And the winner of the ASX 300’s best stock of 2016/17 is…
Whitehaven Coal [ASX:WHC].
This is an unlikely victory. Just 17 months ago, WHC — along with much of the global coal industry— was trading near record lows. Coal was largely seen as an industry in decline.
But sentiment often changes. Identifying these shifts could potentially make you a lot of money.
The end of financial year is an interesting time. This is when I take a close look at the best-performing stocks of the past 12 months. It’s always fascinating to see how big uptrends like WHC evolve.
Check this out. It’s the ASX 300’s top 20 stocks for last financial year:
Source: marketindex.com.au/asx300, 30 June 2017
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Most of these stocks aren’t household names. Only three are in the ASX 50 (Qantas, Orica, and Aristocrat). I suspect few traders were looking at any of them a year ago.
But look at the performance. These stocks have ‘shot the lights out’ in difficult conditions. Having a few of them in your portfolio could have made a real difference.
So, how can you identify these stocks much earlier?
Well, here’s the interesting thing: You’ll find 13 of them in Quant Trader’s Overflow portfolio. Another three hit their exits stops in recent months, after racking up big gains.
You may be wondering about the other four stocks; three were too volatile (one eventually gave a signal, but was stopped out for a loss), and one hit its trailing stop in November for a small financial-year gain.
These are the trends that Quant Trader got…
The table is only for the 2016/17 financial year (some stocks have a larger overall gain).
You’ll also notice the figures don’t match the pervious table. This is due to differences in the entry dates and the start of the financial year. Many stocks have been in the portfolio less than 12 months.
I think you’ll agree this is a solid result. The top 20 make up just 6.6% of the ASX 300, and less than 1% of the overall market. Yet Quant Trader has made big hypothetical gains on 80% of them.
This week’s report will look closer at three of these stocks. I want you to see how the system identifies — and profits from — big trends. These are skills you can learn yourself.
DIY trend trading
OK, you’re about to see the trades…
Each has a very different setup. But they all lead to the same thing — large gains.
I want you to study each trade carefully. You’ll get an insight to how big trends develop. You’ll also see what it takes to ride a trend. This is the key to profiting from similar moves.
Right, here’s the first stock: Aristocrat Leisure [ASX:ALL]…
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Let’s start by putting the trade into perspective. This shows the share price over a 10-year period.
Now, have a look at the box in the top corner. That’s the 2016/17 financial year. ALL had been rising strongly for several years prior. This wasn’t your classic ‘down and out’ bargain.
Many people don’t like buying after a strong move. They reason that a stock must be nearing the end of its run. Their overriding concern is to avoid buying at the top.
But this is often a mistake. You see, strength is positive. It’s a good indicator that a trend will continue. And some trends — like this one — can last for a very long time.
Here’s what the trade looks like up close…
Quant Trader’s entry was at $6.85 on 20 November 2014. This was a few days after the service began. The trigger to buy was a fresh high in the share price.
I often hear people talk about ‘buying low and selling high’. They’ll say you should never buy a stock after a strong run. Many would have said that Aristocrat Leisure was due for a fall.
But these people miss the point. Strength indicates buyers are paying up to own the stock. Buying into this momentum is what trend-following is all about.
The next stock is The a2 Milk Company [ASX:A2M]…
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Again, I’m starting with a weekly chart. This gives you a bigger picture view.
You’ll quickly spot the difference in this trade. A2M had not been rising for several years. Instead, the stock had been trading sideways in the months before the buy signal.
As before, the box shows you last financial year.
OK, let’s zoom in on the action…
Quant Trader’s buy signal was on 2 August 2016 at $1.90. The trigger was a breakout after a period of range-bound trading. This often leads to further buying and a rising share price.
But the key to this trade is the exit strategy. This is what makes a big gain possible.
Look closely at the red line below the share price. It resembles a set of rising stairs. This is the trailing stop. And it can potentially turn your entries into a lot of money.
Now, pay close attention to the trailing stop. You’ll see it gives A2M plenty of room to move. This is a key reason the system can stay on big trends — it helps ride out the corrections along the way.
The last stock is Bluescope Steel [ASX:BSL]…
[Click to enlarge]
BSL has an entirely different setup to the previous stocks. I would describe this as a classic turnaround story. The shares were recovering after a deep bear market.
This is one of my favourite plays. Stocks like BSL are often out-of-favour. The market’s low expectations can lead to big upside if the company’s fortunes begin to turn.
Check this out…
Situations like BSL are interesting. You see, many people like to buy as the share price falls. They believe this is how you get a bargain.
But I disagree. Trying to pick the low is a longshot. You’re fighting against the trend. I’ve seen a lot of money (and a few careers) lost attempting this strategy.
Have another look at the chart…
The key to this trade was not attempting to buy at the low. Quant Trader waits for the moving averages to turn higher. This increases the odds of the trend continuing.
Another critical factor is staying on the trend. This means resisting the urge to take profit. Many traders sell after a small rise. Doing this ensures they can’t make a triple-digit gain.
Let me sum it all up for you:
- Don’t be afraid to buy into strength — chances are the shares will run further.
- Use a trailing stop that gives a trade breathing space. This helps stay on a trend.
- Avoid falling stocks — wait for signs of an up-trend.
- Be slow to take profits. Letting winners run is the secret to big returns.
Most trades won’t reach the top 20 performers list. Some promising trends will result in a loss. Others will only post modest gains. And that’s OK. It’s all part of the strategy.
The important thing is that you spread your risk widely. This increases the odds of getting some of this financial year’s best stocks. These can make a big difference to your overall results.
Keep an eye on Quant Trader’s portfolio. Chances are the top stocks will pass through as they trade higher. I believe this puts you in the box seat to get on some of the biggest trends.
Until next week,
Editor, Quant Trader
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