Market Overview

The FED News Event Strategy Applied To Realty Income Corp

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Learning how to incorporate news into your trading strategy is very important. Most people don't really understand how to incorporate news events into their trading strategies and they are still stuck with the notion that good news makes the stock go up and bad news makes it go down. I will show you how Hedge Funds structure their trading around news events like the Federal Reserve economic release.

Today's installment on Trading Lessons From A Hedge Fund Trader will focus on a major news events, the FED, and applying a news event trading strategy on Realty Income Corp (NYSE: O). 

We just witnessed the power of the FED day (The Federal Reserve is the wizard behind the curtain and uses interest rates and unlimited buying power to move the markets) and the FED day is easily the hardest major economic release news event to trade. 

We use the trading calendar on ForexFactory (http://www.forexfactory.com/) to highlight the upcoming news events for the week. I suggest you copy the link so you can be aware of the potential land mines lurking around the corner.

Let's analyze Realty Income Corp (O.NYSE)

I wrote an article about Realty Income Corp (O.NYSE), This REIT Dividend Powerhouse Is Primed For A Sell Off, and today's lesson is an expansion on that article. 


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That article used Fundamental and Technical Analysis to explain why I believe that $54 will be the high for a very long time, why the stock isn't suitable if you are a conservative dividend holder and why I believe that the path of least resistance is to the downside.

An important thing to note is just because I think the path of least resistance is to the down side doesn't mean that I want to short the stock right now. Timing is everything. I might want to short the stock but I will use a different timing algorithm to get me into that trade and I will use specific entry and stop points with a 3 target system.

Quantitative Research

The research team at the Hedge Fund I worked for determined that the markets have a very high probability of trending after the FED day. High level PHD rocket scientist research is one thing, as a trader I was only concerned how to turn that research into real profits. The answer is simple and I will share it with you.

Technical Situation


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The 1st circle is the low for 2013. Realty Income Corp (O.NYSE) made a move from the high $38 to $54 for a gain of 42% in 5 months and has plummeted back to the $38 area taking just over 3 months.

Did you notice that the closing price for Realty Income Corp (O.NYSE) on September 18, 2013 was the first CLOSE price that was higher than the high of LOW bar for 2013. Sound complicated? It isn't. OHLC stands for Open, High, Low and Close and we use that terminology to describe the price action on the charts.

The First close that is above the High of the LOW bar for 2013 is very important if you follow technical analysis, it might be the 1st clue that Realty Income Corp (O.NYSE) is about to start a trending move higher.

The 2nd circle is the FED day economic news release day and it is very important for many reasons and you can use the HIGH and LOW of September 18 (FED day) as a critical point for the next move.

We just layered technical analysis with a news event. It's that simple. 

The technicals showed us that we just experienced a new CLOSING price above the HIGH price of the LOW bar of the year and this happened on the FED day and we know that the market has a high probability of trending after the news day. We don't have to analyze the FED release because the market summarized the move and it appears in the price action in the charts.

Did you see the 50day moving average just above the current price? 
Just checking to see if you are starting to notice the fine details. Keep reading our stuff and in time you will be a technical expert.

Conclusion

Investors see Realty Income Corp (O.NYSE) as a safe, high flying stock that is currently on sale. They view the fundamentals as strong because that's what most of the articles on Realty Income Corp (O.NYSE) tell you. They hope for a move back to the $54 high and see this as an opportunity to make quick and easy money.

I don't see it that way, I see a stock that has come in and out of PLAY and those stocks are dangerous for many reasons. The stocks associated as high yielding dividend stocks have become rock stars and those plays don't typically end that nicely.

If you are LONG Realty Income Corp (O.NYSE), the FED move is on your side but we need a close above $41 for the quantitative research and FED play to be valid. 

A close below $39.25 will set off the 'magnet trade', yet another one of my many trading strategies in my arsenal, and an instant move to the LOW of the year and then lower.

If the price lingers around the $39.25 and $41 price, the approximate HIGH and LOW price for September 18 (The FED day release) then you know the stock is building up for the next big move up or down. This is the time when you leave the stock alone, let the stock tell you where it wants to go, then join the move.

We are at a critical juncture and the market is trying to show us the path of least resistance and it should happen very soon. If we crack below the LOW of 2013 ($just above $38), make sure you exit the trade because pain will follow the breach of the LOW.

We have a potential SHORT and LONG trade setup for Realty Income Corp (O.NYSE). If you would like to know how a Hedge Fund Trader would evaluate this stock, showing our specific trading levels for Entries, Stops and Targets then click here to see how we Profit Behind The Chart.

You can read all the news about a company, perform all the fundamental and technical analysis on the stock, successful traders and investors know it all boils down to this, you must set up the optimal risk reward trading scenario (otherwise known as a game plan) that identifies specific trading levels for Entries, Stops and Targets so you can maximize profits while minimizing risk.

This is a cursory look at Realty Income Corp (O.NYSE) and we are not making any specific buy or sell recommendation but merely voicing our opinion of the current situation. Each individual investor must conduct their own due diligence of both the company, the market sector as well as their own financial situation and risk parameters.

By Joel Laceda - September 19, 2013 BehindWallStreet.com

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Federal Reserve Markets Trading Ideas

 

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