YUM Stock – Timing With The Ultimate Oscillator

Yum stock has had a nice run back up. It was just a short few session ago that it looked like the stock was going to fall further, but the Ultimate Oscillator indicated that an oversold condition had emerged on Yum Stock. I commented on this back on January 31 in my YUM Stock ongoing strategy comments.

Every day I have checked the YUM Stock chart. The rise from $46.40 to over $51.00 has been dramatic.

YUM Stock – Using The Ultimate Oscillator To Time My Exit:

The chart below shows the recent run-up in Yum stock. Yesterday though the stock showed a overbought condition had emerged. Just as a few weeks ago when I bought the shares, the Ultimate Oscillator had warned of an oversold condition, which told me it was time to buy shares of Yum Stock.

Yesterday the warning was that the rally could be stalled as the overbought condition has now appeared in the Ultimate Oscillator. Today’s action proved some of that warning was true as the stock stalled for much of the day. I took advantage and sold my 500 shares of Yum Stock.

YUM Stock - Feb 18 2011

YUM Stock – Using The Ultimate Oscillator Can Often Mislead An Investor:

It’s important to remember that you have to be content with the decision to sell based on the ultimate oscillator. In the chart above you can see both the oversold condition back at the end of January and now the oversold indicators.

However the ultimate oscillator can be just as wrong as often as it is right. Back on January 31 when the Ultimate Oscillator warned of the oversold condition, Yum stock could easily have fallen further. The same holds true for the recent run-up and the overbought condition. When a stock is running higher, it can and often does push much higher than investors are ready for. By selling my shares now on today’s slight weakness, I could be setting myself up for a possible loss on a move higher in the stock. This could easily just be a lull in the stock before it pushes still higher.

YUM Stock Trade – Summary

In summary, it is important to remember that all tools, including the ones I use such as the Ultimate Oscillator, can give strong signals which in the end do not work out to an investor’s advantage. It is necessary for investors to have confidence in their own ability to decide which tools signals they will honor and at what point they will realize that the signal was wrong and it is time to make a decision based on instinct and no longer on technical indicators.

This is why for me I prefer my strategy of writing puts against stocks such as Yum Stock. I can take advantage of extreme oversold and overbought conditions to time when to buy and when to sell stock. But through combining the buying and selling of stock with the selling of puts, I know I have a consistent strategy that will profit my portfolio. When I am wrong and I buy too early, I can close the trade for a small loss or sell covered calls and wait for the stock to recover. The same applied to when the stock rises. If I sell too early and the stock continues to climb, I know that my writing put strategy will continue to benefit from the rise in the stock, so I have earned income from the quick trade in the bounce of the stock and additional income from the puts I have sold.

It is being consistent with strategies that makes investing a success or failure. Yum stock is just one of many stocks that over the years have performed well for me and through following my technical indicators I can often take advantages of weak periods to add to my profit through a short buy and sell trade.

View YUM Stock google chart.

Return to YUM STOCK trade chart for 2011.

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