Monday, December 20, 2010

SO Watch

The Southern Company (SO) moved to bull phase on Person's Proprietary Signal (pps), the 12th phase reversal in the past three months. Unlike past instances, the phase switch this time is accompanied by a strong rise in on-balance volume, exceeding the most recent highs and reaching a level that has been touched five times and exceeded once in the three-month period.

ppspsarmacd obvh-a trend ma20ma50ma200
SO $38.30

Southern announces earnings before the open on Jan. 26.

The company pays a 4.75% dividend, with the next ex-div date sometime in late January or early February. Like many utilities, it as an anemic return on equity -- 13.5% -- and relatively high debt -- 1.18 times equity. Unlike many utilities, its institutional ownership is low, at around 43%.

On the Person's chart, the price today sliced through the first weekly upper pivot and carried through more than halfway to the second pivot.

Person's Table
ppspps openupper pivotlower pivot
SO $38.30 $37.98 dec20 $38.58 +0.7% $37.47 -2.2%

Since October SO has been trading at levels last seen in September 2008, just prior to the stock's huge recession decline.

Reversal Levels
  • $38.62, +0.8% (swing high)
  • $38.30 --- You are here.
  • $37.32, -2.6%

The 50-day moving average crossed above the 200-day moving average in September 2009, and both are showing nicely upward slopes.

So, SO comes down to the hobby horse I've been riding for the past few weeks: Nice dividend, but with sub-growth financials, how can I trust it to preserve my capital?

My essay, The Myth of the Income Play, illustrates how rare good financials are for high-yield stocks. No surprise. They pay those big dividends for a reason.

On the one hand, SO's financials are well below my guidelines, and the low institutional ownership suggests doubts among professional money managers.

On the other hand, I've seen SO recommended by market analysts whom I respect.

If I were to open a position for my accounts, it would be only under these circumstances:

1) The on-balance volume must break out of its sideways trend. That is, it must break above 24 million, and even better, above 27 million, the one previous breakout in early November.

2) I would trade stocks, not options. It's not just for the dividend. Options provide leverage, and for SO, I'm doubtful enough that I don't want to leverage the position.

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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