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It's Easy to Win... and Difficult to Lose on This Stock TradeBy Brian Hunt, editor in chief, Stansberry & AssociatesWednesday, February 17, 2010 One of the best friends a trader has is the concept of a "stress test."
You won't read about a "stress test" in any book on trading. It's simply a name I've given to periods where extremely bearish conditions prevailed for a given asset.
The thinking goes, if you notice where an asset refuses to sink any lower during some of the worst conditions imaginable, that price point is likely the lowest possible level the asset can hit for a long, long time.
For a "real time" version of a stock's stress test, have a look at the past two years of trading in the best Big Oil company on the planet, ExxonMobil (XOM).
 The credit crisis of 2008 – and the huge decline in just about every stock, bond, and commodity that came with it – is the greatest stress test most traders or investors have ever seen.
This awful period saw XOM, which is considered one of the safest, most stable stocks on the market, fall from $80.67 per share to $62.36 in just two weeks (A)... an enormous fall for a big, blue-chip stock. This $62 area is important.
Soon after striking $62, XOM rallied hard along with the overall market. This rally took the stock into the high $70s. Shortly after, XOM was run through the ringer again when the market plummeted to its March 2009 panic low (B). Again, XOM found its legs around $62 per share.
XOM used the 2009 stock market rally to climb back to $75 per share. But in the past few months, shares have fallen close to the stress-test level of $62 (C).
XOM just made a big acquisition outsiders feel it paid too much for. But as you can see, this load of pessimism wasn't enough to take XOM below its $62 stress-test level. Eager buyers who want to own XOM near the stress level came into the market to snap up shares.
I base a lot of my own trades on this sort of "common sense" technical analysis... I study price and volume trends. I look to buy cheap assets that have stress-test floors under them.
If you want to own one of the biggest and best oil companies for the long term... or if you're a trader looking to structure an option trade, the XOM stress test is a great "common sense" opportunity.
Good investing,
Brian Hunt
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Precious metals rebound... silver, gold, platinum, and palladium jumped over 1.5% yesterday.
Fertilizer firms Compass Minerals, CF Industries, and Terra hit 52-week highs.
Oil spikes back above $75 on dollar weakness.
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