Tuesday, February 28, 2012

CIOXY: Plastic in Brazilian pockets

(I'll be travelling in East Asia through mid-March, so I expect my filing schedule to become irregular as a result of timezone differences with New York.)


Cielo S.A. (CIOXY) is Brazil's largest credit-card network, with 57% of the market. Its next biggest rival, Redecard, is buying back all of its share and going private, leading to speculation that Cielo might do the same.

The president of Cielo has denied the rumors, but a buy-back would be good news for the shareholders if Cielo pays a premium, otherwise, not so much.

CIOXY had the most bullish chart of 21 added today to the Zacks top-buy list. Zacks in recent days has been taking a walk on the illiquid side, with a fine selection of stocks so thinly traded that I can't even discern the trend. Those illiquid stocks get unceremoniously rejected as I compare charts.

ANZBY was the runner-up in today's selection. CWEI and GNC completed the final four.

CIOXY began its most recent leg up at $25.72 on Dec. 20, 2011 -- well before the buy-back talk  -- and has risen with three minor corrections to today's high (so far) of $35.57.

That is an all-time high since the company began trading on U.S. markets in the depths of the recession.

Nice chart, but CIOXY has so many strikes against it, I scarcely know where to begin.

1) It is illiquid, with average volume of 75,000 shares.

2) Primary trading is abroad, so U.S. shares reflect trading that not accessible to me.

3) It is traded on the Pink Sheets, which is not usually a venue for serious stocks.

3) There is no financial data readily available (meaning on my brokerage screen).

4) The bid/ask spread on shares is 15 cents, which is huge in this day.

5) There are no options, and therefore, no way to hedge.

6) Analyst coverage is weak, with only three estimates.

Enough! Six strikes, and CIOXY is definitely out. I watched Moneyball closely enough to know that.

But a wise woman I knew always said, "If you can't say something nice, don't say anything at all." So let's find the nice in Cielo.

1) It may be illiquid, but it is active enough to show clear trends, and it has an excellent bull chart with the stock soaring into blue-sky territory.

2) The stock bid/ask spread is wide, but hey, 15 cents is only 0.42% of the current price. Perhaps it is a problem, perhaps it is mere nit-picking.

3) The stock will go ex-dividend sometime in March on a semi-annual payment worth 4.2% annualized.

4) It is a monster big company in Brazil, totally dominating its sector within an economy that is growing wildly.

5) Stocks added to the Zacks top-buy list tend to get a bump in the ensuing few months, so CIOXY's new presence on that list suggests that a rise above entry levels is likely.

Net strike count: One strike! Cielo may not be out after all.

Decision for my account: Well, this is agonizing. I hate the illiquidity of the U.S. shares, but I love the company story and the chart. I think the best way to play it is as a dividend capture, with a good chance of capital gains as well. I bought some shares for my account, although the transaction came with a stern reminder of what "illiquid" means: I negotiated on the limit price but ended up having to pay the asked to get a fill.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.




Monday, February 27, 2012

KMT: Industrial Fixin's

(I'll be travelling in East Asia through mid-March, so I expect my filing schedule to become irregular as a result of timezone differences with New York.)


Kennametal Inc. (KMT) makes specialized alloys and other high-end materials that other companies use in manufacturing, and also the sells the tools  used to manipulate those materials.

One way to think of it: Kennametal makes the fixin's so that you can bake the cake. And they'll sell you the spoon you use to stir the batter.

The company, headquartered in Latrobe, Pennsylvania outside of Pittsburgh, sells to a variety of markets -- airplane manufacturing, synthetic fertilizers for agriculture, auto-making, home construction, mining, paper-making, railroads. Kennametal is all over the map.

Kennametal's business is especially well positioned to participate in the economy's recovery because it covers so many sectors. The economy never moves as a single unit, but always with some parts speeding ahead as other parts lag.

By spreading its wings so wide, Kennametal is bound to find at least some of its markets to be profitable.


KMT had the second-most bullish chart of 19 added the Zacks top-buy list over the weekend. ADS was the champion for a second time (see my analysis of Feb. 8). FTK and GVA completed the final four.

KMT's most recent leg up began at $35.45 on Dec. 29, 2011 and pushed up to an all-time high of $46.73 on Feb. 17. From that point, the price has dropped down to today's low (so far) of $44.90 in a series of small-scale lower highs and lower lows.

Big picture, what I'm seeing is an attempt to break decisively past the pre-recession high of $45.61, set in October 2007.

The swiftness with which all stock prices collapsed in that era likely left a lot of money in stocks held at losing prices. Those are holdings people and institutions will be wanting to unwind as they become profitable again.

Once the unwinding nears completion, KMT can continue to rise if that is supported by current market opinion.

The financials suggest that the market will be looking kindly on KMT. Return on equity is 19%, which is getting into growth-stock territory, and long-term debt is quite low, at 19% of equity.

Institutions own 94% of shares, and yet the price remains quite reasonable; it takes $1.40 in shares to control a dollar in sales.

Average volume is 582,000 shares a day. The options inventory isn't extraordinarily large, with 10 strikes in the near-month of March,  The bid/ask spreads range from not-to-bad to larger-than-I-like.

Open interest is low. In the near month only one call strike has more than the single digits.

Earnings will be published on April 30, and the stock goes ex-dividend sometime in pay for a quarterly payout yielding 1.23% annualized.

Implied volatility is, in absolute terms, on the high side at 39%. However, it is trading at six-month lows. By implication, prices will close between $40.45 and $50.83 a month from now.

Decision for my account: I passing on KMT. The options liquidity is too low for my rules. I think it would be a fine stock to trade as shares in the hopes of holding for the longer term, but that strategy doesn't meet the needs of my account at present.


Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.





Saturday, February 25, 2012

Week Ahead: GDP

This is GDP week -- the gross domestic product, the broadest measure of how we're doing.

GDP is also the slowest measure in the econ reports grab-bag, released three times for the prior quarter with greater precision with each release. Wednesday's GDP report is the second -- the preliminary  -- to cover the 4th quarter of 2011. The advance number, released in January, came in at 2.8%.

Day by day....

Monday - Little of note. The Realtors' release figures on pending home sales at 10 a.m. Eastern.

Tuesday - Durable goods orders for December at 8:30 a.m., the S&P Case-Shiller report on home prices in 20 metro areas at 9 a.m., and consumer confidence at 10 a.m.

Wednesday - GDP at 8:30 a.m. and petroleum inventories at 10:30 a.m. Also, it's a big day for the Federal Reserve, as Chairman Ben Bernanke delivers his semi-annual report to Congress, testifying at 10 a.m. before the House Financial Services Committee. He will be followed by the release of the Fed's Beige Book on regional economic and business conditions at 2 p.m.

Thursday - Weekly jobless claims and personal income and outlays, both at 8:30 a.m., and the Institute of Supply Management's manufacturing index at 10 a.m. Also, construction spending, also at 10 a.m., and natural gas at 10:30 a.m.

Friday - Zip.

Six Fedsters besides Bernanke are taking to the speaking circuit during the week.

Two members of the Federal Open Market Committee, which sets monetary policy, will be at the podium.

Dallas Fed Pres. Richard Fisher speaks at 9:30 a.m. on Wednesday. He is one of the Gang of Three FOMC members who dissented during the summer of 2011 in votes on expanding the money supply to encourage economic growth. Fisher once had institutional ties to former Secretary of State Henry Kissinger’s strategic advisory firm, the private bank Brown Brothers Harriman Inc., and his own money management firm.

Philadelphia Fed Pres. Charles Plosser, also a member of the Gang of Three, speaks at noon. His resume shows institutional ties to Chase Manhattan Bank, Eastman Kodak Co., Wyatt Co., ViaHealth Inc., RGS Energy Group Inc. and Chase Manhattan Bank, all in consulting or advisory capacities. He also co-chaired the Shadow Open Market Committee, which second-guessed the Fed’s monetary policy.

Also speaking are three FOMC alternates.

Atlanta Fed Pres. Dennis Lockhart, at 12:30 p.. Thursday. His prior institutional ties are to Citigroup (then called Citicorp/Citibank), Heller Financial and the private equity firm Zephyr Management L.P.

Cleveland Fed Pres. Sandra Pianalto, at 7:15 p.m. on Tuesday and 8 a.m. on Thursday. Early in her career she worked for the U.S. House Budget Committee. After that, she worked for the Federal Reserve.

San Francisco Fed Pres John Williams, at 10 p.m. Thursday. He came up through the Fed system.

St. Louis Fed Pres. James Bullard, at 8 p.m. Friday. He also is a child of the Fed.

Williams took office under President Obama; the rest, under President George W. Bush.

By my rules, as of Monday I can trade single options and straddles. Vertical and calendar spreads, and their derivatives, are between trading windows. Of course, shares are good at any time.


Good trading!



Friday, February 24, 2012

NP: Paper products

Neenah Paper Inc. (NP) makes high-end papers for printing and the like, and also paper-based technical products, such as abrasives and medical packaging and tape.

The Alpharetta, Ga., company sells in 70 countries. It beat the analyst consensus by 8% when earnings were released on Monday.

Neenah had the most bullish chart among 19 stocks added to the Zacks top-buys list today. WIRE was the runner-up, followed by SOA.

NP began its most recent leg up at $16.08 on Nov. 28, 2011, and has risen without a break up to today's high of $28.26. The price remains well below the pre-recession high of $45.56 in May 2007, so the price is facing continual old resistance.

Personally, I rarely  focus on resistance more than six months old. But there are many traders who disagree with me on that. Since it is impossible to know for certain what motivates traders and where their resources are, the question of whether old resistance matters will never be resolved.

NP has return on equity of 16%, a respectable level, but has incurred significant long-term debt, about equal to its equity, in getting there.

Institutional ownership stands at 82%, yet the price of stock is on the low side. It takes just 60 cents in shares to control a dollar in sales.

The big problem I have with NP is liquidity. It averages only about 125,000 shares traded daily, a level low enough to produce a poor selection of options -- only seven strikes for March, most lacking open interest. The bid/ask spread is wider than I'm willing to trade.

So in my book, it's shares or nothing with this equity. Implied volatility is at a six-month low, at 33%.  Volatility implies prices will close between $25.47 and $30.77 a month from now.

Earnings will next be published on May 9. The stock goes ex-dividend sometime in May for a quarterly payout amounting to 1.71% annualized.

Decision for my account: I'm passing on NP because of the options spreads. Otherwise I like the stock. I'm fully allocated when it comes to shares, but if I had room, I would certainly tuck some shares of NP away.


Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.




Thursday, February 23, 2012

CAP: Shipping Containers

CAI International Inc. (CAP) sells, leases and manages shipping containers -- those large metal boxes that carry stuff from here to there on trucks, trains and ships.

It is a business that ties the San Francisco, California company, to the heart beat of the global economy. As the world recovers from the Great Recession, trade picks up and so does CAI International's business. The world slides back into the recession, and CAI International falls on hard times.

CAP had the most bullish chart of nine stocks added today to the Zacks top buy list. ASPS was the runner-up, followed by RAIL.


CAP is showing bullishness at all levels of analysis.


CAP began its most recent leg up from $15.87 on Jan. 11 and has risen to a high on Wednesday of $20.63. The rise was interrupted by a one four-day correction.

The rise is a retracement of a quote deep correction that carried the price down from an April 2011 high of $28.57 to an October 2011 low of $10.64.

So the current price is far from being in blue-sky territory. It is battling resistance from the 2011 fall every step of the way. A 2011 correction came at levels just above a correction in 2010. The current price is within a two-week correction zone set in November 2010.

Do old levels like that matter? They can, if enough money got left behind still in the stock as the price moved on.

On a micro-level, Wednesday's push to a higher high was followed within the same half hour by a retreat that continued for more than five hours, ending at $19.76 when the trading-day ended. The price today has pushed beyond that level to a high of $20.17, so far.

The return on equity is 25% -- growth stock territory -- but with a crushing load of long-term debt, 2.48 times equity. Such debt limits the company's ability to pursue opportunities and to weather economic storms.

Institutions own 57% of the shares -- that is  lower than most stocks that show up on the Zacks buy list -- yet the stock's price is quite high. It takes $3.03 in shares to control a dollar in sales.

CAP on average trades 65,000 shares a day. With that low volume, it is no surprise that the options selection is abysmal -- only five strike prices for the near month, with very low open interest and wide bid/ask spreads.

That means any trade I would care to make in this stock would be as shares, which costs me both flexibility and leverage.

Implied volatility is high in absolute terms at 57%, but that is near historical lows for the past six months. The volatility implies that the stock will close between $16.85 and $23.45 a month from now.

Decision for my account: I lost interest in CAP when I saw the options line up and spreads. The lack of institutional investors is also a large negative. I'm passing on CAP.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.








Wednesday, February 22, 2012

CAB: Outdoors gear (and a Bargain Cave!)

Cabelas Inc. (CAB) sells fishing, hunting, camping and other outdoorsy gear at 31 stores, all but one in the United States, as well as through its catalog and web site.

It's big. It has a lot of stuff. And what's not to like about a store whose web site features a "Bargain Cave", with prices up to 70% off.

CAB had the most bullish chart of 11 stocks added today to the Zacks top buys list. ECOL was the runner-up. DTG and VAL completed the final four.

Cabelas, based in Sidney in the lonely reaches of western Nebraska,  is a retail business dealing in things people can live without, so the question behind the company, as with any such retailer, is when will Americans again embrace the fun part of living and resume shopping 'till they drop.

CAB's normal mode of trading is to stairstep, so it's hard to pinpoint where the current leg up began.

Perhaps Jan. 9 at $24.39 is the best choice. Prior corrections had shown significant declines, but all the corrections after that date have been short and sideways.

The Jan. 15 earnings announcement, showing the company exceeding estimates by 7%, produced an openng gap, an intra-day rise of more than $2, and a day of follow-through spanning a dollar, bringing the price to an all-time high last Friday's high of $33.86. The two trading days so far this week have been in a sideways range.

Return on equity is running at 13%, and long-term debt is high, at 187% of equity. Institutions own 69% of the shares -- not in the top ranks of institutional ownership.

And the stock is cheap; it takes only 80 cents in shares to control a dollar in sales. Perhaps CAB's shares could find a place in the Bargain Cave.

Average volume is a million shares a day. Even so, the options selection is a bit sparse and bid/ask spreads are wide. Open interest, near the at-the-money mark, is in the triple digits, but it quickly falls off to zero in the outliers.

Implied volatility, although high in absolute terms, at 47%, stands near six-month lows. That level implies that the price will close, a month from now, between $37.78 and $28.82

The next earnings announcement will be sometime in May.

Decision for my account: I'm passing because of the wide bid/ask spread on the options. If I were interested in long shares at this point, I would take the play. A cautious trader will wait for a breakout above the sideways pause -- a break beyond $38.86 -- before opening a position.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.








Tuesday, February 21, 2012

CBI: The skeleton of fossil fuel dependence

Chicago Bridge & Iron Co. N.V. (CBI) plans, buys for and builds projects for the oil and gas industry globally. Despite the name, it is headquartered, on paper at least, in The Hague, Netherlands, and and administers its worldwide business from Houston, Texas.

The company was in fact founded, in 1889, in Chicago to build bridges. But  in the intervening century-plus, it has transformed itself into a different sort of beast. Some examples of recent projects: A liquefied natural gas import terminal in Wales, a hydrogen generation plant in California, oil sands storage tanks in Alberta, storage facilities in the Middle East, and a liquefied natural gas terminal in Chile.

So CB&I's business is to build the infrastructure -- the skeleton -- that upholds our fossil fuel dependence, and that business, in turn, depends largely upon the demand for those fuels: More demand means more need to ports, processing and storage, and so more projects for CB&I.

CBI was the most bullish chart among 11 stocks added over the weekend to the Zacks top buys list. ENSG was the runner-up. FUN and RDY completed the final four.

The price of CBI today broke above the previous higher high, which had marked the start of a 5-day correction.

The most recent rise began in October 2011 at $23.88 and was marked by four corrections of varying degrees on its way to today's high (so far) of $46.00.

The all-time high for the company's stock was $63.50, set in January 2008. It then promptly sunk the next year to $4.64 in the depths of the Great Recession.

So at the micro-level, CBI is a classic breakout chart. At a broader level, it is a classic uptrend. And at a broader level still, it is a history of our era of tragic collapse and hopefjul renewal.

Certainly, it has been moving in line with the economic recovery and expectations for more recovery to come. I can't judge to what extent the rising price reflects expectations of a clash with Iran that would disrupt the flow of oil through the Straits of Hormuz and the send the price of a barrel of crude soaring.

Certainly, in its finances, CBI has been on a roll. The return on equity stands at 23%, and long-term debt is at rock bottom, equal to only 7% of equity. Institutions own 80% of the shares, yet the price stands at near parity to sales. It takes only $1.04 in shares to control a dollar's worth of sales.

CBI on average trades 730,000 shares a day and has an acceptable inventory of options. Open interest mainly runs to the three figures. The spreads are also low, running around 20 cents on the bid/ask spread.

Implied volatility stands at 37% -- about double that of the S&P 500. Yet, it is near the six-month low for CBI. That suggests to me that any trade on this stock should be long options or shares, rather than doing a spread for credit.

Earnings will next be published after the close next Thursday, Feb. 23. The stock goes ex-dividend on March 14 for a quarterly payout worth 0.44% a year.

Decision for my account: Attractive chart, attractive financials, attractive options -- CBI is an attractive stock. I bought calls today, with a strike price of $43. A cautious trader would wait until after the earnings announcement, but the breakout persuaded me to enter now, in the expectation of good earnings news,  rather than to wait. I'll find out Thursday if I guess right or wrong.

Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.







Monday, February 20, 2012

The Week Ahead: Shortened

Today, Monday, is a holiday in the United States. Europe and Asia, having no reason to celebrate the births of Presidents Washington and Lincoln, kept to their normal trading schedules.

And despite being shortened, there are a few economic reports worth looking at:

Wednesday, existing home sales at 10 a.m. Eastern

Thursday, weekly jobless claims at 8:30 a.m.

Friday, new home sales at 10 a.m.

No members of the Federal Reserve Board have scheduled speeches during the week.

For my account, my top priority will be to open my March covered call and diagonal spread positions.


By my rules, as of Tuesday I can trade March vertical, calendar and diagonal shorts and butterfly spreads, iron condors and covered calls, and June singles, calendar and diagonal longs, and straddles. Of course, shares are good at any time.


Good trading!




Friday, February 17, 2012

CLMT: Hydrocarbon cognac

Calumet Specialty Products Partners L.P. (CLMT) claims to have the "most diverse specialty hydrocarbon capability in the world" with "a full line" of napthenic and paraffinic oils, aliphatic solvents, white mineral oils, petroleum waxes, petrolatum and hydrocarbon gels.

The only thing I recognize on that list is the petrolatum. That's the petroleum jelly that I put on my feet and fingers when they crack in winter.

So Calumet is a company that immediately sends me on a Wikipedia crusade to try to figure out what it does.

Basically, Calumet sells the hydrocarbon equivalent of cognac. Its products are no simple red table wine for the masses, but rather they have been distilled into diverse liquors of the finest quality for highly refined niche palates.

Naphthenic oils burn a lot and are the most volatile part of crude. Paraffinic oils are solid at room temperature and are far less volatile. Aliphatic solvents lack a benzene ring, in contrast with aromatic hydrocarbons....

Well, you get the picture. The company makes and sells stuff that other companies appear to need, and that I as a trader will never understand well. It has something to do with oil.

CLMT had the most bullish chart of 15 stocks added today to the Zacks top-buy list. PVX was the runner-up. DSW and RUE completed the final four.

Based in Indianapolis, Indiana, CLMT began its most recent leg up on Feb. 6 from $21.09, rising to $23.34 today, a level that brings the price above its previous higher high of $22.97. In other words, it counts as a breakout.

The rise is part of a longer-term uptrend that began Oct. 4, 2011 at $16.33 and was broken by two significant corrections.

From a very long term perspective, the price has been trending sideways since early 2010 and can be interpreted as having completed two peaks in a messy head-and-shoulders pattern. The price at present is approaching a third peak, with the head having three tops: $24.95, $23.75 and $23.95.

That triple-headed beast provides plenty of resistance less than a dollar and a half away from current levels. And by the way, if it is a functioning head-and-shoulders pattern, then it implies that CLMT is heading for a fall down to $5 a share.

I don't put a lot of trust in head-and-shoulder patterns of this magnitude, but still, the implications do give me pause.

Return on equity was 15% in mid-2011, and debt was high, amounting to 122% of equity. Quarterly earnings are a mess, quite frankly. The company has come in below estimates in nine of the last 12 quarters, including the most recent.

Institutional ownership stands at 12%, a miniscule level. The price is very low. It takes only 38 cents worth of stock to control a dollar in sales.

The stock trades 200,000 shares a day, and that low liquidity is reflected in the somewhat limited options selection. Open interest is grouped tightly around the at-the-money level, with no open interest at the fringes.

Implied volatility, at 36%, stands at its lowest level of at least the past six months and is dropping sharply. The volatility shows that traders give a 68.2% chance that the price will close between $20.86 and $25.66 a month from now.

The next earnings announcement is scheduled for May 4. The stock goes ex-dividend sometime in May. It has a high annual yield, 9.11%, paid quarterly.

Decision for my account: I'm passing on CLMT because of the near-term resistance on the long-term chart, because of the low liquidity and because of the lack of institutional ownership. A break past $24.95 would prompt me to revisit the decision.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.

CCJ: Fueling the nukes

Cameco Corp. (CCJ) mines uranium, refines it and processes it into fuel for nuclear power plants.

As it becomes clear that the wind, the sun and biomass won't provide enough energy to replace fossil fuels, nuclear increasing looks to be one possible future. Cameco, from its base in Saskatoon, Saskatchewan, Canada, is positioned to profit from that future.

Every company is a narrative, and its stock is an avatar for the story. Cameco's narrative plays on optimism and hope. Energy. The future. Turning away from fossil fuels and the political/environmental baggage they carry.

It is easy to lose sight of the fact that Cameco is an extractive industry dealing with a commodity that carries its own heavy load of political and environmental baggage I treat oil stocks with extreme caution because so much of what happens to the companies depends upon political decisions outside of corporate control. Likewise, uranium.

CCJ had the second-most bullish chart of 16 selected at random from 675 large-cap stocks. The most bullish chart belonged to CMG, which I analyzed on Feb. 8. I've chosen CCJ to avoid the repetition. DG and NXPI completed the final four.

CCJ's chart began its current rise from $17.39 on Dec. 29, 2011 to today's high of $24.10.

The uptrend followed a shattering decline from a peak of $44.81 in February 2011. From a very long term standpoint, CCJ has been tracing a triangle since 2007. That's a fancy way of saying that it has been trendless amid swings of decreasing magnitude.

There is, of course, money to be made from those swings.

From a micro-level, the price rose sharply since December into late January, and then stalled and corrected down to around $22. What makes the chart attractive is that today the price broke above the $24.08 correction high for the first time. It pulled back intraday to below $24, and the question will be whether the breakout will follow through.

Analysts say CCJ is a strong sell. From a cursory glance at the financials, that assessment is puzzling.

Return on equity is 9%, a respectable level for a workaday company. Long-term debt stands at 21% of equity, which is quite good.

Institutions own 64% of the shares -- not top rung, but it shows that there is some interest among people who manage vast quantities of money. In fact, they like it so much that they've bid the price up so that it takes $3.88 in stock to control a dollar in sales.

Earnings are all over the place, but that is to be expected from a minerals operation. However, the company earlier this month lowered its revenue estimates by 5% to 10%. Some commentators tied that action to doubts over the take-up of nuclear energy.

So it all comes back to the narrative: Will nuclear carry the world to a bright future of clean and abundant energy, or continue as a pariah amid memories of Three Mile Island, Chernobyl and Fukushima.

It strikes me that the analysts are confusing long-term narratives with shorter-term prospects. The market corrected for the revenues estimate over three days, and then reclaimed that territory over three more days. It's done. Time to move on.

CCJ is liquid, with average volume of 2.5 million shares a day. There is a wide inventory of options with three- and four-figure open interest across the board.

Implied volatility, at 35%, is at six-month lows for CCJ and declining further. The volatility shows that traders give a 68.2% chance that the price will close between $21.44 and $26.20 a month from now.

The next earnings announcement is scheduled for May 5. The stock goes ex-dividend on March 28 for a quarterly payout worth 1.68% annualized.

Decision for my account: I'm passing for now because the price withdrew below the breakout level. I'll revisit the decision upon a persistent breakout above the $24.08 level. The strongly negative analyst assessment give me pause. I'm not sure they're right, but what do they know that I don't? (Answer: Probably quite a bit.)



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.

Thursday, February 16, 2012

BEAM: Spiritual trade

Beam Inc. (BEAM) is the old Fortune Brands Inc.

When I saw the ticker, I figured it had something to do with huge cranes moving weighty chunks of iron into place. It turns out that it is Beam as in Jim Beam whiskey, one of many well known brand names held by this Deerfield, Illinois company.

Besides Jim Beam, the company owns Maker's Mark and Canadian Club whiskeys, Courvoisier cognac and Sauza tequila.

The old Fortune Brands had its fingers in a wide selection of pies: Staplers for the office, hole punchers, golf gear, cabinetry, faucets, padlocks and booze.

Last year Fortune decided to go lean. It sold everything except its liquor products, and remains as a totally spiritual component of American commerce.

The new BEAM, then, is company that lacks a long history. Despite the established nature of its product line, its chart is that of a start-up.

It opened on Oct. 4, 2011 at $43.55 and since then has stair-stepped higher.

The most recent leg up began at $50.49 on Jan. 5 and hit an all-time high today of $55.85 (so far).

There is a lot to like about the chart. The price is in blue-sky territory, although that means less for a chart with so little history. The volume has risen with the price. Even the steep macro corrections have managed to stay with higher lows rather than taking out prior lows.

BEAM had the most bullish chart of 16 selected at random from 675 large-cap companies. HSP was the semi-finalist. BF/B and NUE completed the final four.

The analyst consensus on BEAM is mid-term neutral, and that's not surprising. Return on equity is just 3%, and the debt is on the high side, at 47% of equity.

Institutions are staying away -- they have no significant positions -- yet the price is high. It takes $3.65 in stock to control a dollar in sales.

The stock on average trades 777,000 shares a day, which is liquid. There is a good options inventory, with open interest mainly in the three figures and concentrated within a few strikes of the at-the-money point.

The bid/ask spreads start getting very wide very quickly as the strikes move beyond the money. That really makes BEAM less attractive to me. Given a choice, I always go for the narrow spreads.

Implied volatility began rising on Feb. 9, from 19% up to the present 23%. Today's level remains well below most of the past six months. At that level, there is a 68.2% chance that the stock will be trading between $59.96 and $52.58 a month from now.

Earnings are scheduled for May 2. The stock goes ex-dividend sometime in May for a quarterly payout yielding 1.47% annualized.

Decision for my account: A smooth and mellow chart, but I see problems beyond the candlesticks. The option bid/ask spreads are wider than I like, and the lack of institutional ownership is also a negative. What do the big guys know that I don't? The stock is expensive at more than three times sales. 


Despite the attractive chart, I'm passing on BEAM, the stock. Even so, Beam, the whiskey, will remain one of my favorite tipples, with a place of honor in my liquor cabinet.


Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.


LNVGY: East Asia's IBM

In the United States, when you're in the market for a plain-vanilla workhorse PC you first thought tends to be HP or Dell. In East Asia, you think Lenovo.

Lenovo Group Limited (LNVGY), headquartered in Hong Kong, China, bought IBM's PC business in 2005. That put Lenovo on the map to become one of the major players in global tech, with customers in 160 countries, research centers in China, Japan and the United States, and a product line ranging from corporate servers down to tablets and smart phones.

LNVGY has been on the rise from $13.42 on Jan 3 up to today's high of $17.93.

The company is traded on the pink sheets in the United States. It has low liquidity and no options. It trades, on average, 65,000 shares a day.

On the Hong Kong stock exchange, where companies are given numbers as ticker symbols, Lenovo is listed as 0992 and today traded 40.2 million shares.

LNVGY had the most bullish chart of 14 stocks added today to the Zacks top-buy list. DW was the semi-finalist. ALC and TRN completed the final four.

LNVGY's Return on equity is 22%, which counts as growth-stock territory. Long-term debt is minimal, amounting to 7% of equity. Institutional ownership of the U.S.-traded stock is miniscule, amounting to half a percent. If the big dudes want to play with Lenovo, they'll do it in Hong Kong, not New York.

The price is dirt cheap. It only takes 34 cents in shares to control a dollar in sales.

For Americans, LNVGY is a way to participate in a major player in Asian tech development, which mainly means China's development, without the hassle of currency dealing required for trading abroad.

The U.S. price moves according to what happens to 0992 on the Hong Kong Exchange, so LNVGY traders will be perpetually on the trailing edge of events.

The absence of options means that there is no way to hedge a position or generate income in fallow times through covered calls.

Decision for my account: I can see LNVGY as a place to park some money in a "long-term play". I like Lenovo as a company. However, I don't do long-term plays on an entry rule. Long-term is what happens due to exit rules. For entry, I dislike Lenovo's illiquidity. I dislike the inability to trade while the Hong Kong market is open. I dislike the lack of options for hedging. For those reasons, I'm passing on LNVGY.


Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.


Wednesday, February 15, 2012

CMI: The glitter of engines

Cummins Inc. (CMI) makes engines. Gas, diesel and natural gas engines, electric power systems, components used in manufacturing and servicing engines. The Columbus, Ohio company sells in nearly 200 countries globally. (Since there are 206 sovereign states, Cummins pretty much as the world covered.)

CMI began a sharp rise on Jan. 3 from $90.45 after a gapping above the prior day's close. It rose to an all-time high today of $123.18 with only one shallow correction.

The company had the most bullish chart of 16 selected at random from 675 large-cap stocks. DVA was the runner-up. CPL and XLNX completed the final four.

I don't think of engines as being a go-go business filled with glitter and excitement. I don't think of engines as being the iPad. But with a return on equity of  37%, CMI stands just 8 percentage points below AAPL, so it is up there partying with the glitterati.

It has quite low long-term debt, amounting to just 12% of equity. Institutional ownership stands at 85%, and the price is still fairly inexpensive. It takes $1.30 in shares to control a dollar in sales.

Analysts overall rate the company a buy.

The next earnings announcement is scheduled for May 1. The stock goes ex-dividend on Feb. 21 for a quarterly payout yielding 1.31% annually.

The company has good liquidity, with an average volume of 3.1 million shares a day. The options inventory is wide, the open interest is quite high, and the bid/ask spread is acceptable for such a high-priced stock.

Implied volatility at 36% is at historic lows but has been trending upward since Feb. 1. Given the low volatility, my trading instrument of choice would be long options.

Decisions for my account: I bought calls for June expiration with $115 strikes.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.


DFS: #3 tries harder

Discover Financial Services (DFS) is the Discover credit card. Also the Diners Club card. Also, it owns a bank and the PULSE payments network. I think of Discover as being one those companies that could proudly declaim, "When you're #3, you try harder."

This is a not a company that the Oracle of Omaha, Warren Buffett, would love. He wants #1 companies with the clout to dominate their respective markets. He's a Coke guy, not Pepsi. A Wal-Mart guy, not Target.

The Riverwoods, Illinois company Discover, ranking below Visa and Mastercard, is far from controlling its market. It is a smaller fish buffetted by bigger fish's waves.

DFS took off on a steep uptrend from $24.75 on Jan. 10 and, with two small corrections, rose to today's high (so far) of $29.35, its highest point since it was spun off as an independent company in 2007.

As has been common throughout the markets this year, the rise was accompanied by declining volume.

DFS had the most bullish chart of 21 added today to the Zacks top-buy list. The runner-up was DSW. TAM and KUB completed the final four.

DFS has a return on equity of 30% -- that's wildly profitable. However, it is ridden by long-term debt, which amounts to more than double equity. As terrible as that sounds, it is near the mid-range for financial services companies. DFS ranks as more aggressive in using debt than a bit under two-thirds of its peers.

Institutional ownership stands at 88%, on the high side, and the shares have been bid up to more than double sales parity. It takes $2.14 in stock to control a dollar in sales.

Next earnings will be announced on March 21. The stock goes ex-dividend sometime in March for a quarterly payout worth 1.37% annualized.

The stock is liquid, with average volume of 4.4 million shares, and has a full menu of options with narrow spreads and adequate open interest.

Implied volatility, at 31%, is at six-month lows. My trading vehicle of choice would be long options.

Decision for my account: I've bought calls for July expiration with a $26 strike.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.

Tuesday, February 14, 2012

ORLY: Under the hood

O'Reilly Automotive Inc. (ORLY) sells after-market parts, tools, supplies, equipment and accessories both to professional auto mechanics and to dudes who like to get greasy under the hood. The company is headquartered in Springfield, Missouri.

ORLY's most recent rise began at $63.75 on Oct. 4, 2011 and carried the price to $85.32 on Jan. 19 of this year. Longer term, the price has been on a steep rise since October 2008.

As a result of the recession, people are holding on to their cars longer, which means greater need for repairs and parts, which means business for ORLY and its competitors. No one who in a position  to have a valid opinion expects a swift recovery, so ORLY's market seems safe for awhile.

ORLY had the second-best chart among 34 stocks added today to the Zacks top buys list. 

MNST was the champion, but I wrote it up three weeks ago and don't want to repeat the analysis. The stock had dropped off  Zacks' top shelf briefly and then been reinstated. Good chart. Good stock. I own it.

IMO and OIS completed the final four.

At a micro level, the price dropped for two days after the mid-January peak, and since then has traded in a slightly upward-trending range.

It will take a push above $85.32 for the stock to return to its uptrend, but the upward bias of the correction suggests to me that the breakout will occur.

Return on equity is 17%, nearing growth-stock territory, and the company's long-term debt stands at 28% of equity. That's a bit higher than I like, but still on the low side for specialty retailing.

Institutions love O'Reilly -- they own 89% of the stock and have bid up the price so that it takes $1.83 in shares to control a dollar in sales.

O'Reilly is moderately liquid, with 1.2 million shares traded daily, on average. The problem comes with the options, which have an adequate inventory  and three-figure open interest in strikes near the money, but wide bid/ask spreads on some.

Implied volatility is low on the six-month chart, at 25%. That seems too low to justify the wide spreads that I'm seeing on strikes just $5 away from at-the-money.

However, the at-the-money spreads are quite reasonable, both in the near month (March), used for net-credit positions, and the out-month (May) used for net-debit positions. Given the low implied volatility, I would play ORLY by buying long calls for May expiration.

Next earnings are expected on April 27.

Decision for my account: I've bought May long calls on ORLY, with an $80 strike price.

Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.

TJX: Bargain clothing, bargain stock

TJX Companies Inc. (TJX) is T.J. Maxx and Marshall's at your local shopping mall. Also HomeGoods and A.J. Wright. THeadquartered in Framingham, Massachussetts, TJX Companies does business in Canada and Europe as well as the United States.

If you're looking for clothes and wanting to save a buck (and who isn't these days?), TJX's stores are the place to go.

Arguably, it is hard times that has kept TJX's stock price rising steadily, from $19.78 since August 2010, in a way that the company's store prices never would.

In fact, looking very long term, the stock began rising from 70 cents in May 1995, and has continued an amazing uptrend interrupted by just two major corrections and two minor ones.

When I look at the chart, I'm troubled by the volume, which shows declining peaks since November on the daily chart and since April 2010 on the weekly chart.

At a micro level, the stock had a five-day correction in mid-January, bottoming at $32.50, and then rose with no correction lasting more than two days to a high of $34.94 on Feb. 8. Since then the price has dropped to lower highs and has traded within a range for four days.

The TJX chart is similar to many that I'm seeing as I screen: A steady rise since last year but faltering since last week.

I could argue that with the economy recovering, people will be moving to more upscale stores for their clothing needs. But I don't think the economic recovery will be that swift. I'm betting that the habit of thrift will remain long after better times return.

The TJX Companies' story suggests to me that it has reasonably sustainable market.

TJX had the best chart of 16 selected at random from 675 large-cap stocks. APC was the runner up. APH and RL completed the final four.

The analysts' consensus regards TJX as a buy, and no wonder, with return on equity of 43% and long-term debt amounting to 25% of equity, which is low for the department- and discount-store industry.

Institutions own 87% of the stock, and the price is only a little above parity with sales. It takes just $1.14 in shares to control a dollar in sales.

TJX is liquid, with 3.9 million shares traded daily on average. It has an adequate inventory of options with three- and four-figure open interest for all but the outlying strikes, and reasonable bid/ask spreads.

Earnings are due out on Feb. 22. The stock goes ex-dividend for the next quarterly payout, worth 1.1% a year, sometime in May.

Implied volatility is on the low side, at 27.4%. but there is a huge anomaly on the chart. Implied volatility stood at 25% on Feb. 3, spiked up to 67% on the next trading day, Feb. 6, dropped to 26% on Feb. 7, and spiked again to 59% on Feb. 8 before dropping back to 28% on Feb. 9.

I don't understand those spikes. They aren't reflected in the price. It could be a rogue computer. It could be something underlying. I don't get it.

Decision for my account: The unexplained implied volatility spikes are a deal killer. I'm passing on TJX. The declining volume also casts doubt on a further price rise. Even without those factors, I wouldn't open a position this close to earnings.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.





Monday, February 13, 2012

ENS: Battery powered

Enersys Inc. (ENS) makes industrial batteries for global markets.

Its products power such things as electric lift trucks, ground support and mining equipment, and automatic guided equipment. Those last are the behemoths that operate on their own as they follow tapes or lasers through industrial sites. I think of them as robot wannabes.

The Reading, Pennsylvania company's batteries also provide back up power for a large number of enterprises, ranging from sports to medicine.


No battery lasts forever, so ENS potentially has a perpetual market, selling batteries time after time to the same customers, as though they were razor blades.


ENS was the most bullish chart of 22 stocks added today to the Zacks top-buy list. QCOM was the runner up. EHI and EVBN completed the final four.

The price has been  on a steady rise from $24.08 on Dec. 20, 2011 and set a higher high today of $33.84. The price has yet to challenge its all-time high of $40.32 set in May 2011, which was followed by a sickening six-month plunge down to $17.50 in August 2011.

ENS is in the enviable position of having respectable returns with low debt. The return on equity is 13%, and long-term debt amounts to just 28% of equity. In a perfect world, I like to see return on equity above 20% and debt below 10% of equity, but the ENS levels are quite acceptable.

Nearly all outstanding shares are in the hands of institutions -- that means the big guys like the stock -- and yet the price is a bargain. It takes only 71 cents of stock to control a dollar in sales.

ENS has moderate liquidity, with 590,000 shares traded daily, on average.  The options selection is a bit limited, and only four of the June strikes carry triple-digit open interest.

Implied volatility, although high at 45.8% compared to the broad market, is trading near its six-month low of 40.9%. It has been trending down the past few days.

The high volatility and moderate stock price makes ENS a reasonable covered call play. Fortuitously, we're at prime time for March covered calls, since the Februaries expire next weekend.

Decision for my account: I've opened a March covered call position,buying the shares and selling the $35 strike calls, for a 3% if-exercised return (36% annualized).



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.





TDG: Airplane parts

Transdigm Group Inc. (TDG) makes parts used to build civilian and military aircraft, and then has a continuing market selling authorized replacement parts as long as the airplane is in flight service.

Since airplanes tend to remain in service on average for 30 years, TDG has a stable market.

TDG was the best of 16 charts selected at random from 675 large cap stocks. The runner up was IWR. AMG and DHR completed the final four.

The Cleveland, Ohio company's stock has been on a continual rise from $97.03 on Jan. 23 up to $118.45 last Thursday, Feb. 9. The longer-term weekly chart shows a continual rise from $23.00 in November 2008 up to the current level.

The price moved into blue-sky territory, above all prior trading, in March 2010.

Friday saw a lower high and low compared to the prior day but with an intraday rise. Today's trading has been uptrending within Thursday's range.

So TDG has a strongly bullish chart at all levels of analysis.

TDG is a high performing stock with a heavy load of debt.

The return on equity is 30%, which is high even for a growth stock. The long-term debt amounts to 69% of equity.

The analysts' consensus is that TDG is a buy. Institutions love this stock. They own 98% of the shares and have bid up the price to a high level. It takes $4.44 in stock to gain control of a dollar in sales.

TDG counts as moderately liquid, with 541,000 shares traded daily, on average. Half a million shares generally puts a dent in the options open interest, and TDG follows that pattern.

It has a good selection of strike prices with three-figure open interest on those near the money. But the outliers have no open interest at all.

Implied volatility is 27.5% and has been on the rise since late last week, when it his a six-month low of 21.7%. So my strategy would be to buy options for a net debit. That's good in the case of TDG, since the current out month under my rules, which is May, has ample open interest.

Decision for my account: I've bought call options on TDG.



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.




Sunday, February 12, 2012

The Week Ahead: Inflation

Traders will get a look at inflation figures this week, both wholesale and retail. Traditionally, they are studied hard to gain insight into how much the Federal Reserve will tighten credit. But with the Fed committed to an accommodative policy into 2014, odds are good that week's figures will be, basically, free of impact.

For my own trading, I'm far more interested in the expiration of February options next weekend -- Friday is the last trading day -- and the release of the leading indicators.

Day by day:

Monday -- No econ releases.

Tuesday -- Retail sales at 8:30 a.m. Eastern.

Wednesday -- Industrial production at 9:15 a.m., and release of the most recent Federal Open Market Committee meeting at 2 p.m.

Thursday -- The producer price index, jobless claims and housing starts at 8:30 a.m., followed by the Philadelphia Fed survey at 10 a.m., the last being a highly respected regional survey that tracks well with national activity.

Friday -- The consumer price index at 8:30 a.m., and leading indicators at 10 a.m.

Federal Reserve Chairman Ben Bernanke addresses a community banking conference sponsored by the FDIC at 9 a.m. Thursday.

Lesser Fedsters on the calendar: Philadelphia Fed Pres. Charles Plosser gives a speech at 8:45 a.m. Tuesday and Dallas Fed Pres. Richard Fisher at 9:15 a.m. Wednesday.

Both make economic policy from their seats on the Federal Open Market Committee, and both are members of the Gang of Three, who dissented last year in votes on expanding the money supply to encourage economic growth. (The  third Gang member is Minneapolis Fed Pres. Narayana Kocherlakota.)


The best part about FOMC minutes, such as those to be released on Wednesday, is skimming down to the voting results at the end and seeing who's playing hardball and who's playing nice.


Fisher and Plosser both took office under Pres. George W. Bush. Fisher has ties to former secretary of state Henry Kissinger's advisory firm. Plosser has consulted for a number of corporate household names, such as hase Manhattan Bank, Eastman Kodak Co., Wyatt Co., ViaHealth Inc., RGS Energy Group Inc. and Chase Manhattan Bank. He also co-chaired the Shadow Open Market Committee, which second-guessed the Fed’s monetary policy.


Practical trading: By my rules, as of Monday I can trade March vertical, calendar, diagonal and butterfly spreads, iron condors and covered calls, and May singles and straddles. Of course, shares are good at any time.


Good trading!

Saturday, February 11, 2012

The Market Trend

The S&P 500 dropped when the U.S. stock markets opened on Friday, an event that was followed by a run of scary headlines and emails:

"Stocks' worst day of 2012: Market drops on Greece snags" -- USA Today

"Stocks fall sharply as Greek deal is held up" -- Fox News

"The S&P 500 is Overbought" -- Personal Finance Weekly

Some facts:
  • The market opened at 1351.21, down half a percent from the prior day's close.
  • At the its greatest, 1337.35, the intraday decline was 1% below the open.
  • The first three minutes of trading accounted for 84.5% of the decline, down to 1338.77.
  • The index subsequently spent only 36 minutes out of a 6-1/2 hour day below the low of the first three minutes of trading.
  • The net loss for the day was 0.6%.

I use the S&P 500, in combination with its volatility index, the VIX, as my indicator of overall market trend. For trading decisions, I analyze stocks individually. But for screening purposes, I look for stocks that are in line with the broad market trend.

If I'm bullish the market, I look for bull plays; if bearish, then bear plays.

I've been near-term bullish the market since late December. There is nothing in Friday's trading to make me change my mind. I'm still bullish.

Friday's close is within the range of trading on Wednesday, Feb. 8, only two days prior. Although Friday's range constitutes a lower high and lower low compared to the prior day, it is a higher high and low compared to Tuesday, Feb. 7, which is three days prior.

And in fact, daily declines of this magnitude happen all the time.

Just eyeballing a six-month daily candlestick chart, I can find 25 declining days of greater magnitude than happened on Friday.

What would change my mind about market direction?

The previous correction low on the daily chart was 1300.49 on Jan. 30. A decline below that level would mark a lower low and would change the trend. That is 3.1% below Friday's close.

Now, having made the "don't worry be happy" pitch, I'll add two caveats.

The VIX, which is bearish when it rises, on Friday took out its most recent correction high of 20.33%, breezing up to a daily high of  21.98%, where it stood in mid-January. Much of the VIX's rise came in the last hour of trading, in contrast to the front-loaded S&P 500.

The VIX could well be a harbinger of future bearishness.

In my daily chart screenings, I've noticed fewer stocks that are unabashedly bullish. There is a random element in my selection, so it may well be just a question of chance. Or it could be that the times they are a changin'.

At this point, I'll continue to hunt for bullish charts. But as always, I'll keep my stop/losses current in the realization that the only constant in the markets is change.


Methodology
See my essay "10,000 Charts" for a discussion of my screening methods.
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.


Friday, February 10, 2012

Bonds Buffetted

Warren Buffett on Thursday said that bonds and other assets tied to currencies -- which are basically anything that pays dividends that vary with general interest rates -- "are among the most dangerous of assets."

I couldn't agree more. In fact, I think Mr. B is a bit late to his conclusion.

On Dec. 11, 2010, I wrote in my essay The Myth of the Income Play, "[A]ny dividend can be wiped out completely by a month's worth of capital losses."

To summarize my argument briefly, dividend plays -- both long-term bonds and stocks -- tend to fluctuate every bit as much as non-dividend-paying stocks. However, to benefit from the dividend, the trader must hold the instrument through the ex-dividend date.

The presence of a dividend tends to encourage buy-and-hold trading so as to capture the payout, even when the chart screams "Get out now!"

If there is an active options market in the dividend-paying instrument, then it is possible to hedge the capital loss while holding for the dividend.

Absent a hedging method, income plays are a good way to lose money.

Buffett is based in Nebraska and is widely known as the "Oracle of Omaha".

I am based in Oregon. Now that Mr. B and I are on the same page, I hope that I can be known as the "Prophet of Portland".


Power to the PPL

PPL Corp. (PPL) is holding company for electric and natural gas utilities in the mountain South and the United Kingdom. It is headquartered in Allentown, Pennsylvania, north of Philadelphia.

PPL's chart is of the variety known as a One-Bar Wonder. It has been in a major downtrend from $30.25 on Nov. 11, 2011, down to a low$27.29 on Feb. 7.

It announced earnings before the open today, beating analysts' estimates by 10.6%, and the price of the stock rose 2.7% from the prior day's close to $28.46.

There's nothing magic about a steep rise, per se. This rise, however, has set a higher high and therefore codes as the beginning of an uptrend within a larger downtrend.

And the downtrend is within an uptrend that began in 2010, which in turn is within a downtrend that began in 2008.

Wheels within wheels. That's the story of PPL, to an extreme not commonly seen on charts at this point in market history.

PPL had the most bullish chart of 16 selected at random from 675 large-capitalization stocks. I mentioned in a prior post today that the chart selection had been dismal among stocks considered bullish by analysts. Triple that opinion for the large-cap selection, where the pool of stocks has no directional bias.

PPL's return on equity is a respectable 14%, and the debt is high, at 1.72 times equity. Institutions own 71% of the shares, but they haven't bid the price up to extreme levels. A $1.54 in stock will buy an interest in a dollar's worth of sales.

The real draw of PPL is less in capital gains than in dividends. The stock pays quarterly for an annual yield of 4.9%. The next ex-dividend date is around March 7 or 8.

My strategy for high-dividend stocks is to hold shares for the long term, and cover downturns by buying put options rather than selling the shares. The analytical method for buying options as insurance is the same stock trend analysis that I would use in entering or exiting any bull position.

At this point for my account, I'm not using the methods described in my essay "Long-Term Trading" posted on Thursday.

PPL has a fine selection of options with ample open interest, so if I need to cover a downturn, the means are there.

The stock is quite liquid, at 4.3 million shares a day on average.

The big concern over entering now comes on the half-hour chart. The price has withdrawn from the high, set in the noon hour Eastern. Will the price correct in a wave of profit taking, or stand fast?

I don't expect to see much profit-taking.  The breakout is within a fairly short time-span, and I'm guessing that most PPL players are in it for the dividend and the long haul.

Decision for my account: I intend to buy shares in PPL. However, I shall wait until near the end of today's session. If I like what I see, I'll execute the trade. Otherwise, I'll revisit the issue on Monday.


Update: I bought shares 40 minutes before the close after the price moved back up toward its peak.


Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.

COO: Through a glass darkly

Cooper Companies Inc. (COO) makes contact lenses and also specialized lenses for glasses that correct medical conditions of the eye. Headquartered in Pleasanton, California -- across the Bay from San Francisco -- COO's main distribution centers are in New York, the U.K. and Belgium.

COO's chart is that of a company seeking a comeback in the affections of traders. It hasn't yet broken free of the correction that carried the price from a high of $84.20 in September 2011 down to $52.60 in mid-November 2011.

Since that low, the stock has risen with a single, 11-week pause up to $76.63 on Feb. 6. From that point it has stairstepped lower for four days in a series of lower highs and lower lows.

COO had the second-most bullish chart of 16 stocks added to the Zacks top buy list today. The top spot went to VOXX International Corp., which I analyzed on Jan. 19. I bought VOXX shares at the time, exited to avoid a correction, and today have re-entered on a breakout, buying shares again.

Frankly, most of the charts I saw today might as well have come from the bear pile. It was a sickly selection.

COO's chart has enough ambiguity that its future can be seen only through a glass darkly.

For COO to code as being in an uptrend, it must beak above $84.20, a level 13% above the present price of around $74.25. Even though COO still counts as being in a correction, there is money to be made as it moves up to challenge the prior high.

COO has a return on equity of 10%, a respectable level that counts as slow and steady rather than runaway growth. Its debt/equity ratio is 0.20, which is on the low side.

Institutions own nearly all the stock, and have bid the price up. It takes $2.65 in stock to gain an interest in a dollar in sales.

COO has average volume of 375,000 shares -- less than highly liquid -- but has a great selection of options, with 13 strike prices, many with three-figure open interest in the out months, such as May. However, open interest is non-existent to very low for March, the month I would use for a credit vertical spread.

Implied volatility is rising but remains at low levels compared to the most recent six months. My vehicle of choice in trading COO would be long call options for May expiration, which fits nicely with where the open interest lies.

COO reports earnings after the close on March 8. The semi-annual payout, which yields 0.08% a year, goes ex-dividend sometime in July.

Decision for my account: The price took a sharp drive in the past half hour (I'm writing about 2 p.m. Eastern). If the price moves above today's high of $74.76, I'll look to buy May calls. 



Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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.



Thursday, February 9, 2012

Long-term Trading

After reading my essay "Chart Granularity", posted Wednesday, a reader asked: "Wouldn't the charts depend somewhat on the type of investment you're looking at making? Say, long term vs. short term?"

A fair point, and one that deserves consideration at length.

Most people want to hold positions for the long term.

Most people have wives, partners, significant others, children, grand-children, cousins, nieces and nephews, great-nieces and great-nephews, aging parents, best friends, buds, jobs, commutes, hobbies, places to go and people to see.

Most people have lives, and are unwilling to see those lives disrupted by the need to watch the markets with the hawk-like devotion required by short-term trading.

Most people simply don't have the time.


Momentum Trading



In my opinion, as a momentum trader, charts with fine granularity are the best way to decide whether to ENTER a position. The question of long-term positions vs. short-term positions is a matter of EXIT strategy.

Here is my reasoning:

A momentum trader's strategy relies upon finding a price trend and riding it until it falters. For example, if I'm looking for a bullish position, I want to find a stock whose price is rising now, so I can jump aboard the trend.

If the trend lasts for six months, then it will be a long-term position. If the trend falters next week, then it will be a short-term position.

What matters is what the stock does, not what my intentions were at the time of entry.

A long-term chart might show that the price has been on the rise, with corrections, since 2009. In my experience, that has no more to do with my trade than do the hieroglyphics of ancient Egypt. For a momentum trader, what counts is now.

In a market where events like the Flash Crash happen and computers dominate trading, long-ago support and resistance levels have melted away to irrelevance.

Of course, I have some control over the length of the position that allows me to stretch it out. It all depends upon how I define "falter".

An uptrend is a series of higher high prices and higher low prices. If I define "falter" to mean the first lower high and lower low after I buy, then I'll generally be getting out pretty quick.

If I define "falter" as a decline of 3% or more from the most recent highest high, then I'll be holding positions longer. The latter definition filters out small corrections in the trend.

You might call it a falter filter.

When I'm determined to enter a long-term position, I abandon momentum trading based on the price trend and go to other methods.

Moving Average Crosses


One method is to rely on two moving averages (MA) -- a shorter term MA and and a longer-term MA.

When the shorter-term MA crosses above the longer-term MA, I buy. When it crosses below, I sell.

A moving average is an average of closing prices for the past however-many trading days. Each day the oldest closing price is dropped, the newest one is added, and the average is recalculated.

One standard trading method is to use the 200-day MA for the longer term and the 50-day MA for the shorter term. This produces positions that can last for a year or more. It is eminently suited for the mutual funds required by so many 401(k) accounts offered by employers, since the mutual fund companies often limit the number of trades allowed each year.

It's also suitable for dividend-paying stocks, where holding for the long term avoids frittering away dividend income in trading fees.

Moving averages come in two flavors: Simple and exponential. A simple moving average is calculated by adding all the closing prices and then dividing them by however many there are. An exponential moving average gives greater weight to more recent closing prices.

As an example, I'll apply the 200-day/50-day exponential moving averages to SPY, an exchange-traded fund that tracks the S&P 500.

SPY hit a peak of $157.52 per share on Oct. 11, 2007. Let's assume that I, unwisely, bought that day. The worst-case scenario.

The 50-day crossed below the 200-day on Jan. 8, 2008. The close that day was $138.91, and I'll take that as my exit point, and my loss was $18.61 per share.

Ouch!, I say with some feeling. But, most long-term investors don't sell. They simply hold their position through thick and thin. As it turns out, things got pretty thin for SPY.

The decline reached its low of $67.10 on March 6, 2009. People who held their positions were down by $90.42, making that $18.61 loss for traders look pretty good.

The 50-day MA crossed back above the 200-day MA on Aug. 11, 2009. Long-term traders entered at the close, $99.73. At that point, the buy-and-hold crowd was down $57.79, and traders were down $18.61.

There was a sideways period in the summer of 2010 when the moving averages crossed several times. They would have been pretty much of a wash, no matter what strategy was used, so I'll ignore it.

The short-term MA next crossed below the long-term MA on Aug. 17, 2011. The close that day was $118.72. Traders exited at that point, taking an $18.99 profit. The buy-and-hold folk were down $38.80, and  traders had a net profit of 38 cents per share.

By getting out, traders avoided riding the stock down to its most recent low of $107.43 on Oct. 4, 2011. They re-entered at the next MA upside cross on Jan. 6 of this year, at $127.71.

Since then, the price has risen to today's high of $135.59, giving traders a gain on this leg of $7.88.

If everyone in this thought experiment sold their positions today, the buy-and-hold crowd would have a loss of $21.93 per share, and traders would have a gain $8.26 per share.

Assume that you have $40,000 in your account -- not unreasonable for someone who has been diligent in putting money in their 401(k). That means that way back in 2007, you would have bought 250 shares of SPY, at the peak.

At 250 shares, the buy-and-hold strategy produced a $5,483 LOSS. The moving-average-cross trading strategy produced a $2,065 PROFIT.

That is how the methods compare during the worst recession since the 1930s and one of the worst market crashes ever.

Which strategy do you wish you had used?


Fixed-Term Positions


But if watching moving averages is just too time consuming, here is another strategy, somewhat akin to Warren Buffet's value trading.

Now, Warren Buffett never likes to sell his holdings. In 1996, he wrote that a shareholder should "...visualize yourself  as a part owner of a business that you expect to stay with indefinitely, much as you might if you owned a farm or apartment house in partnership with members of your family."

Personally, I'm not comfortable with that approach. Indefinitely is a very long time, and the world moves on and changes more quickly now that it ever has before.

Here is a compromise between next week and forever.

Find a company whose business prospects you like. You might follow Warren Buffett, whose holdings are listed publicly on several websites. Or you might pick some stocks from Jim Cramer's charitable trust.

Or use some other method to find a stock that you like for the long term, preferably one with high volume so you have a narrow bid/ask spread and large capitalization. Large cap companies tend to be more stable. They don't go bankrupt as often as smaller companies.

Buy the shares a month before an earnings announcement. (It must be shares, not options, for this strategy to work well.)

Go to Google news and set up an alert for the stock's ticker symbol and the word "bankruptcy", and another alert with the symbol and the term "Chapter 11".

If you get an alert in your email and discover the company is on the verge of bankruptcy, then sell.

Otherwise, five months after buying -- one month after the next earnings announcement -- take a look at the stock price.

If it is above what you paid for the stock -- the base price -- then check out the reasons you liked the company before. If you still like it, then hang on to your shares for another quarter, setting a new base price at the current level.

If the price is below what you paid for the stock, then sell it and find another stock to trade.

And of course, there's no need to go as short as a quarter. Holding a stock for more than a year means you get a huge tax break, just like the 1%.

This strategy works best in a rising market. To determine if the market is rising, take a look at the SPY moving average cross chart, discussed above.

If the stock price is above the 200-day moving average,  then odds are good that the market is rising. But don't rely entirely on the moving average. If your eye tells you that the price is falling toward the moving average, then don't take the trade.

As always, the first rule of trading is use common sense.

(The second rule of trading is that I must trade to make money. So I always try to make fast decisions about taking opportunities rather agonizing at great length over whether I should enter a trade or not.)

Closing Thought


There are as many ways of trading as there are traders. I find short-term trading works best for me. But I'm retired and I'm 66 years old. My family for the most part lives far away. I rely in part on the capital gains from trading to pay for necessities, as well as such fun stuff as my season ticket for the opera.

That means have I lots of time for studying the market and trading, and  not as much long-term ahead of me as a 40- or 50-year-old does. And I'm motivated to harvest the money sooner rather than later, to pay my bills.

A younger person, with heavy family responsibilities and steady income from work, will need to look at different strategies. A younger trader's major cash drain may be decades in the future, when the kids to go college. And decades further down from that, to support retirement.

A younger trader can profitably adopt a longer-term strategy because the investment funds aren't being used to produce current income.

Whatever strategy a trader picks, it must, above all, fit the needs of the trader. Ultimately, life is way too much fun to waste on ill-fitting strategies.

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.