Let’s Trade This 8-Time Winner Again
As we begin a new year, it’s reasonable to ask what it holds in store…
But, in all likelihood, we should expect this new year to be a lot like this year.
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That’s almost always the case. In our personal lives, sometimes there is a significant life event — like a marriage or the arrival of a new child — but most of the time, the turning of a page on a calendar doesn’t matter much. Most days, there are changes, but they are small.
Our children, for example, change over time, but the changes are difficult to notice. Most of the time, we think they are acting normally.
#-ad_banner-#Slow change is just a fact of life.
That’s also true in the stock market. Although analysts try to forecast the next year, the truth is that next year is often a lot like the year before.
I know this isn’t what we usually expect, so here’s an example to explain what I mean:
So far this year, the S&P 500 is up about 20%. The index looks like it will end the year with its first gain of 20% or more since 2013. With a gain of that size, it’s safe to say that this has been a good year for stocks. And history tells us we can expect another good year in the stock market.
Since 1950, there have been 18 years where the S&P 500 has gained at least 20%. Of those times, the following year delivered an average gain of 11.3%, and the market closed higher 83.3% of the time. These are better-than-average numbers.
Since 1950, in years when the S&P 500 gained less than 20% the year before, the index closed higher just 67.3% of the time and delivered an average gain of just 8%.
So, given the historical results, we should expect another better-than-average year in 2018.
However, it probably won’t be smooth sailing all year… and we should be prepared for increased volatility.
This year’s unusually low volatility was unprecedented. That means there is no forecast for next year’s volatility. I’m expecting higher volatility because, statistically, volatility shows a tendency to revert to the mean.
I’ll be keeping an extra close watch for changes in both volatility and the direction of the market trend in the coming year; of course, I will keep you updated with what I’m seeing. But, for now, I am expecting 2018 to be a lot like 2017.
That tendency for more of the same is likely to be true for many companies, as well. Among the companies that are likely to continue with business as usual — at least in the short term — is Deckers Outdoor (NYSE: DECK).
Our most recent position in DECK expired last month. And just last week, I found another income opportunity in the stock. My premium Income Trader readers and I have been trading DECK for some time — eight trades (and eight winners!) since 2013. But for those who are new, Deckers is a shoemaker, best known for its UGG brand.
The 8-Time Winner I’m Trading Again
In recent months, DECK has been in the crosshairs of an activist investor who sought to unlock shareholder value.
Marcato Capital Management, an activist hedge fund, took a stake in the company in early 2017. Marcato pushed for a sale of the company or at least some of its brands. Following Marcato’s lead, other activist-type funds have subsequently accumulated stakes in Deckers, including Red Mountain Capital Partners, and have also been pushing for a sale.
Most recently, the activist funds tried to increase the pressure on management through a proxy battle.
Rather than looking to put one or two new people on the board of directors (as many activists do), Marcato proposed a completely new slate of directors for the company. At that point, Deckers’ management responded by noting they were seeking to maximize shareholder value and had in fact contacted 90 potential suitors but had not been able to find a buyer.
Investors in the company sided with management and defeated Marcato in the proxy vote. It now seems that Deckers’ management will maintain its current course, which has been increasingly profitable.
The stock initially sold off on news that the activists’ battle was, in all likelihood, over, but shares have since recovered.
Despite the selloff, the stock remains in an uptrend, as you can see in the longer-term chart below.
For the next few weeks, I expect this uptrend to continue… at least until the company delivers its next quarterly earnings report, which is expected in early February. Until that report is released, the stock is likely to remain in a relatively narrow trading range, which creates a great short-term income opportunity for us.
In the long run, I believe we’ll need to see how the quarterly earnings reports look before turning bullish on DECK. This is a short-run trade because there is low risk until traders see those earnings reports.
Generate 3.2% Income, And The Chance To Buy DECK For An 11.6% Discount
But in the meantime, my premium subscribers and I just entered a trade that generated an immediate 3.2% in instant income. This trade expires on Jan. 19. After that, we’ll be free to repeat another trade like this again if we want.
This is the same type of trade we’ve successfully implemented on DECK eight times already, and I see no reason why we can’t repeat our success again. But if for some reason, DECK falls below $70, we’ll get the chance to buy the stock at an 11.6% discount.
I can’t reveal all of the details of this trade out of fairness to my Income Trader subscribers, but as I’ve mentioned many times before, this is about as close as it gets to a win-win in investing. But in order to make trades like this, you need to know exactly how our strategy works. So if you’d like to get started generating instant income every week, you need to read this first.