True Momentum Confirmed for WRB

Dear Reader,

Just a bit ago, I was scanning the markets for strong looking stocks that merit being added to my ‘Buy List’ which I will use to help inform my trading decisions. There were a number of stocks I spotted that deserved being added to my list, but this actually presents a challenge.

When I have numerous stocks on my ‘Buy List’ that are all in strong trends and worthy of consideration for a trade, you may be wondering, “Well, how do you narrow that list down to THE ONE stock, Chuck?”

This is a great question, and I am going to get right to answering that here soon, but first, I want to tell you about the one stock from my personal list that is truly rising to the top today.

The stock that today is truly shining brighter than the rest is W.R. Berkley Corp., symbol: (WRB).

Earlier today, when I pulled up the stock chart for WRB, all of my top-down technical trend markers were met, confirming its place on my ‘Buy List’.

But, as I mentioned, there were tons of other tickers that also qualified and made it onto my list as well. So, I was able to narrow my focus down to W.R. Berkley Corp., using a relatively simple concept that I like to call ‘True Momentum’. Below is a stock chart for WRB, let’s dive into the technical breakdown and what in this chart helps to confirm WRB’s True Momentum!

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This chart is showing the last six months of trading for WRB and one thing is for certain. This stock is in a powerful uptrend as you can see the shares moving from the lower left of the chart to the upper right.

However, despite this obvious great trend, I want to unpack this chart a bit further. I want to zoom in on the lower study in the chart, as this is my preferred gauge for measuring a stock’s True Momentum.

The lower study is a Moving Average Convergence/ Divergence (MACD) chart and specifically we are looking at the 24/52 Day MACD compared to the 18-Day EMA.

This MACD study is a reliable and highly reactive indicator that can help to pinpoint when a stock is experiencing a True Momentum breakout!

How this indicator works is simple. WRB stock is in a price uptrend and has True Momentum when the 24/52 Day MACD line (black line) is above the 18-Day EMA (purple line). When a bullish convergence, like this occurs, a fresh ‘Buy’ signal is generated and remains valid as long as our MACD remains above the EMA line.

I use this indicator in conjunction with my other top-down trend indicators to help parse through all of the ‘good’ looking stocks in search of the ‘best’ looking stock. When a stock is on my ‘Buy List’ and I confirm that it has True Momentum, this is the stock that I want to trade at that time.

How I Would Look to Trade It

Since we have now confirmed that WRB shares have True Momentum powering the current bullish run, next we will want to look for a potential trade to place to capitalize on this opportunity.

I want to look to trade WRB’s trend and have the opportunity to capture some profits by placing an options trade on the stock.

Below is a Call Option Debit spread for WRB that I found just this morning that would allow me to gain some exposure to the stock’s powerful bullish trend but also have some downside protection built in as well. Let me tell you how this works.

Once I place a Call Option Debit spread, it has the ability to profit if the underlying stock/ETF is either up, flat, or even down a bit at option expiration.

Below is a snapshot of my Call Option Debit Spread Calculator that shows the profit potential and downside protection analysis for my trade. This example examines a range of a 10.0% increase to a 10.0% decrease in WRB share price at option expiration.

Looking at the trade analysis, the calculator shows that this one single trade, that would cost you only $332 to enter, has the ability to profit 50.6%.

The calculator reveals that if WRB, at option expiration, were to increase, remain flat, or even drop by as much as 7.5%, this low-cost trade would be set up to make a 50.6% return!

This Call Option Debit Spread strategy has been one of my absolute favorites to trade over the years and remains so today. The key behind it all is that by enabling your ability to profit if a stock is up, flat, or even down a bit gives you a much higher probability that your trade will end up a winner.

The Hughes Optioneering Team is here to help you identify high-probability trades just like this one.

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