It can be challenging to know what trade to make and when to make it, but 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 Valassis Communications, Inc.
Valassis Communications, Inc., together with its subsidiaries, operates as a media and marketing services company primarily in the United States and Europe. Its Shared Mail segment combines the individual print advertisements of various clients into a single shared mail package and distributes the shared mail advertising products to approximately 70 million U.S. households primarily on a weekly basis through the United States Postal Service. This segment also offers solo mail and other products and services, including list procurement, addressing, processing, and the distribution of brochures and circulars. The Neighborhood Targeted segment is involved in the print and media placement of traditional freestanding solo insert formats and specialty print promotion products. The Free-standing Inserts segment prints and distributes four-color booklets containing promotions, primarily coupons from multiple clients through newspapers and shared mails. Its International, Digital Media, and Services segment provides coupon clearing, analytical promotion information management products, and marketing services for retailers and consumer-packaged goods manufacturers.
Before discussing potential trading opportunities, please take a look at the 1-year chart of VCI (Valassis Communications, Inc.) below with my added notations:
Pretty straightforward trade, isn’t it? VCI has been holding a very important level of support in the area of $19 (navy) for the last (7) months. No matter what the market has or has not done this year, VCI has not broken below that general area of support. If the market should move lower, VCI will most likely retest its support level for a potential trade.
The Tale of the Tape: VCI has held a very important support level at $19 since December. If the stock were to approach that level again, a trader could enter a long position with a stop placed under that level. If VCI were to break that support, a short position could be made with a stop set above the $19 level.
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