Berkshire Hathaway Powers Past Volatility

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 Berkshire Hathaway, Inc., symbol: (BRK/B).

Earlier today, when I pulled up the stock chart for BRK/B, 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 Berkshire Hathaway, Inc., using a relatively simple concept that I like to call ‘True Momentum’.

Below is a stock chart for BRK/B, let’s dive into the technical breakdown and what in this chart helps to confirm BRK/B’s True Momentum!

This chart is showing the last six months of trading for BRK/B 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. BRK/B 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.

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How I Would Look to Trade It

Since we have now confirmed that BRK/B 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.

Of course, you could simply buy the stock shares, which we sometimes do, but, many times when we spot a setup like this we want to add a bit more leverage to our position to unlock more explosive profit potentials.

With a setup like this, we like to find a call option to purchase which would provide us with a little more leverage on our trade. By doing this, should the bullish trend continue, our trade is positioned to produce higher profits when compared to just owning the underlying stock shares.

When selecting which call option to purchase, I often rely on my 1% Rule to help narrow down my choice of option strikes. The 1% Rule helps me select an in-the-money option that has a higher probability of producing a profit when compared to an at-the-money or out-of-the money option. Once I have one selected I will vet the trade using my Call Option Purchase calculator to determine the trade’s profit potential.

Below is a snapshot of my Call Option Purchase Calculator that shows the profit potential analysis for my trade. This example examines a range of BRK/B shares remaining flat up to a 12.5% increase at option expiration.

205.4% Profit Potential for BRK/B Option

The trade analysis shows that if BRK/B shares were to increase by just 1% at option expiration, this trade would make 1.6%.

Then looking at a few of the bigger potential moves, if BRK/B shares were up 5.0% at option expiration, our option would be set to profit 92.2%!

If that doesn’t sound good enough, get this, if BRK/B shares were up 10.0% at option expiration, this call option would be set to produce a 205.4% profit! That means the call option would outperform the stock more than 20 to 1!

By following my 1% Rule to select which call options to purchase, this has helped me in the past to juice my trade’s profit potential, just like in the example shown above. Additionally, the 1% Rule helps to increase the odds that the option will profit as the underlying stock only has to increase by 1% for the option to begin profiting.

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Chuck’s Private Wealth Group

Just earlier today, I was on LIVE with my co-hosts Brad & Blane where we discussed my exclusive Private Wealth Group!

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