Our research team has come up with a new perspective on stocks that have moved from the Stock State Indicator (SSI) Yellow Zone back up into the SSI Green Zone. And the results are incredible…. and incredibly profitable.
Last week, we showed you how our new Kinetic VQ strategy takes a unique look at how the Volatility Quotient (VQ) can help you find stocks ready to take off. This week, we’re going to show you how to look at the SSI Yellow Zone from a new perspective.
TradeStops members know that a stock triggering a new SSI Entry signal and entering the SSI Green Zone is the best time to get into a stock. Our new research shows that a stock moving from the SSI Yellow Zone back into the SSI Green Zone is also a positive signal.
For those who are new to TradeStops, a stock in the SSI Yellow Zone has corrected from its most recent high, but it has not yet hit its SSI Stop signal. It is still within its normal range of volatility.
Using the same database of 936 stocks that we used in the Kinetic VQ study, we looked at what happens if a stock moves into the SSI Green Zone after having been in the SSI Yellow Zone. We wanted to know if that was still a good time to get into the stock.
The answer is a resounding yes!
There are two advantages of investing in a stock when it moves from the SSI Yellow Zone back into the SSI Green Zone.
- A stock in the SSI Yellow Zone is still within its normal range of volatility.
- A stock in the SSI Yellow Zone only has half the downside risk compared to a stock that has just entered the SSI Green Zone for the first time.
We call these “Low Risk Runner” stocks. They have the potential to move considerably higher while taking a smaller amount of risk than normal.
A great example of this is Intel Corp (INTC). INTC triggered a new SSI Entry signal in August 2016. Shortly thereafter, it moved into the SSI Yellow Zone three times and bounced back higher each time. The last time was in July 2017. Since then, it has moved higher by almost 60% compared to the S&P 500 which is only up by 12%.
By getting into INTC with the Low Risk Runner strategy, the amount of risk we took was only 9% instead of the normal 17.40%. And because it was within its normal range of volatility, it was not a surprise to see it move higher in a short amount of time.
Let’s look at another example of this strategy…
Visa (V) first triggered a new SSI Entry signal in May 2009. It spent more than a year in the SSI Yellow Zone from May 2011 through June 2012. After it moved back into the SSI Green Zone, it has achieved a gain of 520% compared to a gain of 140% for the S&P 500.
We have another way to use the Low Risk Runner strategy that I’ll share with you next week. As always, our goal at TradeStops is to…
Make More and Risk Less,
Richard Smith, PhD
CEO & Founder, TradeSmith