Solve an Investment Puzzle Using TradeStops


The S&P 500 ended the first week of March 2016 at the 1999 level, slightly above where it closed in the middle of September at the 1995 level. It sounds like a boring six months in the market, but we all know that the markets have been very volatile during this period of time.

Take a look:

Disney would be proud of this roller coaster! But this roller coaster also makes it really difficult to find new stocks to invest in after you’ve been stopped out of some of your long-term holdings.

We don’t know if there will be more upside or downside near-term in the markets, but it’s always a good time to research and find new stocks to consider.

This is exactly why I created the Low Risk Zone in TradeStops.

The Low Risk Zone is how I recognize stocks that are still in a long-term, upward moving trend, but have come down in price a little more than halfway between the recent high and the Smart Trailing Stop. The Low Risk Zone alert is a way to identify a stock that potentially could be a good investment and it has pulled back enough to make it a compelling entry.

Let me show you how I put this into action. One of the things I like to do is to follow the different sectors in the market. I use the Standard & Poor’s Sector ETFs for this and I have created a special watch list just for these Sector ETFs. Here is the way it looks on the TradeStops site:

Take a look at the Stock State Indicator (SSI). Only one Sector is showing a bullish “thumbs-up”. Here’s an up-close look at the chart for the (XLP) Consumer Staples sector.

As you can see, since the low in August, XLP has been moving higher within its normal range of volatility. If the Sector itself is moving higher, we should be able to find some stocks that are in the Low Risk Zone.

Keep in mind, it’s not going to be easy because a stock that is in the Low Risk Zone, by definition, is one that has not stopped out in this market volatility. Here’s a stock that I have been following for years that fits the bill. KR is one of the stocks that makes up the Consumer Staples Sector and is a key holding in the XLP Consumer Staples ETF.

Look at the three year chart on Kroger (KR):

In the three year period of time, the stock has been moving higher almost continuously with only two periods that it stopped out.

Now let’s look at the most recent six-month chart:

KR stopped out the last week of August and started moving higher in September and October. It triggered the Re-Entry Rule on 12/3/15 and moved higher through the end of December.

Since the beginning of the year, it has moved up and down within its normal level of volatility. On 3/3/16, it moved a little more than halfway down from the recent top and triggered the Low Risk Zone alert.

Keep in mind that just because the stock initiated the Low Risk Zone alert does not mean you should automatically buy the stock. It does mean that if you decide that you’re willing to invest in it and use the Smart Trailing Stop as your exit point, you will be taking less risk in the stock than if you had bought the stock at its high point.

The markets have moved dramatically higher since the middle of February. Some of the stocks that did hit the Low Risk Zone have also bounced higher.

Here are a couple of examples of other well-known stocks that have recently entered into the Low Risk Zone:

Microsoft (MSFT) is an example of a stock that hit its Low Risk Zone in February and then bounced back higher.

Anheuser Busch SP (BUD) is another stock that entered into the Low Risk Zone and has come back nicely since.

The Low Risk Zone Alert is one of the many powerful tools available on to research stocks and manage your portfolios. For more information about the Low Risk Zone, click here.

Investing in the stock market is confusing for many people, but for those using, the puzzle is easily solved.