In late October, I mentioned an interesting opportunity in Francesca’s – a retail stock that you surely followed me into, and most likely left once boredom set in. I’m still in it and it is finally starting to work in our favor. Interestingly, I have come across a very similar setup that for a trade, could provide a substantially skewed risk/reward to the long side.

As a refresher, take a look at our $FRAN chart:

Large base built below price, blue skies above. However, earnings are upon us as they are set to report on the 10th next week. I hold stock here and will not be holding a significant portion through earnings. Retail has been a coin flip and I don’t flip coins.

My plan is to rotate into a similar setup, at least in terms of technical. That is $MAXR:

This is not an investment, it’s a trade. I’ve had a look at the fundamentals and this name doesn’t qualify as one I would want to put real capital into. However, the risk reward here, I believe is skewed to the upside and that is what trading is all about. Locating opportunities where you risk is defined to the downside, and your upside opportunity dwarfs that of your risk of loss.

I’ll be entering $MAXR before the 10th with the proceeds from the $FRAN trade.

As you were.

Trent J. Smalley, CMT