Monday, July 19, 2010

PRU Watch

Prudential Financial Inc. (PRU), the insurance and all else financial company, has moved to bear mode on the macd and Person's Proprietary Signal (pps) as it approaches the release of earnings on Aug. 4 after the close.
PRU $53.50

I'm especially interested in this stock because its current volatility is lower than its historical average. The 14-day average true range is $22.70. The 200-day atr is $1.88.

An earnings surprise play, using an options straddle, makes money when the price moves, and loses through time decay when the price is static. Another way of putting that is the road to profit is to buy low volatility and sell at higher volatilities.

As a percentage of price, the 14-day atr is 3.3% and the 200-day atr is 3.1%. Not a huge difference, but clearly it suggests that options would be priced at "normal" levels.

Over the past year PRU has tended toward some post-earnings volatility, and given the events of the past two years or so, I consider any financial company's results to be a potential source of great surprise.

PRU dropped sharply on Friday, when the pps moved to bear phase after an analyst report.

The stock has been stairstepping down in a gentle slope since late April. The high that month of $66.80 was a lower high in a steep decline that began with the 2007 collapse of the financial sector.

On the chart, these factors are reasons for caution: The parabolic sar remains in bull mode, the fast stochastic is pointing up toward neutrality, and the macd is barely below the zero line, less than a tenth of a point.

On the other hand, the bearish pps is a fair predictor, and the stock is trading below the 20-day simple moving average.

Reversal Levels
  • $57.44, +7.4%
  • $55.75, +4.2% (20-day ma)
  • $53.50 <== You are here.
  • $52.63, -1.6%
  • $51.29, -4.1%

The Great Reflation: How Investors Can Profit From the New World of Money
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we reemerge from the wreckage.

Tim Bovee, Private Trader tracks the 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.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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