Tuesday, December 31, 2013

Tuesday's Outcomes: SONC, KAR

I closed my bull position in SONC and have updated my analysis, "SONC: Carhops deliver a bull signal", with details and a chart.

I analyzed KAR and intend to open a bull position, but deferred the trade until Thursday because of today's early close for New Year's. See "KAR: Bullish on car auctions".

All of the world money centers are closed on Wednesday: New York, London, Tokyo and Sydney. Trading resumes on Thursday.

Happy New Year, everyone! Happy Year of the Horse!

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

KAR: Bullish on car auctions

Update 3/26/2014: I've closed my bull position in KAR after it gave an exit signal. The decline from the March 7 peak of $32.24 means that wave 3 {-1}, which began Feb. 18, is complete, and a portion of the rise from $27.05 is being corrected. Up one degree, wave 5 to the upside is still underway.

I could have chosen to ride out the wave 4 {-1} correction, but chose, perhaps in an excess of caution, to exit instead.

Click on chart to enlarge.
KAR 9 months daily bars


Update 2/27/2014: I've opened a bull position in KAR, structured as long shares. Since I exited in January KAR has completed wave 2 {-1} to the downside and advanced along wave 3 {-1} within wave 5.

Click on chart to enlarge.
KAR 90 days 4-hour bars

Update 1/13/2014: KAR took a nasty U-turn the day after I entered. It dropped below the lower boundary of the 10-day price channel today. 

By the Elliott wave count, KAR has completed wave 5 {-2} to the upside, peaking at $30.46, which also brings fifth waves of two higher degrees to an end.

KAR is now correcting the rise that began March 7 from $19.06.

Click on chart to enlarge.
KAR 20 days 15-minute chart
The company on Jan. 9 put out a news release saying that the CEO of a subisidiary was leaving, and so perhaps that provided a rationale for bulls to exit.

I've closed my position for a loss. With that sort of Elliott analysis, there's no profit in hanging on to a bull position.

My KAR position lost 3.7% over 11 days, or 123.3% annualized.

Update 1/2/2014: I've opened a bull position in KAR, structuring it as long shares. The stock is up from the prior close, up intraday and rising slightly in the last two hours of trading.

I had put KAR on the Watchlist after my initial analysis because of slow holiday trading.

KAR Auction Services Inc. (KAR) is within the final stages of an uptrend that began Oct. 4, 2011 from $10.92. That kick-off point was in line with the market as a whole.

While many major companies have seen their stocks peak and move into a downtrend, KAR continues to rise and broke above its 20-day high of $29.22 on Monday, confirming the bull signal in trading today.

The Chart

By the Elliott wave count, KAR is in wave 5 of a larger degree wave 3 {+1}, which is in turn wave 3 {+2} within wave 3 {+3}.

So the uptrend is pushing toward the end of a rise from $27 on Dec. 6 -- the start of wave 5 -- but the higher degrees suggest that KAR has much more upside potential ahead of it.

Click on chart to enlarge.
KAR 3 years 2-day bars (left), 90 days 2-hour bars (right)
KAR's climb from 2011 would be what some Elliott wave analysts would call an extended fifth. In terms of counting technique, it results from the necessity to keep the third wave from being shorter than both the first and fifth waves -- a primary rule within Elliott.

When the straightforward count produces a short third wave, the proper counting technique is to drop down a degree and count that short third as the first wave of the lesser degree. So what some analysts call an "extended" wave, I call "keep on rolling" -- its all waves up and down, and the proper use of degrees keeps the system from breaking.

Wave 5 must exceed the wave 3 end point of $30.32 set on Oct. 22. That gives KAR 3.2% worth of upside potential within the mid-term count.

Bigger picture, the end of wave 5 will be followed by a correction of the rise from $19.06 on March 7, the start of wave 3 {+1} and will in turn be followed by rises and corrections of the waves of higher degree: 3 {+2} from $17 beginning Oct. 13, 2012 and 3 {+3} from $14.10 beginning Aug. 7, 2012.

This is KAR's fourth bull signal since wave 3 {+1} began last March. The three completed signals on average yielded 8.3% over 40  days. It is the first bull signal since wave 5 began on Dec. 6.

The Company

KAR Auction Services, headquartered in Carmel, Indiana, provides a marketplace for auctioning cars and other vehicles. Vehicle auctions are mainly restricted to dealers and wholesales in the United States, although they are a booming consumer market in some other countries.

In 2011 KAR Auctions handled the sale of more than three million vehicles through more than 200 locations. The company also provides other servides, such as inspections, storage, transporation, reconditioning and titling.

KAR Auction's business is intimately linked to the economy and its recovery from the recent recession. Hard times meant people kept their cars longer, were more likely to buy used, and created more junkers by stretching out the lifespan of their vehicles. Recovery means more people will buy new, putting more used cars on the market.

Analysts are universally optimistic about KAR Auction's prospects, collectively coming down with a 100% enthusiasm rating.

The company reports return on equity of 10%, with high debt amounting to 119% of equity.

Earnings tend to be highest in the spring and summer quarters, and KAR Auction's most recent earnings in those quarters have topped their counterparts of a year earlier. Earnings have surprised to the downside seven times in the past three years, and to the upside five times.

The company's earnings yield is 2.6%, lower than 90% of other companies in the specialty retail industry. The quarterly dividend, yielding 3.4% annualized at today's prices, is higher than the earnings yield by 29.7%.

KAR Auctions next publishes earnings on Feb. 17. The stock goes ex-dividend in March for a 25 cent payout.

Institutions own 78% of shares, which are priced at 38 times earnings, a fairly high premium. The price is also above par when compared to sales. It takes $1.96 in shares to control a dollar in sales.

Liquidity and Volatility

KAR on average trades 1.3 million shares a day and supports a small selection of options strike prices spaced $2.50 apart near the money. Open interest is very low and spotty, in the double digits where it exists.

Implied volatility stands at 23% and has been ranging sideways since June.

KAR's options showed extreme volatility in April and May, meaning that today's volatility ranks as extremely low, in the 4th percentile. Excluding the outliers, the percentile is in the mid-range, at 41%.

Options are pricing in confidence that 68.2% of trades will fall between $27.56 and $31.44 over the next month, for a potential gain or loss of 6.6%, and between $28.57 and $30.43 over the next week.

Contracts are trading actively, with calls running at more than twice their five-day average volume and puts at 25% above the average.

Decision for my account: I intend to open a bull position in KAR, structuring it as long shares. I won't take the trade today because of the early market close for the holiday, but will open a position if upside momentum continues into the last half hour before Thursday's closing bell.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Tuesday's Prospects

The markets close early on Tuesday, at 1 p.m. New York time.

On Monday, Dec. 30:

Of 2,362 stocks and exchange-traded funds in this week's analytical universe, 57 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 50 to the upside and seven to the downside.

Fifteen symbols traded over the counter broke out, all to the upside.

Ten symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are AMKR, EWI, GEOS, GOL, KAR, NGL, QGEN, RVBD, TAL and XTEX.

Two symbols, AFLYY and IMPUY, traded over the counter survived my initial screening, both having broken out to the upside.

I shall do further analysis on Tuesday, Dec. 31.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Monday, December 30, 2013

Monday's Outcomes: None

I found none of Friday's bull and bear signals to be worth further analysis. See "Monday's Prospects" and "Monday: No Trade" for details.

There were no signals relative to existing positions, and nothing on my Watchlist qualified for a trade, so I made no moves in those areas, either.

Absent any opportunities to earn money, I spent the day with a book and a pot of green tea close at hand, and a very good day it was, indeed.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Monday: No Trades

I've rejected the survivors from my analysis of Friday's trading signals. The final lot was turned away because their charts are bearish, contrary to the bull signals they gave. I don't intend to open any new position from among them today.

See "Monday's Prospects" for the first wave analysis. The finalists were CLF, SXC, TOT, VMC,  WLT and GLNCY.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Sunday, December 29, 2013

The Week Ahead: New Year omens and manufacturing

The week's major events come more from the calendar than from the econ reporting. Thursday, Jan. 2, is the first trading day of 2014, and the market's soothsayers and shamans will examine it closely for omens of the course prices will take in the ensuing year.

One major report is due out: The Institute of Supply Management manufacturing survey will be released, also on Thursday, at 10 a.m.

U.S. markets will be closed New Year's Day on Wednesday, and will close early, at 2 p.m. New York time, on Tuesday. The other Big 4 markets -- London, Tokyo and Sydney -- will also be closed on Wednesday.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

Vendor performance, also called the deliveries times index, from the ISM manufacturing survey, at 10 a.m. Thursday.

The S&P 500 index, reported continually during market hours.

Average weekly initial jobless claims, at 8:30 a.m. Thursday. 

Other reports of interest:

Monday: Pending home sales at 10 a.m. and the Dallas Federal Reserve manufacturing survey of conditions in Texas at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price index, with separate data for each major metropolitan area, at 9 a.m., the Chicago Purchasing Managers' index at 9:45 a.m. and the consumer confidence report at 10 a.m.

Thursday: The Purchasing Managers' manufacturing index shortly before 9 a.m. and construction spending at 10 a.m.

Friday: Motor vehicle sales throughout the day and petroleum inventories at 11 a.m.; moved from Wednesday because of the New Year's Day holiday.

Fedsters

The Federal Reserve System glitterati awaken from their holiday naps, with four taking to the podium.

Outgoing Federal Reserve Chair Ben Bernanke on Friday addresses the American Economic Association meeting in Chicago at 2:30 p.m. New  York time. The speech is entitled, "The Changing Federal Reserve: Past, Present, Future".

Also speaking on Friday are Fed Gov. Jeremy Stein, a member of the Federal Open Market Committee, Philadelphia Fed Pres. Charles Plosser, an FOMC alternate, and Richmond Fed Pres. Jeffrey Lacker, who has no FOMC position this year. Plosser speaks twice.

Analytical universe

This week I shall be analyzing new bull and bear signals among 2,362 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.

Trading calendar

By my rules, I'm trading February options for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading April options for single calls and puts as well as straddles. Shares, of course, are good at any time.

Happy New Year, and good trading

Monday's Prospects

On Friday, Dec. 27:

Of 2,362 stocks and exchange-traded funds in this week's analytical universe, 44 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 42 to the upside and two to the downside.

Five symbols traded over the counter broke out, all to the upside.

Ten symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are CCH, CLF, CXO, IDXX, SINA, SXC, TI, TOT, VMC and WLT.

Two symbols, AHEXY and GLNCY, traded over the counter survived my initial screening, both having broken out to the upside.

I shall do further analysis on Monday, Dec. 30.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Friday, December 27, 2013

Friday's Outcomes: NOC

I analyzed NOC and decided to open a bull position if it showed upside moment in the last half hour before the closing bell. It didn't, so on to the Watchlist it goes, initially on the Shelf of Shame, which is reserved for whipsaws.

The price zig-zagged down from the opening in a five-wave Elliott-wave pattern until noon New York time, when it began a sideways trend, ending in a small blip to the upside in the last 25 minutes of trading that I deemed insufficient to constitute sufficient momentum to trade on. See "NOC: Bulllish on military defense".

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

NOC: Bullish on military defense

Update 4/8/2014: NOC had a substantial rise since I wrote the analysis in late December, but I never made the trade due to a trading error. I.e., I overlooked the signal. The stock closed below its 20-day price channel on April 7 and again today, so I've removed it from my Watchlist.

Northrop Grumman Corp. (NOC) is in the final leg of a rise from $91.97 on Aug. 30. Its bull signal on Thursday marked the resumption of its rise after a 13-day correction from $114.48 down to $107.21 on Dec. 12.

By the Elliott wave count, the present uptrend is enclosed within a rise of larger degree, from $27.498 on March 6, 2009, and indeed within an uptrend that began from $10.92 on May 13, 1994.

At degrees above the fifth wave that began last Aug. 30 stand three degrees of third waves. That's a Elliott way of saying that although NOC is nearing the end of its near-term rise, it still, in the longer term, has potential to the upside.

Click on chart to enlarge.
NOC 5 years 3-day bars (left), 90 days 1-hour bars
Note that the orthodox trend channel, connecting the start of waves 1 {-1} and 3 {-1} for the lower line, and setting the top line at the end of wave 1 {-1}, goes shooting off beyond the path prices actually took.

An alternate line, in red, from the start of waves 3 {-1} and 5 {-1} contains most of the price move, and even comes close to containing the end of wave 1 {-1}.

A count that set the end of wave 4 where I have wave 2 {-1} would make the red channel orthodox, but at the cost of making wave 4 malformed, with its B wave exceeding the start of its A wave, which is forbidden under the Elliott wave rules.

I'll trust my preferred count for this analysis, ignoring the black trend channel as one of the sweet mysteries charts sometimes produce. If the red channel count is indeed correct, then the {-1} degree is in its third wave rather than its fifth, and has much more upside potential than under the preferred count.

In any case, under Elliott, there is no way of determining where the present uptrending wave might end. Even the traditional support and resistance analysis is of no help, since NOC is in blue-sky territory, well above all resistance except today's high (so far) of $116.19.

This is NOC's third bull signal since the present uptrend began on Aug. 30. The two completed signals split, with the winner yielding 6.7% over 38 days and the loser having a 0.5% negative yield over 12 days. The resulting win/lose yield spread, 6.2%, is at a level I find acceptable in a trade.

Northrop Grumman, headquartered in Falls Church, Virginia, is the world's fourth-largest defense contractor, with products ranging from drones to cyber-security. It and a handful of other defense companies have developed the technologies that define 21st century warfare and the character of the modern battlefield.

Analysts are less than optimistic about Northrop Grumman's prospects, collectively coming down with a negative 85% enthusiasm rating.

The company's financials are far from negative. It reports a 20% return on equity with debt amounting to 63% of equity.

Earnings the past two years have tended to peak in the 4th quarter. That quarter in 2012 came in a couple of cents below its year-ago counterpart. The most recent quarter reported, the 3rd of 2013, came in significantly ahead of its year-ago counterpart.

The company's earnings have surprised to the upside in every quarter for at least the past three years.

The earnings yield is 7.3%, higher than 80% of aerospace and defense companies. The stock is priced at 14 times earnings, on the low side for the company's sector. It takes $1.02 in shares to control a dollar in sales. Northrop Grumman retains 71% of earnings after paying dividends.

NOC on average trades 1.5 million shares a day, sufficient to support a wide selection of option strike prices spaced $5 apart near the money. The front-month at-the-money bid/ask spread on calls is moderately high, at 8.7%.

Implied volatility stands at 20%, which is the 56th percentile of the annual range. It has been meandering sideways since mid-October. An appropriate bull play when volatility is neither high or low is to buy shares.

Options are pricing in confidence that 68.2% of trades will fall between $107.84 and $121 over the next month, for a potential gain or loss of 5.8%, and  between $111.26 and $117.58 over the next week.

Contracts are trading slowly today, with calls running at 63% of their five-day average volume and puts at 37% of average volume.

Northrop Grumman next publishes earnings on Jan. 30. The stock goes ex-dividend in February for a quarterly payout yielding 2.1%.

Decision for my account: I intend to open a bull position in NOC, structuring it as shares. 

I'll open the position if NOC maintains upward momentum in the last half hour of trading. At this point, with three hours before the closing bell, that seems unlikely. NOC fell from the opening be3ll and has continued falling throughout most of the day.

I'll add NOC to my Watchlist if the decline continues and I'm unable to trade.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Friday's Prospects

On Thursday, Dec. 26:

Of 2,361 stocks and exchange-traded funds in this week's analytical universe, 45 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 40 to the upside and five to the downside.

Two symbols traded over the counter broke out, both to the upside.

Eight symbols traded on the major exchanges survived my initial screening, all having broken out to the upside.

They are CNMD, ININ, MBT, MFC, MOG.A, NOC, PBI and ROLL.

No symbols traded over the counter survived my initial screening.

I shall do further analysis on Friday, Dec. 27.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Thursday, December 26, 2013

Thursday's Outcomes: XRS

I analyzed XRS and decided to open a bull position, but its momentum faltered early on, in a 15 minute decline that began in pre-market trading and carried forward into the first five minutes after the opening bell. I've added XRS to my Watchlist. See "XRS: Bullish on China's crammers".

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

XRS: Bullish on China's crammers

Update 1/21/2014: XRS again broke above its 20-day price channel and confirmed the breakout by trading above the boundary today. The Elliott wave count shows XRS to be in an uptrend,  wave 3 {-1} of 1 to 3 {+1}.

However, implied volatility is extremely high. It is at the 100th percentile of the annual range and is 63% above the quarterly historic volatility. 

Those levels imply that I want to structure my position as a short options spread, sold for credit. It's a variation on buy low sell high. If volatility is high, then I want to sell it, and that's what an options credit spread does.

Also, high volatility implies that a price decline lies ahead. This contradicts the chart analysis. I listen to both.

Finally, te XRS options lack sufficient liquidity to meet my preferences. Long shares are the only choice I have. So, I'm passing on the trade and removing XRS from my Watchlist.

TAL Education Group (XRS) has a quirky chart. I can do an Elliott wave count of the rise from $11.70 on Aug. 30 until I reach the peak of $20.44 on Nov. 13.

From that point, the XRS chart because what Arthur Conan Doyle described in his Sherlock Holmes novel House of the Baskervilles: "Over the green squares of the fields and the low curves of a wood there rose in the distance a grey, melancholy hill, with a strange jagged summit, dim and vague in the distance like some fantastic landscape in a dream."

In other words, I don't know what to make of it. Were that Mr. Holmes here today to help!

Click on the chart to enlarge.
XRS 2 years 2-day bars (left), 90 days 2-hour bars (right)
XRS hit bottom on Aug. 29, 2012, having fallen to $6.97 from $17.97 six days after it began trading on Oct. 20, 2010.

The Elliott wave count up from  Aug. 29 is far from typically. I can't really get a reasonable count out of that period. It is only from Aug. 30 that the count resolves into something I'm comfortable with, but the lack of a count for the earlier part of the rise means I can't say within any certainty what the present highest degree is.

Is XRS tracing a fifth wave that ends it's rise, or is it a third wave, as I've counted it in the right-hand chart, with much more upside potential? Time will tell, but time's tales do traders little good -- usually by then it's too late to profit.

XRS broke beyond its 20-day price channel on Dec. 24, confirming the bull signal today by continuing to trade above the channel. Wall Street chit chat is attributing the sharp rise to whispers about XRS as a speculative play. Elliott wave theory, of course, attributes the rise to the imperatives of mass psychology that triggered the inevitable third wave.

It is the second XRS bull signal since the rise began on Aug. 30 of this year. The first yielded an astounding 42% over 66 days.

TAL Education Group is a China play headquartered in Beijing. It provides tutoring for primary and secondary school students covering a wide range of subjects. 

It is the Chinese version of what the Japanese call "juku", the British "crammers", and the French, in a gush of Gallic wordiness, "classes pr├ęparatoires aux grandes ├ęcoles". TAL provides classes for the children of parents who are are ambitious for their children and want them to have an edge.

TAL Education is followed by only a handful of analysts, but they are unanimously positive about its prospects, giving it a rare 100% enthusiasm rating.

The company reports return on equity of 22%, but there is no debt/equity ratio available, as is sometimes the case for foreign companies. The company pays no regular dividend, but there was a hefty special dividend last year that amounts to a 9.3% yield at today's prices. Whether that sort of profits distribution will happen again is anyone's guess.

Earnings typically peak in the summer quarter, with profits accelerating for at least two years. The company has produced an earnings surprise to the upside in each of the last 11 quarters.

XRS has an earnings yield of 2.1%, lower than 85% of other companies in its industry. The stock is priced at 48 times earnings, and shares are also selling at a high multiple of sales. It takes $7.05 in shares to control a dollar in sales.

Institutions own 71% of shares.

XRS on average trades 342,000 shares a day, sufficient to support a small selection of option strike prices spaced $2.50 apart. 

Open interest is in double digits near the money and so the contracts are far too illiquid for my preferences. The front-month at-the-money bid/ask spread on calls is wide, at 17.5%. Any position I open in XRS will be structured as long shares.

Implied volatility stands at 41% and has been falling since Dec. 24 following a rise from 36% on Dec. 12. Volatility is at the 53rd percentile, a further argument in favor of shares rather than options spreads.

Options are pricing in confidence that 68.2% of trades will fall between $19.42 and $24.66 over the next month, for a potential gain or loss of 11.9%, and between $20.78 and $23.30 over the next week.

Contracts are trading actively today with a bias toward puts, which are running 158% above their five-day average volume. Calls are running at 120% above average.

XRS next publishes earings on Jan. 20.

Decision for my account: I intend to open a bull position in XRS if it shows upside momentum during the last half hour of trading. I'll structure the position as long shares. 

I'm willing to trade XRS now, despite my aversion to trades during the holiday season, because it is a Chinese company. Presumably, more people are trading it who don't take off for Christmas.

If momentum falters, then I'll add XRS to my Watchlist for further consideration.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Thursday's Prospects

On Tuesday, Dec. 24:

Of 2,361 stocks and exchange-traded funds in this week's analytical universe, 62 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 60 to the upside and two to the downside.

Thirteen symbols traded over the counter broke out, 11 to the upside and two to the downside.

Sixteen symbols traded on the major exchanges survived my initial screening, all having broken out to the upside.

They are BBVA, CRM, DPM, FNSR, GME, HALO, LYB, NPO, RUK, SBAC, SHPG, TBI, TCK, TTC, USTR and XRS.

One symbol traded over the counter survived my initial screening, EBKDY, having broken out to the upside.

I shall do further analysis on Thursday, Dec. 26.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Tuesday, December 24, 2013

Tuesday's Outcomes: VIP, C, CAT

I found no trades among Monday's prospects. VIP came closest to making the grade. See "Tuesday: No Trade".

I calculated the profits and losses from a pair of symmetrical triangle trades, and found that the loser had lessons that will -- I hope -- sharpen my game. See "School Hard: A Tale of Two Triangles".

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

School Hard: A Tale of Two Triangles

Two direction-neutral plays, both structured as long iron condors, expired on Dec. 21. Both symbols were in the midst of symmetrical triangles, a chart construction that lends itself to strategies that profit if the price goes nowhere.

An iron condor is built out of two short vertical spreads: A bull put spread and a bear call spread. Together they provide a zone of maximum profit that drops off into losses at both the high end and the low end.

If the price stays in the zone, the trader lets the iron condor expire and pockets the credits earned when the position was opened. If it drifts above or below, then the trader either closes the position for a less-than-maximum profit or for a loss.

Closing the iron condor prior to expiration always means giving up some potential profit.

C remained within its zone of maximum profit and expired worthless. It provided a 30.9% yield on risk over the 36-day lifespan of the position, or 313.2% annualized.

CAT was trickier. On the last day of trading before expiration it moved decisively above the zone of profitability. By that point, the options were no longer liquid. I had no choice but to allow them to be exercised, a process that dumped short shares of the stock in my account. I liquidated the shares for a loss on Monday, Dec. 23.

In setting my exit points, I used the zone of maximum profit rather than the boundaries of the triangle, focusing on the position rather than the chart. This, as it turned out, wasn't the best approach, but it wasn't wrong, either.

Click on chart to enlarge.
CAT 180 days 2-hour bars
The price broke above the profit zone on Dec. 1, dropped back, and then above it again, never to return. I could have mitigated my loss had I exited on the first break above the zone.

But I wouldn't have had a chance to do that had I imposed a strict-exit rule at the profit-zone boundaries. CAT dropped briefly below the zone on Nov. 21, and that would have triggered an exit.

The price moved decisively above the upper boundary of the triangle on Dec. 12. Had I exited at that point, I would have pocketed a decent profit, but not the maximum. But I would never have made it to that point. CAT moved above the triangle on Dec. 6 and below it on Dec. 4. 

CAT provided an abundance of whipsaws, and I don't see how any rule could have reasonably handled them so as to give a chance for attaining maximum profit while steering clear of the options being exercised.

The Elliott wave count would have helped. Triangles under the Elliott rules touch the boundaries five times, in an A-B-C-D-E zig-zag pattern. Double touches occasionally happen, just to confuse the picture.

CAT touched the triangle boundaries five times before I entered the position, including a double touch, so Elliott would have told me to steer clear of the trade.

Wise advice, in retrospect.

Counting both the options and the shares resulting from their exercise, plus the results of an earlier position that was rolled forward, CAT produced a 0.5% loss on risk, or negative 5.9% annualized.

I never like to lose, but on the other hand, half a percent is cheap tuition for an experience that deepened my knowledge for triangle plays. School hard indeed.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Tuesday: No Trade

My second-round analysis of Monday's trading signals (see "Tuesday's Prospects") turned up nothing that I think warrants a further look.

All of the symbols had given bull signals, and although some of the charts were uptrending, they tended to be either B-wave corrections, which I find to be notoriously fickle, or fifth waves with a significant life behind them.

The most likely candidate was VIP, but I found the count to be ambiguous. I'm putting VIP on my Watchlist until the chart resolves the count, and if it still sees tradable, then I'll do the full analysis.

In any case, even if I were to identify a trade, I would be unlikely to place it today because of the atypical nature of year-end holiday markets.

A reminder: The U.S. markets close early, at 1 p.m. New York time today, and will be closed entirely on Wednesday for the Christmas holiday.

Enjoy!

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Tuesday's Prospects

On Monday, Dec. 23:

Of 2,361 stocks and exchange-traded funds in this week's analytical universe, 113 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 106 to the upside and seven to the downside.

Nine symbols traded over the counter broke out, all to the upside.

Thirty-four symbols traded on the major exchanges survived my initial screening, all having broken out to the upside.

They are BYI, CATM, CHK, CRZO, CTRP, CWT, EA, ECPG, EWBC, FLEX, FNGN, FRGI, GBCI, GPOR, HTHT, IBKC, IEX, KEP, LMT, MSI, NBTB, PCRX, RUSHA, SBGI, SBS, SD, SNDK, UBNT, UTHR, VIP, VRTS, WPPGY, YNDX and Z.

Four symbols traded over the counter survived my initial screening, all having broken out to the upside. They are BNPQY, CGEMY, UBSFY and VLKAY.

I shall do further analysis on Tuesday, Dec. 24.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Monday, December 23, 2013

Monday's Outcomes: AMZN

I analyzed AMZN but deferred a trade because of the holiday. See "AMZN: A mature trend".

December options expired on Saturday. I have two, C and CAT, that I don't intend to roll forward, both of them non-directional plays on symmetrical triangles. Because of the complexity of the option positions -- they are iron condors composed of four strike prices each -- I'm waiting for documentation from my broker before calculating the results.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

AMZN: A mature trend

Update 2/4/2014: AMZN pushed below its 20-day price channel on Jan. 31 and continued below that level for two subsequent trading days. I'm removing AMZN from my Watchlist as a potential bull play. AMZN never met my criteria for entry and so I didn't open a bull position.

Click on chart to enlarge.
AMZN 90 days 1-hour bars

Amazon.com Inc. (AMZN) has set a high so far today of $405 after sending a bull signal on Friday. It has come a long way since it started trading on the stock exchanges.

The stock's rise began from May 22, 1997 at $1.31. By the Elliott wave count, it is now within wave 3 {+4} of that rise, and also within wave 3 {+3} and wave 3 {+2} at two lesser degrees.

The present {+1} degree began from $34.68 on Nov. 20, 2008 and is in its 5th wave, near the end of its run.

That's a short way of saying that in the markets, all trends come to an end, and by the count, such is the case with AMZN's, where the lesser degrees below wave 5 {+1} are also in their fifth waves down to wave 5 {-1}.

Click on chart to enlarge.
AMZN 2 years daily bars (left), 4 months 4 days hourly bars (right)
I'm decidedly NOT saying that AMZN isn't a trade for me at this point. Fifth waves can take a very long time to work themselves out, and I only need a month or so to make a profit.

The {-2} degree is the one to watch. At that degree, AMZN is wave 3 {-2}, which began Aug. 28 from $279.33. It, too, is coming to a close, via wave 5 {-3} and wave 5 {-4}. Once they are complete, then wave 4 {-2} will correct the rise from August, to be followed by a rise from the correction low to above the wave 3 {-2} high, presently at $405.

The questions, then, are how high can wave 3 {-2} go, and how long a lifespan is typical at this degree.

At this point, wave 3 {-2} is already longer than wave wave 1 {-2}, so it cannot violate the Elliott wave rule forbidding a third wave from being shorter than both the first and fifth waves. It can stop now, or continue on its upward path.

The same holds true for the enclosed waves at the {-3} and {-4} level. There is no limit on the lower degree uptrending fifth waves now underway on this chart.

Wave 1 {-2} took about three months to complete. The present wave 3 {-2} has been in progress for about four months. The calendar argues against a longer rise if the waves are proportional. However, there is no rule that requires them to be, and fifth waves are often extended in time.

The cautious trader, with a farther horizon, will wait for the wave 4 {-2} correction before opening a position. For a trader with my comfort with risk and nearer horizon, there is nothing in this chart that would forestall a bull play.

This is AMZN's third bull signal since wave 3 {-2} began on Aug. 28. Both were profitable, yielding on average 8.5% over 29 days.

I chose AMZN for analysis out of Friday's signals because it is a household name and highly liquid. Both qualities are pluses in constructing a position. (See "Monday's Prospects" for a listing of all bull and bear signals from Friday.)

Most were confirmed in trading today. One, VFC, has a 4:1 stock split. It gets sent to the back of the queue until my brokerage either adjusts the charts to compensate or the passage of 20 days again gives me price channels I can use.

I loathe stock splits when I'm analyzing, and love them when a high priced, awkward stock gains some granularity. AMZN belongs in the high-priced, awkward category.

Amazon needs little explanation. From its Seattle, Washington, headquarters, it runs a global e-commerce empire that has become a ubiquitous presence in households that are comfortable with online shopping. It started with books. It now sells practically everything.

Analysts are optimistic about Amazon's future prospects, collectively coming down at a 38% enthusiasm rating.

Return on equity is slim, a mere 1.5%, and debt is actually at a level that I consider to be high in comparison with return, at 33% of equity.

Amazon has reported losses in the last two quarters, and also in the third quarter of 2012. The remaining quarters of the last three years were profitable. Each of the 2013 quarters reported so far has come in below its year-ago counterpart.

Earnings have surprised to the downside seven times in the past 12 quarters, and to the upside five times.

AMZN's earnings yield is 0.07%, lower than all other catalog and mail-order retailers. The stock is priced at 1,425 (!) times earnings and also at a premium to sales. It takes $2.62 in shares to control a dollar in sales.

At this point, even though I don't normally trade based on the fundamentals, I have to sit back and take a deep breath. These numbers are slightly ridiculous. What's really going on here?

Amazon pays no dividend, so all earnings are retained within the company. Analysts are clearly anticipating that the money is being spent wisely to help Amazon grow. That's straight out of the Warren Buffett playbook.

Also, the company is a behemouth. Analysts have to be assuming that there is room for future market penetration. As I watch another fast grower, Apple (AAPL), struggle with a mature, saturated market, I wonder how much more market there is for Amazon.

Those are questions; I have no answers. I'm a chart trader. The numbers give me pause and counsel caution.

AMZN on average trades 2.9 million shares a day and supports an awesome selection of option strike prices spaced $5 apart. The front-month at-the-money bid/ask spread on calls is a narrow 2.1%.

Implied volatility stands at 31%, the high point of the month. It has been on the rise from 27% since Dec. 13.

Options are pricing in confidence that 68.2% of shares will fall between $365.39 and $438.41 over the next month, for a potential gain or loss of 9.1%, and between $384.36 and $419.44 over the next week.

Contracts are trading actively today, with calls running at 66% above their five-day average volume and puts at 46% above average.

Amazon.com next publishes earnings on Jan. 29.

Decision for my account: The chart allows for a bull trade, although the trend is fairly mature. The financials, as I said above, counsel caution. If this were a normal week, I would open a bull position in AMZN. Since it's Christmas week, when volumes are lower, I'm putting off any trades and adding AMZN to my Watchlist. I'll come back to it on Jan. 2 and see what it has done.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Sunday, December 22, 2013

The Week Ahead: Personal income, durable goods, new home sales

Wednesday is Christmas in New York, London and Sydney. While it is not a holiday in Tokyo, business there is starting to wind down for the coming New Year's holiday.

U.S. markets will close early on Tuesday, at 2 p.m. New York time.

And yet, there are economic reports of significance: Personal income and outlays on Monday and durable goods orders on Tuesday, both at 8:30 a.m., and new home sales on Tuesday at 10 a.m.

All have an impact on the terrain within which we trade, although they are of far less import than last week's Fed announcement that it would begin tapering off its economic stimulus and the end-of-the-week upside surprise on the GDP.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

The S&P 500 index, reported continually during market hours.

Average weekly initial jobless claims, at 8:30 a.m. Thursday. 

Other reports of interest:

Monday: Consumer sentiment at 9:55 a.m.

Thursday: Petroleum inventories at 11 a.m.; the report will be moved from Wednesday because of the holiday.

Fedsters

It is a week when the Federal Reserve glitterati abandon the speaking circuit. They will, no doubt, on the night before Christmas ensure that their stockings are hung by the chimney with care, in hopes that fresh jobs data soon will be there.

Analytical universe

This week I shall be analyzing new bull and bear signals among 2,361 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.

Trading calendar

By my rules, I'm trading January options for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading April options for single calls and puts as well as straddles. Shares, of course, are good at any time.

Happy holidays, and good trading!

Monday's Prospects

On Friday, Dec. 20:

Of 2,361 stocks and exchange-traded funds in this week's analytical universe, 109 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 99 to the upside and 10 to the downside.

Five symbols traded over the counter broke out, three to the upside and two to the downside.

Thirty-seven symbols traded on the major exchanges survived my initial screening, 36 having broken out to the upside and one, PZE, to the downside.

The upside breakouts are AKAM, ALNY, AMZN, APO, AWR, B, BAH, BLKB, BRKR, CIR, CNQR, CRAY, CTXS, CYOU, EXH, FDX, FFIV, FLTX, H, JAZZ, JCOM, LCI, MCO, OILT, PRU, ROK, SGY, SSD, TYL, VAC, VFC, WF, WIRE, WYN, YELP and ZBRA.

No symbols traded over the counter survived my initial screening.

I shall do further analysis on Monday, Dec. 23.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Friday, December 20, 2013

Friday's Outcomes: HLS

I've removed HLS from my Watchlist and updated the analysis with details. See "HLS: Rehab in an uptrend".

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Winter Holidays

I'll continue to produce "Prospects" reports during the winter holidays period. However, I anticipate doing very little analysis or trading. Volume is sure to be low as traders turn their attention away from profits, and low volume always makes market signals suspect in my eyes.

Also, I won't be analyzing any of the symbols that produced bull and bear signals on Thursday and survived my initial screening overnight. (See "Friday's Prospects".) All have failed my second round of analysis, for the most part because their charts are showing topping behavior.

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Friday's Prospects

On Thursday, Dec. 19:

Of 2,347 stocks and exchange-traded funds in this week's analytical universe, 55 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 32 to the upside and 23 to the downside.

Seventeen symbol traded over the counter broke out, nine to the upside and eight to the downside.

Fifteen symbols traded on the major exchanges survived my initial screening, 12 having broken out to the upside and three to the downside.

The upside breakouts are ATVI, BMY, CBI, GGB, HLF, ING, LVLT, QLIK, SID, SWFT, TRN and XEC.

The downside breakouts are JCP, SNP and TCO.

Four symbols traded over the counter survived my initial screening, all having broken out to the upside. They are BKNIY, FMCC, FNMA and VIVHY.

I shall do further analysis on Friday, Dec. 20.

Methodology

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the uptrend from October 2011 on the S&P 500 chart began to falter, on May 22, 2013, calculated as average yield multiplied by the odds,
  • and absence of an earnings announcement within the next 30 days. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Thursday, December 19, 2013

Thursday's Outcomes: CHL

I analyzed a bear signal from CHL but didn't make the trade when the price rose to a net up day. I'll put CHL on the Watchlist for later consideration. See "CHL: How free is the market?"

References

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.