Friday, February 10, 2012

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 The price has withdrawn from the high, set in the noon hour Eastern.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.

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.
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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