TROW is a potential earnings play, with the announcement scheduled for Jan. 28 before the open.
| pps | pfe trend | pfe loc | |
|---|---|---|---|
| TROW |
The polarized fractal efficiency (pfe) line, which I use for confirmation, stands at +94, meaning the price has been moving upward with great easy. That's another way of saying that it's sticky to the upside.
Not even a slight downward tendency detracts from that bullish fact.
So the technicals are aligned to the bull side. And the fundamentals meet my initial screening criteria for growth stocks: A 22% return on equity, no debt to speak of, 68% institutional ownership.
True, annual revenues took a dive in 2009 -- it's a financial company, after all. But if the quarterly revenue growth for the first three quarters of 2010 holds for the final quarter, then the company is heading for 2010 revenues around 24% higher than in the prior year.
However, excellent technicals and sound fundamentals do not an earnings surprise make, and that's what earnings plays are all about, after all. It's like looking for Christmas morning once each quarter.
Out of the last nine earnings announcements by TROW, four produced positive surprises, and five produced negatives. Of the positives, only one exceeded expectations by 1% or more. Of the last four earnings announcements, two produced small negative surprises.
Sadly, Santa has not been consistently good to TROW.
TROW is trading at levels last seen at the September 2008 all-time high, right before the price collapsed amid the smoking wreckage of global financial capitalism.
The question is, how much of that money is still on the table? Traders who weren't nimble enough to close their positions when the 2008 drop came will be inclined to jackrabbit out as soon as they hit a break-even point. I think that will make further progress a bit challenging.
Nearer resistance is today's swing high.
Reversal Levels
- $70.20, +6.2% (all-time high)
- $66.15, +0.1% (today's swing high)
- $66.10 --- You are here.
- $64.30, -2.7% (recent swing low)
- $63.54, -3.9% (20-day moving average)
Bottom line: TROW is clearly on a near-term roll. I could see playing this for the run-up to earnings, but I would close before the actual announcement. It may well be that TROW will produce a major earnings surprise this time around. But history tells me that it's a bad risk.
I would play it as a January options spread. However, that's difficult. The strike prices for TROW are $5 apart, and the nearest one below near-term support is $60. That produces a horrible 49:1`risk/reward ratio. The technical term for that is, "Yikes!".
So I'll pass on this one, but I won't throw TROW from the train, I mean, the Watchlist. I want to keep tabs on what happens on earnings day.
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.
No comments:
Post a Comment