Wednesday, August 25, 2010

NLY Watch

The high-yield real-estate investment trust Annaly Capital Management Inc. (NLY) has been hammered today after an analyst downgrade that blamed the underperformance of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

The bad news: The price is down more than 2.7%. The good news: The dividend yield is way up. So it goes with high-yielding things. It's always a good news bad news sort of day.

NLY $16.86

The fast stochastic gave a preliminary bear signal on Aug. 13 that put it at variance with the slower indicators. It proved to be a good harbinger of what was to come. Despite bull phase on the psar and Person's Proprietary Signal (pps), the price basically went nowhere.

The pps kicked in with a bear signal yesterday, before the price decline, and the parabolic sar today, coincident with the decline.

The price decline has pushed the yield, paid quarterly, up to 16.11% annually.

NLY is first and foremost a yield play. For my accounts, that requires a different sort of handling to avoid the sad prospect of trading fees gobbling up the dividend yield.

So I'm slow to exit on NLY, unlike my stock short-term gains plays, where I'm much more likely to trade in and out.

On the Person's chart, today's decline burst through the second lower weekly pivot and has halted (so far) at the first lower monthly pivot.

The weekly pivot table:

Person's Table
ppspps openupper pivotlower pivot
$16.86 $17.64 aug24 $17.75 +5.3% $17.04 +1.1%

Big picture: The low so far today is in line with the lows that have held for the past year (with the exception of the May Flash Crash, which doesn't count in my book).

If $16.75 holds as resistance, then I'm happy to hold my position (I do own shares of NLY). The stock is trading below the 12-month moving average (equivalent to the 200-day ma), so that's an argument for getting out if that lower level is pierced in any significant way.

One problem is that NLY, as the downgrading analyst noted, is heavily dependent on Fannie and Freddy. And FanFred is a totally volatile entity from a policy standpoint. The Feds are going to do something with FanFred to try to fix their problems. What? Who knows. What happens to mortgage-backed security holders? Who knows. Ask Barney Frank, Tim Geithner or Ben Bernanke, and maybe they don't even know.

Reversal Levels
  • $17.84, +5.8% (swing high)
  • $17.32, +2.7% (20-day ma)%
  • $17.04, +1.1% (12-month ma)
  • $16.86 <== You are here.
  • $17.32, -2.7% (today's low so far)
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.
  • sto zone: green for bull phase, red for bear phase.

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