There's benefit to taking swings on speculative stocks every now and then
Subscribers to Chart of the Week received this commentary on Sunday, May 25.
We're also running a promotion for Grand Slam Countdown! A 12-month subscription normally costs $1,747, but you can claim full access today for just $75, and an extra six months free. Click here for the offer!
Schaeffer’s Expectational Analysis always resonated with me; like fusing a liberal arts degree with an MBA. Using a combination of fundamental, technical, and sentiment analysis, our methodology not only removes ‘guesswork’ from trading, but helps cut through the nose of an overcrowded investing landscape. Take any investing article, report, or announcement, filter it through Expectational Analysis, and you can determine its actionality. There’s no better poster child for Expectational Analysis than quantum computing and a postmortem on a recent spread trade that tripled our subscribers’ money.
Quantum computing is near and dear to my heart because it was one of the first technologies I found through Expectational Analysis. We first discussed quantum technology in this space back in October 2023 as a ‘Potential Stock Market Trend(s) to Monitor Next Year.’ IonQ Inc (NYSE:IONQ) was trading at $12.75 at the time of that writing. This past winter, I cited three leading quantum computing stocks that ‘could derail the artificial intelligence (AI) hype train.’
I was very clear in my language in both articles that quantum computing was still, even amid all the hype, in its nascent, developmental stage. Profitability and scalability were real overhangs that took an exciting technology and made it speculative to most investors that exercise inherent caution in their trading theses.
This past week though, was a paradigm shift for the sector. D-Wave Quantum Inc (NYSE:QBTS) announced that its most advanced quantum computer reached "general availability" for governments and research institutions. Less than 24 hours later, IonQ CEO Peter Chapman told Barron’s that “I believe IonQ will be the Nvidia player. There will be other people that copy us and follow us; they have always copied and followed us.” Even with a broader market correction on Friday, QBTS and IONQ secured weekly wins of 56% and 31%. At Friday’s close, IONQ – first on my radar as a penny stock back in 2022 – traded at below $45.69.
This is less an ‘I told you so’ about quantum computing – because there have been plenty of whiffs in the last five years -- and more a testament to Schaeffer’s Expectational Analysis. And nothing felt more validating than seeing founder and CEO Bernie Schaeffer take a flier on quantum stock Rigetti Computing Inc (NYSE:RGTI) last week in our Grand Slam Countdown service.
Grand Slam Countdown recommends out-of-the-money vertical debit spreads on stocks expected to move strongly over the next five trading days, based on our Expectational Analysis approach. This method incorporates a combination of technical, sentiment, and fundamental drivers to identify attractive options trades.
Per the chart above, RGTI had cleared a trendline stemming from a Jan. 6 record high. Implied volatility (IV) was also appealing, likely due to a post-earnings volatility crush. But the main appeal was the short covering potential. A whopping 24% of the stock’s total available float was sold short, and bearish bets had started to taper off after the two most recent reporting periods.
With the stock closing at $11.85 on Friday, May 16, we recommended this debit spread Sunday night. RGTI proceeded to gap up by 17.5% this week, getting a halo lift from its sector peers IONQ and QBTS. The bought 12.50-strike call and sold 14.50-strike call allowed subscribers to collect a 300% profit – quadrupling their return – in just four trading days.
The Rigetti win is a testament to keeping tabs on trends through a contrarian lens, monitoring them until the fundamentals solidify, and exercising enough patience to wait for a trade setup that makes sense.
Where does quantum go from here? After the gains across the board this week, the entire sector is deep in ‘overbought’ territory, per the 14-Day Relative Strength Indexes (RSI) of IONQ, QBTS, and RGTI. Consolidations could be protracted and messy. You can be long on the technology but a realist about the short-term sustainability.
At the core of Expectational Analysis is embracing healthy, calculated risk. Taking a few big swings here and there, with the proper research and capital within your comfort range, is the type of rush that makes trading fun. And after all, this is supposed to be fun! The day-to-day slog should always have those moments like RGTI where you guessed right and nailed something. There will always be tons of misses, many more than hits. But all you need is that one big hit, and that’s what keeps you coming back to the trading table.