Wednesday, August 11, 2010

XRX Watch

The business systems and services company Xerox Corp. (XRX) has shot below the 200-day exponential moving average with bear signals galore but no volume spike, and also no news to explain the drop.

XRX $9.30

The market is down on disappointment with the Fed's assessment of economic prospects. Xerox, more than most company, is wired into every sector of the economy. At the least, every office has a copier. So XRX, more than many stocks, is extraordinarily sensitive to the state of the economy.

XRX opened 2% below Tuesday's close after spending eight of the last nine trading days above the 200-day ma.

The parabolic sar, Person's Proprietary Signal (pps) and the macd all moved to bear phase.

XRX has been undulating sideways since mid-May, with $10 and $8 marking the outside range of the swings, with the occasional foray outside the bounds.

A good earnings report in July started the most recent leg up, and today's precipitous drop, covering 3.3% intraday, may mark the start of the next leg down. If so, there's plenty of room on the downside to profit from a short position.

Since the sideways pattern began XRX has shown valid signals, meaning that each phase shift was followed by a substantial move in the price.

Long term, XRX showed an uptrend from the recession low in 2009 to last April, and then began declining. So a downward move is in line with the larger trend.

My analytical systems are showing an overwhelming number of bear signals. The bull signals I'm showing are mainly various bearish versions of the index exchange-traded funds.

On the Person's chart, the decline carried XRX below the midline and the lower pivot, with bounce back up to around the lower pivot level.

Person's Table
ppspps openupper pivotlower pivot
XRX $9.30 $9.43 aug11 $9.94 +6.9% $9.29 -0.1%

The most recent downside swing low is a good 13% below the current level, plenty of room to fluctuate. And the most recent swing high is 7%+ above the current price. Altogether, the chart shows the price to be in a wonderful position for a directional play.

Reversal Levels
  • $9.99, +7.42%
  • $9.30 <== You are here.
  • $8.80, -13.1%
Bottom line: For my own account, I like XRX as a directional bear play, either by shorting the stock or buying puts. The swings have had a velocity measured in weeks rather than months, so I see little need to go way out in selecting the puts to buy. Perhaps October, even, which has plenty of open interest.  

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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