Saturday, December 31, 2016
As we head into 2017, Bullish Cross has decided to expand its coverage to include both trading and analysis of other bluechip technology stocks in the BC Trading Portfolio. For over a decade, Bullish Cross has developed and finely-tuned a trading model to capitalize on the short, intermediate and long-term direction of Apple's stock price. After making several adjustment to the model over the years, we have finally decided to apply this model to other bluechip tech stocks like Google, Amazon, Netflix, Tesla, Facebook and others. This Apple model in its present form works and has worked in EVERY SINGLE market environment over the past decade including the financial crisis and various other major Apple-specific and/or broad market corrections.
If one executed a trade based on the principles of this model during ANY Apple correction over the past decade, the trade would have been highly profitable (when executed correctly). It works in every environment whether it be an 12-month major Apple bear market like we saw in 2012/2016 or whether it is an all-out 60% stock-price crash like we saw during the financial crisis. The model would have been profitable in every trade setup and environment we have seen since 2005 (not tested before that period).
The model aims to capitalize on forecasting volatility rather than capitalizing on the expectation for a definitive up or down direction in a stock's price. Meaning, the model isn't so much betting that a stock is going to go up or down, but rather the model is betting that the next move in the stock's price will either be UP or DOWN BIG. In basic terms, it merely forecasts that a big swing in one direction or the other is coming and aims to capitalize in a major way regardless of which direction the stock ends up trading. As long as the stock moves significantly in one direction or the other, the trade based on the model is highly profitable. The larger the swing, the more profitable the trade.
Thus, as long as the underlying asset does not trade sideways for any extended period of time (several weeks), the model is successful. Thus, the model aims to forecast and invest in long-baised option strangles -- a bet which pays off more if a stock rises rapidly (rather than falling) but will still pay off (though less) if the stock falls rapidly. In situations where there is an all-out crash, the model pays-off considerably. Basically, what the model is looking for is either a moderate drop in the stock's price, a crash in the stock's price (best case scenario) or a moderate rally in the stock's price. Any of those situations, and the trade is profitable. The trading model aims to forecast when such a situation will arise giving time and percentage gain/loss parameters. For example, the model might suggest that x-stock is set to potentially fall and then rise rapidly with the possibility of 3-5 weeks of sideways trading. That way the model forecasts which options-expiration is the most appropriate under the circumstances.
Going back to 2005, the model was able to accurate forecast heavily volatility for Apple's stock price 100% of the time (19 out of 19 cases) leading to substantial gains for the model in every trade set-up going back over a decade now. We feel this model can be successfully applied to other blue-chip technology stocks (mentioned above) and thus we've decided to backtest the model to see how it would have performed had trades been made using the model on other stocks. As time wears on, we will be adding more stocks to the "BC Stocks" watchlist and we will be posting the model to this section of the website.
BC Stocks Watchlist
1. NASDAQ-100 (QQQ)