This past weekend, TradeSmith and the TradeSmith team were in Las Vegas for the Total Wealth Symposium hosted by our friends and colleagues at Banyan Hill Publishing. We were pleased to welcome many new people to TradeStops.
When new members log into TradeStops for the first time, it can feel overwhelming, especially if you see a large number of positions in the Stock State Indicator (SSI) Red Zone. A question we frequently receive from new members is, “Do I have to sell all of my stocks in the SSI Red Zone?”
It’s a great question. As individual investors, you want to have the best opportunity to make money. The TradeStops SSI signals were developed to show you when stocks have established uptrends and are in a healthy condition. When they’re healthy, they’re in the SSI Green Zone and moving higher. Stocks in the SSI Red Zone are not normally healthy.
But that doesn’t mean you shouldn’t consider holding or even buying some stocks in the SSI Red Zone. Let’s look at two different situations. We’ll focus on two stocks that are part of the Dow Jones Industrials, General Electric (GE) and Johnson & Johnson (JNJ).
In 2000, the price of GE traded above $60 and its CEO, Jack Welch, was possibly the most beloved CEO of any publicly-traded company. The past two decades have not been kind to GE shareholders.
In the last week of October 2015, GE triggered a new SSI Entry signal at about $26. It moved higher into 2016 and traded above $30 in July 2016. It began falling off and finally hit its SSI Stop signal in May 2017 at about $26. The trade ended up essentially at breakeven.
But the worst was yet to come. As you can see, the stock has sold off by more than 50% in the past 17 months and it’s trading near the worst levels since the financial crisis in 2008. Not including the financial crisis, GE is trading lower than it was in the mid-to-late 1990s.
Though some fundamental analysts are saying that this current price represents a good buying opportunity, is there anything in this chart that suggests the worst is over for GE?
As an individual investor, would you rather invest in GE at this level and hope it goes up or, if it does finally turn around, would you rather invest in GE at a higher price after the stock has proven it has upward momentum?
On the other hand, JNJ is also in the SSI Red Zone. It triggered an SSI Entry signal in March 2016 at about $101. It made a high in January 2018, right before market volatility caused it to hit its SSI Stop signal in February. It stopped out at about $127.
After making a near-term low at the end of May, JNJ has started climbing and, even though it is still in the SSI Red Zone, it is close to initiating a new SSI Entry signal and entering the SSI Green Zone, which will indicate that JNJ is once again in a healthy state.
These are good examples of two stocks that are in the SSI Red Zone, but the conditions of the stocks are different. We prefer to invest in stocks that are in the SSI Green Zone and moving higher, but there can be instances of stocks currently in the SSI Red Zone, but close to turning Green that could be of interest.
We won’t be having an educational webinar presentation on this topic next week as the TradeStops team will be back in Las Vegas for the Stansberry Conference. Instead, we will cover this topic during the next training session, which will be the third week of October. Look for more information in a couple of weeks.
Education and Research Specialist, TradeStops