Notice the last four times that MTN surged ahead of AVB and you can see what happened afterwards. It's time to research into the history of the movement of these two stocks to calculate what drives the investor sentiment. But from what I can see here, this is a great trade setup. Now we need a trigger to get us into the trade and then risk parameters before we take a trade.
This chart is so interesting on the 10-year basis that the picture alone was worth a thousand words. But I saved you from reading those thousand words since I think the picture shows it.
If you plot the ratio of these two securities (you simply type AVB/MTN in the quote box window here at TradingView) you will see that the ratio has fallen back to the levels where it has bottomed massively before.
If you can risk 3 average daily ranges, in either one of these stocks, then that is what the risk will be set at. I don't have the exact trigger for this trade yet, but I wanted everyone to see what I am looking at first before jumping in too soon.
I think there is a 10%-20% return in this trade with risk that is less than 6%. This implies a 2:1-3:1 return versus risk. I think the probability of this setup being profitable is north of 50%, looking more towards 60%. Just my sense. It's not much better than flipping a coin, but I like my odds overall.
Cheers,
Tim 12:27PM EST Wednesday, August 28, 2013
Comments
StealthTrader
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Always interesting reading your analysis.
timwest
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I wish I could outline the reasoning for the outcome I have described. Comparing an "apartment REIT" to a "Mountain & Ski Vacation stock" may seem to be a reach, but the chart certainly shows it. The ratio chart is very interesting to look at, so I hope you take the time to look at it. I'm thinking about going into this trade over a period of a week, just slowly adding on the position each day.