When a stock does what you want it to do…stick with it. Here’s your trade on Cal-Maine (CALM) (October 19, 2015)
CALM
I want to talk to you about Cal-Maine Foods ( NASDAQ:CALM ). The stock has about a 7 percent dividend, at least that’s what I see on Yahoo; I don’t see squat here. Oh, here it is, 6.5 percent forward yield. So the bottom line is, this is a stock that I’ve covered in these “Chart of the Day” videos as well as on our premium site and I think it’s still a buy. It’s got a fairly high short interest. A lot of folks are betting against this stock; and I’ll tell you, few people love to see a short squeeze more than I do. When somebody bets against a stock they darn sure better be right. Because if they’re wrong it can be really humbling.
In this case the stock has been trading sideways for quite a while. It’s just starting to move higher. To be short this stock, when the company doesn’t report earnings until December, to be short a stock like this, when it’s in an uptrend, is about as stupid as shorting a stock that’s trading at a nickel. Do you really think it’s going to go down to two-cents and you’re going to make your 60 percent? Answer: No! Now, this stock is up several days in a row; most notably the last two, it’s been up in a big way.
I have this Three Day Rule, it’s not one that I invented, it’s actually a fairly well known one which is, the “smart money: moves the stock big on the first day. The “semi smart” money moves the stock big on the second day. And the “not so smart money” finally gets in on the third day. It’s not a perfect rule, but it’s a pretty good rule of thumb. So my point is this: you’re really, really risking getting clipped on the top if you’re buying this stock tomorrow after two big days like this. Now, if you got in on this last low-risk buy, where the stock came down to the 50 and started drifting higher, if you got in on that last low-risk buy my suggestion is that you just hang on to the stock. Go out to this time frame and let your trade work for you.
If you’re looking to get long, first of all, welcome to “Stock Market Mentor,” you obviously joined yesterday. But if you’re looking to get long you might want to just take kind of a partial position and then hope that the stock pulls back and you can get more. The problem with that is, to state what was stated earlier, this is kind of a short squeeze. And short squeezes, by definition, squeeze the shorts; meaning they’re kind of crying foul ball and having to buy the stock in order to stop their pain. Because of that a lot of times this Three Day Rule turns into the Four, Five, Six, Seven, Eight Day Rule.
So what I’m saying is, you just want to manage your risk. Don’t get too lathered up one way or another. But frankly, don’t wait for this stock to come back too much, because this is a really bullish pattern (I keep switching back to here). Weekly chart, this has been a volatility squeeze. The only thing better than a volatility squeeze on the weekly chart is if the volatility squeeze is around the 40-week or 200-day moving average, as opposed to above it. But it’s not, so this is, in my view, the second best thing. So anyway, that’s your trade on Cal-Maine ( NASDAQ:CALM ), I hope it works for you.
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