Tuesday, October 12, 2010

NLY Watch

Annaly Capital Management (NLY), a real estate investment trust on my Income Watchlist, has moved into an uptrend on the Heikin-Ashi chart and is showing bull phase on Person's Proprietary signal. Earnings will be released after the close on Oct. 28.

BKT $17.93

A 1.1% intraday rise today brought the price up to touch the 20-day moving average.

NLY has an annual dividend of 15.5%, and that means it is subject to large drops when the quarterly payouts goes ex-dividend. That last happened on Sept. 30, and the stock has not yet moved into the resulting 63¢ gap.

That downward move also triggered a bear phase on Person's Proprietary Signal lasting seven trading days and producing a 0.3% price decline. Not much of a bear phase.

In a posting on Sept. 2 I wrote that NLY "has staged a nice recovery from the real-estate crash that was followed by the current recession." That still holds true.

However, NLY is in the business of investing in real-estate mortgages. The recession may be "officially" over, but large swathes of the economy have barely recovered or not at all. Real estate is one of them.

NLY is in my opinion more prone to earnings surprises that are other types of companies. Given the high dividend, it is also extraordinarily sensitive to money policy surprises and bond-market surprises.

Yes, NLY is a high-yield place to park money. But it's not a risk-free parking spot. Watch out for falling pianos.

On the Person's chart, today's rise sent the price through the upper weekly pivot level, a sign of the strength of the move.

Person's Table
ppspps openupper pivotlower pivot
NLY $17.93 $17.75 oct11 $18.05 +0.7% $17.50 -2.4%

The Heikin-Ashi chart shows the stock in an uptrend beginning Oct. 7, but it has only been int he last two days that the Heikin-Ashi candlesticks began to show the long upper wick characteristic of a strengthening uptrend.

There are several key reversal levels. Often stocks will retrace up to the midpoint of a large gap, and that coincidentally is almost identical with the 20-day moving average. And the swing low is often a strong support level, and today it is identical with the 200-day moving average.

Reversal Levels
  • $18.54, +3.4% (swing high)
  • $17.98, +0.3% (gap midpoint)
  • $17.96, +0.2% (20-day ma)
  • $17.93 ---- You are here.
  • $17.46, -2.6% (swing low, 200-day ma)
Bottom line: I own NLY and plan to continue to hold. If I were thinking of a new entry, I would want to see the price bump significantly above the 20-day moving average and even bettter, enter the pre-gap trading range around $18.40 and above.

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.

  • h-a trend - Heikin-Ashi trend.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • h-a trend: Determined by the Heikin-Ashi candlestick, green for up, red for down. Heikin-Ashi averages six days for high, low and close, signalling uptrend if the close is in the upper half of the range and downtrend if it is in the lower half.
  • sto: green for bull, red for bear.
  • sto zone: green for overbought (80+), red for oversold (20-), yellow for neutral zone
  • psar, pps, macd: green for bull mode, red for bear.
  • macd trend: green for rising, yellow for sideways, red for falling.
  • neutral.
  • ma20, ma200: green for above the average by more than 1%, red for below the average by more than 1%, yellow for within 1% either side of the average.

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