But it took a stumble in late February after a hedge fund said it was selling nearly 24 million shares. The ensuing gap and the slow slide that followed have brought ETFC back to bear phase for the first time since September 2010.
| sym | chan | adx | traj | psar |
|---|---|---|---|---|
| ETFC |
There's nothing like a sudden gap to push the average directional index to great heights. The technical tool is at 36 and rising sharply. However, it's a bit of an exaggeration of the true strength of the trend. The big drop happened over three trading days. The 12 trading days that have followed are far more moderate.
| sym | bday | blevel | stop | 2-day? |
|---|---|---|---|---|
| ETFC | mar11 | $15.27 | $15.73 | ✔ |
ETFC announces earnings on April 18, conveniently three days after April options expire. Last quarter it showed a loss, and its financials are pretty sad, with a negative return on equity of 0.73% and a huge debt/equity ratio of 2.7x.
I'll interject here that E*Trade is one of my brokers. They have good service and are very responsive when it comes to solving problems. So the bleak picture of ETFC's financials has more to do with poor management of risk during the boom years and the chickens coming home to roost during the bust.
Lots of chickens pecking around ETFC.
The slowness of ETFC's climb out of the cellar means there is a lot of downside resistance. The stock is trading at levels where prices paused last August, October and November.
The most recent swing high -- prior to the gap -- was on Feb. 16. The next resistance point (other than today's low so far) is a swing low set Dec. 16 as the price stair-stepped up.
Reversal Levels
- $19.90, +31.4% (feb. swing high)
- $15.15 --- You are here.
- $15.06, -0.6% (today's low, so far)
- $14.90, -1.7% (dec. swing low)
- $14.85, -2.0% (200-day moving average)
Bottom line: With such a miserable loss on equity and an outrageous debt/equity ratio, however good ETFC is as a broker, it's not a trade for bulls. With earnings so close, there's a chance for surprises, driven by analysts or the company, so I've structured my position as a bear call spread, which limits my losses in case of a gap up, and also allows me to profit if the stock falls no further.
Key
- chan: Channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
- adx: Average direction index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 30 and up but below 40, magenta (light purple) for 20 and up but below 30, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, purple for sunset on the horizon and brown for the earth.)
- traj: Trajectory of the ADX, green for strengthening, red for weakening or yellow for unchanging. Note that if the adx column is orange and the trajectory column is red, then the position must be closed.
- psar: The parabolic sar, either green for bullish or red for bearish.
- bday: Breakout day, the day the price broke through the upper or lower 55-day price line.
- blevel: Breakout level, the price level of the line that was broken through.
- stop: The current stop/loss price. Early in a bull or bear phase, this will be 5¢ below the low or above the high, respectively, on breakout day.
- 2-day?: Marked with an "✔" if the two-day rule is in effect. Under the rule, if the price closes below the breakout level on each of the two days following breakout day, then the position must be exited.
About channel analysis
Read a detailed explanation of my channel analysis method, including trading rules.
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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