Going to trade CME (CME)? Pick your timeframe first. (July 14, 2016)
CME
This is a pretty short video here, because it didn’t take much more. CME Group ( NASDAQ:CME ). You can see here the stock is right up at resistance where it’s hit several times, it looks like it’s just starting to break through. If we just kind of look at the pattern here, I see lower lows, and then higher lows. I’m sure this is some kind of magical pattern, we could even call it a head and shoulder continuation pattern waiting for a move higher, right? Well, lets check out the weekly chart. You can see what a powerful pattern this is, this stock has been trading sideways for more than a year. This is what’s known as a HIGH base. Now, if the stock rolls over, if the stock rolls over and starts drifting down like this, then this is not a high base, it’s a top. But right now this doesn’t look like a top. It looks like a stock that’s breaking out. So I want to get back to the daily chart to take a better look here.
The company reports earnings on the 28th, that’s 2 weeks from today. That’s plenty of time for this to move higher. What I would suggest doing is, if you’re long this stock the REASON that you want to be long is because you think it’s going to move higher, into earnings. If you don’t think it’s going to move higher into earnings then you don’t want to be long this stock. So stay long this stock, and keep a trendline, just keep, essentially like a trendline, like that. Maybe you’ll make 2, 3, 4, 5 percent on this trade prior to earnings. Because again, this a big, key, profound breakout, so you want to be there. Now, I’m talking about the period of time between now and earnings. Again, breakout from a multi-month, basically a year and a half, consolidation. I think this next move is going to be higher. But there is one thing, and this is important, patterns are great but they can always be trumped by fundamentals, which is like earnings. So this can be an awesome pattern, but if the company reports earnings that are disappointing, Boom! This goes down like that.
So you need to decide BEFORE you make this trade, are you trading the pre-earnings run? In which case you need to hop onboard now. Or, are you trading the fundamentals? Meaning the earnings report is going to be good. AND, the stock is going to breakout of this and continue to move higher. If you’re doing that, then you might also be long right now. Take a small position but only a small position. Again, if you’re trading the pre-earnings run, get in, get long, ride this thing up. But if you’re looking more of long-term, this means something to you, then take a small amount of stock WITH the plan of holding it THROUGH earnings. You’re planning on riding this stock through earnings. If it happens to fall back, you know what? Guess where it’s falling? It’s falling right back into congestion. Your downside is limited to about 10 percent. There’s absolutely no way CME ( NASDAQ:CME ) is going to fall back below 90.00. So you’re worst case scenario, on part of your position, is a pullback into the trading range. Your best case scenario is, the stock moves higher, you’re long, you continue to get long, as the stock moves higher. Hence, turning a fairly small profitable position into a much larger and more profitable position.
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