The stock moved to an all-time high today, and any issue that has entered blue-sky territory grabs my attention as a possible earnings play.
| pps | pfe trend | pfe loc | |
|---|---|---|---|
| ENTR |
ENTR has been in bull phase since Nov. 18 and in that period has seen the price rise by 45%. As a trader, my immediate thought is that the best of the opportunity is over. But as a trader, I could have lost my shirt in the recent past saying that about Apple (AAPL) or the gold exchange-traded fund (GLD).
The "best is past" trope assumes upside limits for stocks. The upside has no limits. Only the downside does, at zero.
ENTR's financials have excellent growth-stock creds: Return on equity of 21%, no debt to speak of, 98% institutional ownership.
Annual revenues, in common with nearly all companies, showed a drop-off in 2009. But the quarterly revenue growth rate since 2009 suggests the company will exceed the pre-crash 2008 revenues by a huge margin.
The only upside resistance is the all-time high set today.
Reversal Levels
- $12.49, +2.6% (all-time high)
- $12.17 --- You are here.
- $11.40, -6.3% (recent swing low)
- $11.35, -6.7% (20-day moving average)
ENTR showed earnings losses up until the February 2010 report, which produced a profit. Beginning then, for four quarters, ENTR has shown earnings surprises, ranging from 0.3% to 2.3%.
I count ENTR as an earnings surprise prone company. Those surprises have generally been followed by price increases.
I prefer to use vertical spreads for earnings plays as a way of limiting by losses (while accepting limitations on my gains). Earnings, after all, are a black box to outsiders until the announcement. So an options spread is the only reasonable way of controlling my risk.
The February options offerings are sparse and widely spaced. With shares trading a bit above $12, the closest lower strike price is $10 -- a huge 20% gap -- and that creates a risk/reward ratio of 9:1.
Well, that's not too horrible. And the $10 strike is below support, lending a greater degree of support to a short the $10 strike, long the $7.50 strike February vertical put spread.
Today is a down day intra-day. For my own account, I'll wait a day or so to see if there's a dip.
Abbreviations:
- pps - Person's Proprietary Signal.
- pfe trend - Trend of the polarized fractal efficiency line.
- pfe loc - Location of the polarized fractal efficiency line.
Key to the PPS/PFE tables
| column | color | meaning |
|---|---|---|
| pps | bull phase | |
| bear phase | ||
| pfe trend | uptrend | |
| no trend | ||
| downtrend | ||
| pfe loc | above +50 | |
| 0 to +50 | ||
| below 0 to -50 | ||
| below -50 |
PPS/PFE Analytical Tools
The analysis uses the daily Person's Proprietary Signal (pps), developed by John Person.
This is a black box signals -- the "proprietary" means that Mr. Person knows how it works under the hood, and I don't. But it has shown a fair degree of success in identifying good entry and exit points, and I find it useful.
For confirmation, the analysis uses an indicator called the polarized fractal efficiency (pfe) technical tool. It uses the fractal math of Benoit Mandelbrot to measure how efficiently move between levels. The higher the efficiency, the more directional the price trend.
The math for the pfe is public knowledge, but it is well above my math knowledge, and so to me is also a black-box signal.
This is a relatively new technical tool, based on fractal math. Investopedia has only a cursory explanation. Wikipedia is silent on the subject. ThinkOrSwim has a fuller explanation.
PPS/PFE Trading Rules
These rules are very preliminary. I’m still trying to figure out how the polarized fractal efficiency signal works.
When Person’s Proprietary Signal (pps) is in bull phase, enter when the polarized fractal efficiency (pfe) line crosses the zero line in an uptrend trend) A pps signal and pfe uptrend have less strength but greater upside potential when the pfe location (pfe loc) is below +50, and greater strength but less upside potential when the pfe location is at or above +50.
When the pps in in bear phase, enter when the pfe trend crosses the zero line in a downtrend. The set up has less strength but greater downside potential when the pfe loc is above -50, and greater strength but less downside potential when the pfe loc is at or below -50.
How should the pfe line be treated when it has flatlined at either end of its range, around +100 or -100. My preliminary observations are that the price by then has had a large run and tends to present a picture of exhaustion. However, by the description of the pfe, a high level should indicate a continued strong trend.
This is something that I’ll figure out as I go along.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and 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.
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