Don’t trade the stock. Trade the pattern. Here’s my take on Agnico Eagle Mining ($AEM) (February 21, 2020)
AEM STMP
I want to give you a quick look at AEM, Agnico Eagle Mines ( NYSE: AEM ). This is a stock that we traded in live trading on Thursday morning and I want to walk you through this trade.
If you look at this on really wide Bollinger Bands, 3 standard deviations are the red ones, it is kind of like a law of nature that stock prices are not supposed to go outside 3 standard deviations. The chances of them doing that is probably about as great as the chances of Donald Trump going a day without being on Twitter, it is just very, very minuscule; that’s what happened with AEM ( NYSE: AEM ) last week.
The thing is when you see this kind of bounce you really start expecting it to go the other way. Just because when a stock is so weak, selling is so strong to the downside, you have got to expect some kind of a snapback, not every stock that is down like this goes to zero. The lesson is if it doesn’t run up the first day, here it closed at the low of the day, way lower than it opened and it opened really badly, don’t just give up on the stock, we don’t. The very next day it still kept going.
Now, here’s the thing though, you don’ t buy it here and hold like an idiot as the stock moves lower, that’s not your trade. The only reason you are going to buy a stock like this is if you think it’s going higher. So if it doesn’t go higher who is the idiot, the stock or you? The stock is going to do what it wants to do, that’s it.
And so if you are buying the stock in anticipation of a run-up and it doesn’t help you out, that is about as dumb as shorting Stamps.com ( NASDAQ: STMP ) the other day because it was up so much, you figured that you will short it because it’s going to go down. It ultimately will go down but from a level that is much, much higher than the level you shorted it at. So again, who’s the idiot, you or the stock?
The point is, you don’t just buy a stock because it’s down. You buy a stock because you have a plan and an expectation for what that stock is going to do. If it does it then great. It shouldn’t be a surprise to you; it shouldn’t really actually be pleasant or thrilling, it should just be doing what you expect it to do. The easy move is, when the stock doesn’t do what you expect it to do, when it does something else, then that is pretty easy, you just close the trade.
Looking at this stock, this is where it traded on Tuesday. And then Wednesday this is what I had described as the turnaround day really because the low was even lower but the stock closed green on the day. It closed up relative to the prior day’s close, albeit, only pennies. So we come into Thursday and my expectation is, we are probably going to see a move back up, so we jumped on this thing first thing in the morning and that is exactly what happened.
Here’s the lesson I guess: The stock closed at 51.39 and during the day we got into it around $50.00, it might have even been a little lower than that, I forget and it doesn’t matter because we can’t make that trade on Monday. We got into it at a pretty good level and I had described this as not being a day trade. I said I think this stock can go higher, probably to 52.00 but you will probably have to hold onto it for a few days. Well, it turns out on this particular day it almost made it there but a lot of people were still holding the stock and so now we come to today. The stock gaps up above 52.00; a lot of our traders sold their shares for a pretty nice gain, a 2-day gain. You are not going to get rich off of this type of thing, but if you learn to do this consistently, let’s just you’re not going to go broke either.
This is a trade that, again, we put on expecting a multiple day hold. Expecting that and then with all the coronavirus stuff; isn’t it interesting how the Chinese are always telling us that it is all going away, no big deal. Nobody is buying that. That is one of the reasons why we are getting gold going up so much so I think that is going to continue to move. But I will say that this move in Agnico Eagle ( NYSE: AEM ) is over. We got it really good here; we sold it right at the open. Anybody who was trading along with Dan right at the open the price was 52.85, so that was a pretty nice trade.
You can do these types of trades all the time if you key off of 3 standard deviation bounce. Stocks that go way below are infinitely buyable, just like stocks that go way above are infinitely shortable. Hence though, why I talk about Stamps ( NASDAQ: STMP ). If you looked to short the stock the other day when it gapped up so much, it gapped up really high, it ultimately gapped ran way above the upper Bollinger Band, 3 standard deviations.
But the point is, you can short this stock, we actually looked at it the same day as Agnico Eagle ( NYSE: AEM ), we looked at it but passed. The reason was, that the stock wasn’t going down. The stock was really strong. In fact, a lot of people actually got long this stock even though the stock was outside 3 standard deviations. The bottom line is, yes, this is a good trade on Stamps ( NASDAQ: STMP ) or on Agnico Eagle ( NYSE: AEM ) but it is more like a good trade on this strategy of looking outside of these stretched out bands.
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