Tim Bovee, Private Trader: Tuesday's Prospects: Round 2

Tuesday, June 17, 2014

Tuesday's Prospects: Round 2

As has been common in recent weeks, most of the 15 symbols that survived my first round of analysis failed the chart test: They gave bull signals on charts that are either bearish or ambiguous. (See "Tuesday's Prospects" for a full list of the survivors.)

At this stage of my analysis, I'm not creating a full Elliot wave frame for the chart. Rather, I'm simply looking at a 3-year chart in context of a 20-year chart and deciding whether or not the stock's trend matches the signal.

"Trend" in trading is a slippery word, of course. Today's higher high, the very definition of a trend, might well be an element in the week's counter-trend correction. It all depends upon timespan I'm interested in, what is called the "degree" in Elliott wave analysis.

In order to impose some discipline on the process, I look at the trend in terms of the major turning points on the three-year chart. This means that I'm catching movements that last months rather than weeks or years, which is about what I want for my style of trading.

Using the turning points, its quite easy to see a trend. An stock is in an uptrend by this definition if the most recent high is above the most recent turning point.

One symbol among the 15 meets this criterion: FGP, whose three-year chart is on the left. I've drawn a red circle around the turning point, which was $27.86 on June 3.

Click on chart to enlarge.

FGP 3 years 3-day bars (left), GLOG 3 years 3-day bars (right)

The stock hit a high of $28.35 when it broke above its 20-day price channel yesterday, so it's definitely in a near-term uptrend. Also, that uptrend is in the context of a series of higher turning points, which means that it is confirms that it is also in a longer-term uptrend.

Contrast that with GLOG, another bull signal, whose chart is on the right-hand side. I've marked the prior turn downward. $28.89 on May 6, with a red circle. Today's high so far, $28.41, falls short of that level.

So it there is no near-term uptrend yet, although the present bull signal comes within the context of a series of higher turning points dating back to 2012, so it is in a longer-term uptrend. Although not yet in an uptrend, GLOG will be in an uptrend once the prior turning point is exceeded.

For my account, I trade uptrends, not uptrend wannabes. I'm not in the business of aspirational trades. So I rejected GLOG and took a closer look at FGP.

Of the 15 first-round survivors, two failed confirmation by moving back within their 20-day price channels. The rest, except for FGP, failed the charts test.

At this point, I looked at FGP's assessment my Zacks Investment Research, the service I subscribe to in order easily assess a company's fundamentals. Zacks gives FGP a neutral rating, so I check out some other details.

FGP has an average volume of only 236,000, so it would be a long shares trade. That current price is just 13% above the price implied by growth estimates, which means the stock isn't severely overpriced. The dividend is quite high, at 7.08% annualized.

With a dividend that high, FGP would go better as a trade under my longer-term rules, which seek to ensure that I can hold a position for at least a year to capture dividends and the lower long-term capital gains tax rate.

For a longer-term position, I care a lot more about the fundamentals than I do with my shorter-term plays. So I check out FGP's earnings for the last three years, and found a strong seasonal pattern, with the warmer quarters consistently showing losses and the colder ones showing profits.

Did I mention, FGP is a propane distributor? Knowing that, the seasonal pattern makes sense.

The profitable quarters have consistently come in higher than the losing quarters, so from that first glance, it appears that FGP is worth a closer look.

It has taken far longer to describe the analytical process it actually took. Generally, I'll spend just a minute or two at the most in assessing a symbol's failure or success in the second round, and I can dispose of most of them in a few seconds.

I intend to write an analysis of FGP, treating it as a potential longer-term trade, and shall post it later today. However, I don't intend to place the trade until after the Federal Open Market Committee announcement on Wednesday at 2 p.m. New York time.

-- Tim Bovee, Portland, Oregon, June 17, 2014

References

My shorter-term trading rules can be read here. My longer-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 decisions for his or her own account, and take responsibility for the consequences.