On the downside, URBN doesn't have a strong chart. It has been meandering sideways since Sept. 2009 between roughly $30 and $40. Even more damning, the trend can be analyzed as a decline from April, with the recent September swing high of $35.11 representing a failed attempt to begin a retracement of that decline.
Although the primary signals are all in bull phase, the on-balance volume is trending sideways and may be laying the groundwork for a decline.
The price is below the 20-day moving average -- not an encouraging sign for a bull play.
On the other hand, URBN's fundamentals shout growth stock.
The return on equity is 21%, and the company has no debt to speak of. More than 85% of shares are owned by institutions -- the pension funds and insurance companies that really drive the market. Revenues have risen each of the last five years, and the most recent trailing-12-month quarterlies point toward yet another rise.
Analysts generally tend to be slightly more favorable toward URBN than not, despite some downgrades announced Oct. 15.
URBN has tendency to produce upside earnings surprises. Earnings beat the consensus in six out of the last seven earnings, and five out of seven were followed immediately by price increases.
In the daily Person's table, URBN is trading midway between the weekly midline and first upper pivot.
|pps||pps open||upper pivot||lower pivot|
|$URBN||30.29 nov3||$34.38 +4.5%||$32.12 -2.4%|
- $35.11, +6.7% (major swing high)
- $33.60, +2.1% *(last week's swing high)
- $32.90 --- You are here.
- $32.25, -2.0% (50-day moving average)
- $30.25, -8.1% (start of current upswing)
- $29.03, -11.8% (recent swing low)
Bottom line: The decision on this play is far less clear-cut than I would like.
That doesn't mean a bull position is out of the question. It simply means that when in doubt, use position sizing and option hedges to quantify the risk.
In the case of URBN, I would take the 50-day moving average level as support in construction a short vertical spread.
I use a vertical spread rather than a straddle because its cheaper -- penny saved, penny earned.
I sell the spread -- go short -- because the Bollinger bands show widening volatility on the stock. Also, short spreads benefit from time decay -- they make money the longer their held, if the price is in potentially profitable territory.
Based on those intentions, I would sell the DEC 31 puts and buy the DEC 30 puts as a hedge, for net credit of 30¢, or $30 per contract. That $30 is my max profit.
With that structure, the position is profitable at expiration on Dec. 17 as long as the stock price is above $30.70. It reaches maximum profit at $31 or above. Maximum loss at expiration is 70¢, or $70 per contract, below a stock price of $30.
Putting it another way, I'm risking $70 per contract in the hope of making 43% for a few days work. Not too shabby.
This is risk that I would be willing to take on my own account. I would size the trade toward the smaller size, because of the weakness in the chart.
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.