytical about managing our profits and our losses as we are about buying stocks in in the first place.
In this case, we went ahead and locked in a 41% profit on that initial one-third position in ODFL on Feb. 1.
Then came the next quarterly report this past Wednesday.
Wall Street was looking for earnings of $2.70 a share. Old Dominion Freight Line reported profits of $2.58 – a 1% drop on a year-over-year basis.
It was the first miss in 11 quarters. And it was exacerbated by a shortfall in sales, too: The forecast called for $1.48 billion, and the company reported $1.4 billion.
There were some bright spots, like LTL (less than truckload) revenue growing more than 9% per hundredweight, debt holding steady and an 11.5% growth in cash.
Even so, it was a disappointing report. And management didn’t soften the blow with upbeat guidance.
But we navigated this disappointment because, No. 1, we managed our profitable position to this point…
And, No. 2, we could very quickly, very easily assess the stock objectively – thanks to my Quantum Edge system.
Even if you still like the Fundamentals (87.5) after the earnings miss… That Technical score (55.9) just doesn’t cut it.
It’s all about buying the right stocks at the right time.
With an overall score of 69, that stock has now fallen out of my preferred range: in the 70s to 90s. (A perfect score of 100 tends to signal that the stock may actually be overbought and ready to turn lower, in case you’re wondering.)
That’s not an automatic sell signal, but when we’re sitting on nice gains, it’s often best to book our profits and look for our next opportunity.
Bank failures or no … inflation or no … volatility or no … a hawkish Fed or no … we make money by avoiding emotional moves and sticking to our strategy.
Strong fundamentals … strong technicals … and Big Money catalysts.
Again, buying the right stocks at the right time – and selling out when they’re no longer one of the “right” stocks.
There’s always a new opportunity coming along. And you can ride right along with us for our next Quantum Edge Pro or Quantum Edge Trader alert.
Editor, Jason Bodner’s Power Trends