Many traders and investors will look at a declining stock sector and become fearful. Why do they not see the opportunity in these beaten-down industry groups? The reason is because they do not understand the charts. They get caught up in the emotion of hearing that the sky is falling. Hence, they all follow the crowd and run for the exit (sell) at the same time. This type of thinking has always gone on since the beginning of time.
Last week, retail stocks sold off in a very sharp manner. Popular retailers like Bed Bath & Beyond (NASDAQ:BBBY), Home Depot (NYSE:HD) and Costco Wholesale Corporation (NASDAQ:COST) plunged lower on the charts. They sold these stocks with both hands on heavy volume. Believe it or not, but when a stock declines in this fashion, that's where the opportunity lies. On June 24, I was able to isolate major chart support for Costco just below $157. Today, COST is trading higher by $2.52 to $159.62 a share. I was able to buy call options in the stock and sell half of them today for a 28 percent gain.
Traders and investors need to learn how to read the charts in order to find these trading opportunities when they present themselves. It is important to remember that there will be bear markets in many sectors and industry groups within an overall bull market. This is the market's way of presenting us with trading opportunities if you can understand the charts.
