Monday, September 26, 2011

FL Watch

The shoe-seller Foot Locker Inc. (FL) continues its undulating climb up a rising channel that began on Aug. 9 at $16.84. The lower boundary has been touched four times and the upper boundary, three times, on the rise to a highest high so far of $22.18 on Sep. 16.

sym phase trend adx   200/50 40/10

Given the $2.60 height of the channel -- 12% of the current price -- FL is a candidate for an oscillator strategy -- going long on the journey from the lower boundary to the upper, and then reversing for the next leg down.

With an average volume of 2.4 million shares, FL has the volume and the inventory to support such a strategy. The option open interest is smaller than I would like.

An iron condor, which profits within a range and is very low maintenance -- won't work with this chart, because the channel is rising. I like it best as a series of directional plays, which requires close monitoring and can produce one or two trades a week.

There are two dangers with any oscillator strategy -- be it parallel lines linking highest highs and lowest lows, as I have done, or Bollinger bands, which use two standard deviations for the boundaries.

One is shortfalls, where the price reverses in mid-channel rather than continuing to the next boundary. The other is overshoots, where the price bursts out of the boundary in what looks like a breakout, suckering the trader into missing the subsequent sharp reversal back between the boundary lines.

I handle those by using fairly tight stop/losses -- perhaps one or maybe even 3/4 of the average true range -- and staging my reversals by exiting when the boundary is pierced outbound, and re-entering only when it is decisively pierced inbound. If I miss the first part of a breakout that changes the nature of the play, it's not the end of the world.

I also pay very close attention to the intraday half-hour chart when the price is near the boundaries.

FL has excellent fundamentals and analyst ratings. Earnings were released in August, so earnings surprises won't be a factor for awhile. The stock goes ex-dividend on Oct. 12, but the it is only 16.5¢, around 0.8% of today's price -- too small to have a significant influence.


  • phase: 20-day price channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
  • trend: Price direction, green for higher highs and higher lows, red for lower highs and lower lows, yellow for neither.
  • adx: Average directional index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 25 and up but below 40, magenta (light purple) for 20 and up but below 25, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, magenta for sunset on the horizon and brown for the earth.)
  • 200/50: The moving average cross, green for the 50-day ma above the 200, red for below and yellow for closely aligned.
  • 40/10: The moving average cross, green for the 10-day ma above the 40, red for below and yellow for closely aligned.

About my trading methods

Read a detailed explanation of my analysis method, including trading rules.


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.

The trader’s greatest sin is inaction. Sleeper, awake! Seize the Nietzchean moment. Roll out of bed and trade.

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