A One Arm Bandit Trade

MarketTamer | Posted April 17th, 2015

by
Gregg Harris

Last time I covered an ‘Old Faithful’ trade, one that has worked reliably in recent years. Today I’m covering a ‘One Arm Bandit’ trade, and it is in a setup right now.

A ‘One Arm Bandit’ trade is like a slot machine to me. I don’t gamble. But on rare occasion, if I’m walking past a slot machine, why not pause and throw a quarter in? Like buying a lottery ticket once or twice a year or placing a small bet on a long shot in the 4th race at Aqueduct, a small stock purchase or one or two cheap call options will not break me and provides a little amusement.

I was looking over last week’s earnings releases to see if there were any post- announcement trade possibilities. With only a few companies announcing so far, there wasn’t much to work with.

I’ve been keeping a watch on restaurant stocks. In the newsletter, we hit a nice 10.5% gain on Brinker International (EAT) recently, and the Yum! Brands (YUM) trade is currently up 7.8%, and we’re about to get a dividend payment on top of that.

So when I saw Ruby Tuesday’s earnings announcement after the close on Thursday, I investigated, even though their results looked pretty lackluster.

It turns out Ruby Tuesday can’t get out of its own way. They did report a smaller net loss than expected, but that was mainly from cost-cutting, not from growth. They’ve had a new CEO for two years, and he hasn’t been able to do anything.

So why would I look any further for a trade possibility? The stock is low-priced, and hasn’t gone anywhere for years:

But a couple of odd things stood out. For some reason, a number of insiders have been buying the stock over the past few years.

Most of these insiders have held onto some or all of the shares they purchased. You don’t see this very often in this type of company. So are they expecting a turnaround? If so, they must be getting impatient. Are they expecting a buyout? Who knows.

But one other thing jumped out at me. It’s not just the insiders that periodically grab some stock. Looking at RT’s weekly chart, the stock periodically shows buying spikes, with the price jumping above recent resistance on very high volume. And it turns out another spike may be starting:

Market Tamer

The three previous breakouts easy gained at least one point after the breakout. I think the 8.0 level is reachable this time, which would be an 18.3% gain over the current price. An 8% stop-loss would be reasonable to limit losses.

So this is not a serious trade setup that would be part of a methodical income strategy. This is merely a walk-by dropping of a quarter and pulling of an arm trade. But sometimes I just can’t pass up a good pattern.

Of course, there’s much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2015 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com.

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