4 Tips That Put Volatility to Work

09/23/2011 7:00 am EST

Focus: STOCKS

Stacy Acevedo

Co-Founder, IncomeTrader.com

Market swings can be played from both the bullish and bearish sides, Stacy Acevedo of Incometrader.com tells MoneyShow.com. She also discusses how she uses trading channels to gauge opportunity, and the use of dividends, fundamentals, and the company’s story when making longer-term investment decisions.

Kate Stalter: Today, I am on the phone with Stacy Acevedo of Incometrader.com. Stacy trades a portfolio that she also lets her clients see, which goes along with the idea of educating clients at the same time.

Stacy, tell us what you are seeing in the market right now, and what you are telling your clients about.

Stacy Acevedo: Well, because of the extreme volatility that we are experiencing—much more so than in any other type of market that we have seen in the past—we are not necessarily in a bullish market or a bearish market. We are really in a wonderful trading channel, more in this neutral range, so what we have been doing with our clients is taking the channels and trading both sides of them.

So I might leg into a bullish trade or a bearish trade at the top of the channel or near the lower end of the channel. For the entire year, let’s say specifically we have pretty much been neutral, although we have had extremely over-exaggerated swings in the market. The nice thing as a trader is, we can take advantage of those.

Kate Stalter: So what are some sectors or global regions that you are seeing a showing particular strength right now?

Stacy Acevedo: One of the best places, I would say, for a portion of your dollars, just for that safety, is utilities. That’s only because they pay such a great dividend.

They are going to have volatility, but their trends don’t tend to be overwhelmingly strong. We are not seeing them skyrocket up or fall down too much. So they tend to be a great place for a little bit more of your consistent type of trades.

But in that sense, I would take the rest of my portion of my speculative dollars, and I love trading the domestic markets. Because when you trade international markets, it is great to be aware of what is happening, but with international markets we don’t know necessarily what is happening with their political events from day to day. We only get what is happening in the news. So news can strike the particular stock or sector or your emerging markets so quickly and take you off guard.

So I listen to all the international news that is happening, and then apply that more toward domestic markets. I love the indices, the big S&P 500. I love playing that, because it moves in such a general basis and your trend lines are outlined very sharply, I believe, in more of our indices.

Kate Stalter: When you are talking about international stocks, does that include ADRs that might be listed on US exchanges?

Stacy Acevedo: You know, ADRs are great to trade. The only thing with them is as traders, which I am more of a swing trader, the problem with ADRs is you are going to see gapping in the morning session, from last night’s close to this morning. So they can be a little bit more difficult to trade.

It is great to be able to have access to trade them, and I would consider them as far as trading international stocks on the domestic market, to get access that way. But I have noticed that if you are going to be a shorter-term trader, they can be a little bit more difficult because of the gaps you are going to see in the opening prices.

Kate Stalter: It sounds like in addition to the technicals, you pay some attention to the fundamentals, because you just mentioned dividends a moment ago. How much consideration to you give to that?

Stacy Acevedo: It depends on how your portfolio is divided up. On my longer-term dollars that we are looking to invest, I am definitely looking at some more solid trends, less volatility, and higher dividend paying.

That is where you want to go with the stocks that have the global exposure—some of your big, major names out there that are really just slow-moving stocks, but are the steady stocks out there.

I think when trading and moving your dollars around, stick with those big companies. With your more speculative dollars, that’s when we are taking a look at the sharper moves, the faster type of trends out there.

So dividends are going to be a major portion for your more conservative dollars that you want trading out there, and fundamentals are something that I would look at it. It is part of a combination.

I am much more of a technical trader and news-driven, especially in these markets. Fundamentals are important.

Even if I am trading in a downward market, I still am going to be trading, in my case, bulling and bearish at the same time. So I am looking for strong fundamentals in a bearish market, because even if the market does fall and my stock does fall, I know it is not going to fall through the floor. So I can place on a bullish and bearish trade on that.

This might sound a little confusing, but when you are legging into trades and trying to get the volatility from both ends, I do take into account strong fundamentals on some bearish stocks.

Kate Stalter: I realize that you do have a subscription service for your clients, but is there anything that you can tell our listeners that maybe they should be watching in terms of a stock to be researching?

Stacy Acevedo: If I was going to invest specifically just in one particular stock, I would look for the story behind the stock. An example is Apple (AAPL). Apple, I think, has become the new gold right now. It has become the safe haven for just a lot of people to put their money in.

So look for the story behind what that particular company or stock is doing, the cash that the company is doing, and the management. I wouldn’t just generally use some random stock searches.

I am definitely look more into the management, the cash flow and the fundamentals that are going to come into play big time if I am going to be doing some very specific stock searches.

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