AT&T 5 month downtrend signals a tradeRemember the famous old market indicator that Robert Farrell invented back in his days at Merrill Lynch? It was the GM indicator. It simply said that whatever GM was doing was an indicator for the US economy and market. GM was a leading indicator for many years until GM became a bloated, non-competitive force in the global automobile market.
Now comes AT&T. The stock has a remarkable correlation to the US stock market. It moves up and down very tightly to the movement in the overall market. If the market is going up without AT&T, watch out. If the market is going down and AT&T is holding up, then assume the market will recover.
What we are seeing here is AT&T in a firm downtrend over the past 5 months. This is a sign that something is wrong. At least what we can do is to sell short the market and BUY AT&T and lock in this very wide spread. Then we will look for the market to fall down to catch up to where AT&T has fallen to. IF, on the other hand, AT&T lifts to catch back up to the market, then we can profit. In either situation we profit.
The way to lose is for the market to go on higher and for AT&T to stay down. I view the risk as acceptable.
Buy AT&T 33.90 last and sell short SPY 168.93 last. Risk 5% on the entire position. Target 5%-10% return in 30-60 days. If the market falls by 5% and AT&T holds steady, that is a 5% return. If AT&T rises by 5% and SPY (the market) holds steady, then that is a 5% return. If the market falls by 3% and AT&T rises by 3%, then that is a 6% return.
I'd suggest that each position be the same dollar amount.
The net-net. I shall put this as a "LONG" for AT&T, but it is a "NEUTRAL" POSITION. I could have also put it as a "SHORT" on the market. Either way, I hope we all can make some money on this setup.
Best regards,
Tim 2:05PM EST Friday September 27, 2013
