Trading in the stock market can at times be complicated and confusing. It can be challenging to know what trade to make and when to make it. However, there are those trading opportunities that are clear and somewhat obvious. Usually, the “keep it simple stupid” trades tend to be the best anyway. Keep in mind that regardless of simple or not, that doesn’t necessarily mean the trade will always work out in your favor. One stock that appears to have a “simple” trading opportunity would be that of Acacia Research Corporation.
Acacia Research Corporation through its operating subsidiaries, acquires, develops, licenses and enforces patented technologies. The Company’s operating subsidiaries generate revenues and related cash flows from the granting of rights for the use of patented technologies, which its operating subsidiaries own or control. Its operating subsidiaries assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, if necessary, with the enforcement against unauthorized users of their patented technologies.
Before discussing potential trading opportunities, please take a look at the 1-year chart of ACTG (Acacia Research Corporation) below with my added notations:
It’s relatively obvious, isn’t it? ACTG has been holding a very important level of support in the area of $32.50 (green) for the last 9 months. No matter what the market has or has not done this year, ACTG has not broken below that general area of support. If the market should move lower, ACTG will most likely retest its support level for a potential trade.
The Tale of the Tape: ACTG has held a very important support level at $32.50 since March. If the stock were to approach that level again, a trader could enter a long position with a stop under that level. If ACTG were to break that support, a short position could be made with the expectation of a fall down to the $30 level (red) where another long trade could be placed.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT