Trading Tips

If you’re looking to invest in one sector specifically, you may come in with some perceived notion.

For instance, if you were looking to invest in an oil company, you may pick a stock where a family member or friend worked for years. If you invest in the restaurant space, it may be because it’s a place you like.

Those types of decisions are part and parcel of investing. But once you’ve narrowed down on a sector to invest, a comparative analysis can help you find the best opportunity and help reduce some of the personal bias that inevitably seeps into investing.

For instance, in the food space right now, Kraft-Heinz looks terrible. The stock chart shows a decline of over 60 percent in the past year. A company like Hershey, on the other hand, looks great thanks to a 50 percent rally in shares.

But that only tells us what the price has done lately. It doesn’t tell us anything about prices going forward.

And a look at the relative valuations of the two companies tells us that Kraft is a bargain on multiple investment metrics relative to the broader food industry—and Hershey is at a premium.

So while the recent share price indicates one thing, valuations indicate another. And, eventually, whatever positions in the market get out of whack tend to get back in line with the averages sooner or later. As with other soft data, recent chart movements provide investors with a piece of data that they may act on, even if it’s not the full picture.

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For the past few years, markets have had some big swings every time concerns have risen over trade between the U.S. and China.

But rather than get worried over it, the best thing to do is to look at the pattern, and see how you can trade it time and again for profits.

The pattern has been pretty simple. Stocks have hit new all-time highs, then some new concerns, usually provided by a Tweet from the President, have talked up hammering China on trade. That’s created fear and uncertainty in the market, sending shares down.

The pattern concludes when China and the U.S. start talking nice about trade—or at least talking about sitting down to negotiate. Over the past few years, this pattern has played out a few times with a few minor variations. Until a permanent trade deal is struck, it will likely play out again.

Getting into the end of the summer, it looks like it’s happening again. This time, get in on the trade by making buys in the tech space. That’s an area that’s sold off the most on trade fears, given the amount of tech manufacturing in China as well as China’s insatiable appetite to increase its technological capacity.

Whether you buy a tech fund, or one more focused on China-heavy tech like the semiconductor space, there are plenty of ways to make a profit, including a number of leveraged trades to play it out.

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Investing is a lot more than just the numbers—earnings, sales, future financial projections, you name it.

There’s a mental and emotional aspect too.

That’s where you get extreme moves.

For instance, during the tech bubble in the late 1990’s, folks just kept bidding up shares of companies with no future prospects to be profitable within five years. But they felt that shares had been going up and would keep going up. They were right—until the bubble popped.

At the other extreme, after an asset has been falling for a while, people start to project that it will go to zero. Nobody felt enthusiastic about buying stocks in early 2009, although a decade later, that’s proven to be a great trade.

Besides those big-picture extremes, individual stocks and sectors can go in and out of favor far more often. It’s buying the ones out of favor—and selling the in-favor markets—that lead to large, consistent profits over time.

One such space is natural gas. Like stocks in early 2009, it’s looked ugly for a while now—seemingly with no end in sight.

Production is high, so high that we have a lot of supply swimming around to keep prices down. And prices are down 50 percent from last winter—and nearly 30 percent since the start of 2019.

Of course, part of the explanation is seasonal. Natural gas is great for heating, and in the middle of a summer heat wave, that’s the last thing on anyone’s mind. But some of the explanation for low prices today is a feeling that the whole sector will remain underpriced forever.

But winter will come. Production will decline, whether from shale producers going bankrupt or today’s lower prices leading to shutdowns. Nothing stays out of favor forever, and out-of-favor names that move in-favor tend to get a big percentage move higher.

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Lately, most pieces of macroeconomic data seem to fall into a “good news/bad news” category.

For example, unemployment is near a 60 year low. That’s good news. But as unemployment has gotten low, new job growth has slowed. That’s bad news, as a slowdown that goes too far could tip over into higher unemployment and a slowing economy.

Housing data has looked pretty good, but also shows signs of a slowdown. So do many pieces of industrial production data.

One corporate CEO, while on an earnings season conference call, even went as far as to say it was one of the most unusual periods in all his time in business. That CEO is the head of CSX (CSX), one of America’s publicly-traded railroad companies.

Railroads have been tied to America’s economy for over 150 years. Today, railroads are less about passenger travel and more about shipping goods across the country. Railroads measure their growth by the number of railcars being shipped. A good year for corn may mean more railcar demand in Nebraska. A poor year may mean less.

When the overall numbers are rising, the economy is likely booming. When the numbers are falling, it may be contracting. Right now, the numbers suggest a contraction. Yet the economy is growing. Some of the explanation is that much of the economy is growing in a digital sense—we have more goods and services traded online than those that require shipment by railcar.

Yet some goods will always need to be shipped, and railroads provide the most efficient way to do so. As part of an oligopoly with heavy government regulations to ensure profitability, the railroads are a sound buy whenever they’re trading out of favor.

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Four times per year, earnings season gives investors new data about a company’s operations. It’s one of the best times to see shares make a big move—in either direction.

But sometimes some funny things happen. Like a company reports a great quarter but shares fall instead of rise. That may be because investors got hyped in advance and sent shares higher than they should have gone in the first place. Or it may be because of some key detail that came out during the earnings report that gave investors pause.

Whatever the case may be, many big growth names have seen it happen. They report solid earnings, solid revenues, and otherwise show growth—but often investors will get hung up on one metric more than others.

That’s been the case with Netflix (NFLX) this earnings season. The company is growing revenues by over 25 percent per year, but investors tend to only care about the company’s total subscribers. With the company “only” growing subscribers by 2.5 million against an expected 5 million, it certainly appears as though it isn’t doing well. But what other industry would see an additional 2.5 million customers in the span of 90 days as a bad thing?

Netflix is working on building a long-term brand, and the company’s big successes in movies and television shows in the most recent quarter show that they’re moving beyond simply being a source of content from other media companies.

That longer-term trend will likely reward shareholders better than following the exact number of subscribers. After all, it’s not enough to build a big customer base. Subscribers have to be kept! That’s where Netflix is performing better than other companies in the industry right now, and where there will likely be long-term value.

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With the Federal Reserve talking about cutting interest rates, companies sitting on record levels of cash are looking for ways to deploy that cash. One big way is to merge with another company. It’s no surprise that late stock market cycles see a big wave of mergers and acquisitions.

M&A activity like that gives investors a lot of opportunities as well, particularly by using one low-risk, moderate-reward strategy. That strategy is via merger arbitrage.

When Company A says it will buy Company B for $100 per share, the share price will move closer to $100. The more likely the market thinks a deal is, the closer to the share price. If there’s a high probability, and shares were trading at $80, they may move to $95.

So investors who buy after the offer has been made have a high likelihood of making $5 per share by buying now. They just have to hold for a few weeks or months until the offer goes through.

While the percentage returns are usually in the 5-10 percent range, it’s an investment strategy that can be done a few times a year, depending on how quickly a merger goes through. When those returns are annualized, the end result is a decent, and usually market-beating return.

It’s a great strategy for right now, given the low risk profile. And even better, investors can get into and out of a trade in a few months. So even if the overall market takes a turn down again, these individual positions should handily beat the market.

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Some companies just can’t seem to stay out of the news. And it seems like one company, Nike, is trying to stay in the limelight as much as possible. 

Just before Independence Day, the company announced that it was pulling a shoe design that it created that featured the Betsy Ross flag—the one with 13 stars in a circle representing the original colonies.

It did so due to the comment by its paid endorser Colin Kaepernick that the flag came from an era of slavery. Nike hired Kaepernick last year for the 30th anniversary of its “Just do it” campaign. Kaepernick rose to fame—or infamy—by refusing to stand for the national anthem during football games, a move that limited his career in the NFL.

So has Nike lost it? They’ve certainly lost potential and many existing customers with their recent moves.

Yet, much like a tweet from the President, what the company is actually doing is staying in the public eye without having to pay for a major ad campaign. In a world where the news seems interested in driving controversy, Nike is playing the game, and playing it well.

Consider this: The company is increasingly doing business outside the United States. In the U.S., sales are stagnating. But they can pick up a younger demographic with the moves they’re making right now, even if that means alienating some customers.

If anything, the company has found an inexpensive way to drive business, and it just goes to show that there’s no such thing as bad publicity—provided you read between the lines.

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Commodities tend to have very long cycles. It can take years for rallies and declines to play out.

These rallies tend to play out in phases. In the first phase of a rally, the commodity typically is coming off a big decline from a prior peak. There’s a lot of skepticism in the market that it can go higher—and that skepticism created a bargain in the first place.

Once there’s a meaningful move higher, and as long as the fundamentals are in place for prices to continue rallying, however, sentiment starts to shift. The prior rally has attracted more buyers. Interest rises. Headlines go from skeptical to outright bullish.

We’re seeing this next phase start to play out with gold right now. The metal went down from its last peak in 2011 until 2016—a five-year bear market! But in early 2016, the metal started to gradually move higher.

It wasn’t a move in a straight line. It had a lot of pullbacks along the way. But each time it pulled back, it made a higher low than the last time—a healthy sign of an early stage bull market.

Today, with gold now up about 33 percent off its lows, it’s starting to attract investor interest. This is the next phase of the rally, where the price move higher tends to speed up.

In that kind of environment, investors may want to look at gold mining companies. While gold prices are up over the last three years, the move has been so slow that many mining companies have continued to struggle. But as prices rise, mining companies will start to see profits roll in faster.

Gold is moving higher— it’s time to take a closer look at the space and the opportunities there.


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While every sector of the market is different, some sectors offer investors a chance for solid returns with low risk. That typically includes heavily regulated sectors like telecoms and utilities.

But the airline industry is in a sweet spot with just the right amount of favorable regulation, combined with a sector that’s determined to build profit margins, not market share.

For decades, the airlines were a terrible investment. With fare wars, the competition to increase market share, and so on, the big carriers racked up all sorts of debt, only to go into bankruptcy when the economy or travel slowed.

Now, after consolidating to the point where the largest four carriers have two-thirds of the market, there’s a healthy oligopoly. No one company can come to dominate, and if any try, they’ll likely end up taking a financial beating.

Meanwhile, the United States prevents foreign carriers from operating domestic flights. So the few carriers that do serve passengers today don’t have to worry about foreign competition. 

Add in low oil prices right now, which impacts the big cost of fuel costs for airlines, and you have a sector that looks very attractive for investors.

How should you buy? For most folks, that depends on where you live, because different airlines serve different routes. 

This sector is now a classic example of buying into a company whose product you use. It’s not going away, and as the airlines are more interested on figuring out new fees to get more revenue from passengers, they’ll likely continue to fare well in any economic environment.


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If there's one thing I love about options trading, it's the ability to make money just about anytime. One powerful strategy involves making what I call "gas money" trades, where I can make a small amount of money, but safely and often thanks to the options market.

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