Buying Pressure Drives ACM Shares Higher

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Chuck's Trade of the Day

April 1st, 2021

Buying Pressure Drives ACM Shares Higher

Dear Reader,

Yesterday, we looked at a Daily Price Chart of Trimble Inc., noting the stock’s 50-Day EMA is trading above the 100-Day EMA signaling a ‘Buy’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for Aecom Technology Corp. stock symbol: ACM.

Before breaking down ACM’s OBV chart let’s first review which products and services are offered by the company.

AECOM, together with its subsidiaries, delivers professional services to program and construction management in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. It operates through three segments: Americas, International, and AECOM Capital. The company engages in planning, consulting, architectural, engineering, and construction management services for commercials and governments clients. It also invests in and develops real estate projects.

Confirming a Price Uptrend with OBV

The ACM daily price chart below shows that ACM is in a price uptrend as the current price is above the price ACM traded at six months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for ACM is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price up trend.

Confirmed ‘Buy’ Signal for ACM

Since ACM's OBV line is sloping up, the most likely future price movement for ACM is up, making ACM a good candidate for a stock purchase or a call option purchase.

Let's use the Hughes Optioneering calculator to look at the potential returns for an ACM call option purchase.

The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat ACM price to a 12.5% increase.

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following ACM option example, we used the 1% Rule to select the ACM option strike price but out of fairness to our paid option service subscribers we don’t list the strike price used in the profit/loss calculation.

Our initial price target for ACM stock is 68.50 per share.

Trade with Higher Accuracy

When you use the 1% Rule to select an ACM in-the-money option strike price, ACM stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if ACM stock is flat at 64.11 at option expiration, it will only result in a 4.9% loss for the ACM option compared to a 100% loss for an at-the-money or out-of-the-money call option.

Using the 1% Rule to select an option strike price will result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.

The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks.

The prices and returns represented below were calculated based on the current stock and option pricing for ACM on 3/31/2021 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if ACM stock increases 5.0% at option expiration to 67.32 (circled), the call option would make 41.2% before commission.

If ACM stock increases 10.0% at option expiration to 70.52 (circled), the call option would make 87.4% before commission and outperform the stock return nearly 9 to 1.

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify winning trades just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 

Average Portfolio Return of 180.6%

Below is a screenshot of the current open trade profit results from Chuck’s Inner Circle Trading Service. There are currently $548,698.47 in open trade profits with an average portfolio return of 180.6% demonstrating the ability of the Optioneering Strategy to deliver substantial returns with no losing portfolios.

Get Trades from the Champion!

Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes?

As a Trade of the Day subscriber, Chuck is offering you a special discount on his Inner Circle Trading Service.

Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing!

 

Wishing You the Best in Investing Success,

Chuck Huges Signature

Chuck Hughes

Editor, Trade of the Day

Have any questions? Email us at dailytrade@chuckstod.com

 

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