On Friday, we looked at a Daily Price chart of Brookfield Asset Management Inc., and noted that it had been making a series of 52-week highs for the past year.
Today’s Chart of the Day is a Daily Price chart for Brown & Brown (NYSE: BRO).
But before we get into what the chart signifies for BRO…
I’d like to take a moment and say thank you for all of the feedback we’ve been getting!
And today, I’m going to address a few questions sent in from one Chart of the Day reader.
Don K. says:
Why do you use the monthly time frame for trends rather than the weekly one given that you choose short term expiration dates just 30 – 40 days out? Weekly trends can last months as well.
We hope to pick positions that are on a long-term bull trend because when we have a profitable trade, instead of exiting the position and entering a completely new position for a different underlying stock…
We roll the profits into a new position for the same underlying stock. This reduces our cost basis for the new positions and compounds our returns. And while weekly moving averages do signal break-outs earlier…
Those are good if you’re only looking to stay in a position short term. For long term positions that you will roll over 5 times or more, the 10-Month Simple Moving Average is a superior trend line.
Then he asks…
It is not clear to me how and when one should exit a position.
We will exit an option, and not roll it over, if it has lost 30-35% of its purchase price, or if the option has a loss when we go to roll it over.
He goes on…
When you massed the $3.7 million over six years, what was the typical dollar size of any trade and how many trades would you have open at any one time?
A typical trade was probably $25,000 and I had about a dozen trades open.
Besides the bid-ask spread analysis, do you consider open interest and trading volume (nearest month) in assessing the liquidity of an option?
In assessing the liquidity of an option, we do consider average daily trading volume. We will only consider stocks with 100k or higher in average daily volume.
Now, in Chart of the Day, we won’t be recommending options. We only do that in my paid service, PowerTrend Options, where readers can expect up to two trade recommendations per week. If you want to learn more about PowerTrend Options, click here.
But it’s great to know that the readers of this e-letter are asking the tough questions and using critical thinking to examine every angle of trading.
Now, let’s get back to BRO…
Brown & Brown, Inc. markets and sells insurance products and services in the U.S., England, Canada, Bermuda, and the Cayman Islands.
The Daily Price chart below shows that BRO has traded in a clear bullish pattern of higher highs and higher lows for the past year.
Track the Price chart from lower left to the upper right…
This bullish trading pattern points to a further advance.
You see, typically stocks that make a series of two or more higher highs and higher lows reliably continue on in an upward trend…
But it’s important to note that strong stock rallies have pullbacks along the way.
These pullbacks represent a buying opportunity for us.
Purchasing BRO after a 3 to 5% price pullback has provided a good entry point for the stock this year, and has produced a healthy return.
We’ll keep watching BRO as it tops its previous highs and waiting for price pullbacks.
We’d also like to highlight a stock we’ve talked about already in Chart of the Day…
On October 30th, we took a look at TJX companies, Inc. (NYSE: TJX), noting that the 1-Month moving average had crossed about the 10-Month moving average, signaling a PowerTrend ‘buy’.
If you happened to have purchased TJX shares on that day, you’d already be up 2.51%.
But… if you had purchased an option contract, you would be up 20.4% in less than a month’s time!
That’s the power of options.
Editor, Chart Of The Day