Wednesday, November 24, 2010

FTR Watch

It is every trader's nightmare to open a large position on iron-clad signals one day, only to have all of the signals reverse the next. That's sort of what has happened in my account with Frontier Communications Corp. (FTR), a primo dividend play.

I face a quandary. The trading rules for growth stocks don't apply to high-yield dividend stocks, and I've not yet been able to craft a satisfactory set of practices that will keep me out of trouble on the high-yield dividend plays.

So I wring my hands and cry to the trading heavens, like a collateralized Wall Street Shylock, "O! My dividends! O! My capital gains!".

ppspsarmacd obvh-a trend ma20ma50ma200
FTR $9.12

FTR moved to bull phase on Person's Proprietary Signal (pps) on Friday. I opened my position on Monday. The pps reversed to bear phase intra-day on Tuesday.

The signals at the time of my entry were a bit underwhelming. Only the pps was bullish -- the parabolic sar and the macd remained resolutely in bear phase. And there was no confirmation from the on-balance volume, which is in a sideways trend.

Even so, I don't treat my principal signalers as a democracy. I don't need a majority to trigger an entry. And the on-balance volume on high-yield stocks tends to be a sidewinder -- the high dividends reduce volatility.

On the Person's chart, FTR is trading just a bit above the weekly midline.

Person's Table
ppspps openupper pivotlower pivot
FTR $9.12 $9.13 nov22 $9.39 +3.0 $8.95 -1.9%

The nearest support level, $9.02, is within the near-term sideways range.

Reversal Levels
  • $9.42, +3.3% (swing high)
  • $9.12 --- You are here.
  • $9.02, -1.1% (20-day moving average)
  • $8.84, -3.1%

The important question is where do I go from here. Were it a growth stock, I would exit immediately. But for a dividend play like FTR, I'm strongly motivated to stay invested until the ex-dividend date on Dec. 7, so I can collect the quarterly payout of FTR's 8.2% dividend.

This makes my exits much less hair-trigger than would be the case if capital gains were my only consideration.

When in doubt, fall back on basic charting: Support, resistance, trendlines.

The open-close ranges of the past nine trading days fall between $9.18 and $8.92. My entry price was $9.05. That makes the lower end of the range a 1.5% loss, unpleasant but not catastrophic, especially if I can collect a 2.05% quarterly dividend to offset it.

Conversely, I could use the Person's lower pivot level, $8.95, as my exit trigger, or the 20-day moving average, $9.02, or even the recent swing low of $8.84

It is important to note that the 20-day moving average level is within the sideways range, and that allows for a presumption that the price will indeed remain rangebound.

Moreover, the recent phase switch is the third reversal in eight days, and the recent history of FTR has been one of bear phases that last a shorter time than do the subsequent bull phases.

For those reasons, my strategy will be to exit upon a close below $8.92, but otherwise I'll hang on for the dividend.

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.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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