SPLS: Sizzling supplier

Staples Inc. (SPLS) runs an office supply business that includes 1,583 stores in the United States and 334 in Canada. The Framingham, Massachussetts company also operates in 24 countries in Europe, Australia, South America and Asia.

I arrived at Staples as a subject for analysis by a different route than that I normally take. SPLS has the highest options sizzle index today of any Russell 1000 stock averaging 3 million or more shares a day.

A sizzle index is constructed from a five-day moving average of volume. If the current volume is at the average, then the sizzle index is 1. If 50% above the average, then the index is 1.5, and 30% below the average, the index is 0.7.

All the sizzle index tells us is that the stock is in play, and although an index can be calculated on the stock volume, I prefer to use the options index because options traders tend to be more attuned to what's happening now compared to stock traders, who tend to have a long-term horizon.

The SPLS options sizzle index presently stands at 25.4, meaning the volume is more than 25 times the average volume of the last five days. The greater amount of the the volume, by far, is in call options, which have an index of 32.2, compared to a put sizzle index of 4.1.

The SPLS chart is anything but bullish. After recovering almost entirely from a recession low, the price began to tank in March 2010 and by 2011 was trading  below the low point of the recession.

The most recent leg down began March 27 from $16.86 and hit a swing low of $12.94 on May 21. From that point, following an 11% upside earnings surprise, the stock retraced up to $13.70 on May 23 and has since fallen back to a low today of $13.15.

The price bounced sharply of of today's low, reaching $13.31 at one point, a 1.2% gain in one hour, before pulling back yet again. So there is clearly something going on with SPLS that has just now begun to show on the chart.

If the rise should continue, I would consider persistent breaks above $13.70, $14.25 and $15.24 to be buy signals, depending upon the trader's degree of caution. A fall below $12.94 -- a lower low -- in my book would negate SPLS as a potential trade.

The analyst consensus on Staples is neutral. It's not expected to outperform or underperform the market.

The company has return on equity of 14%, a respectable level, with a moderately low level of long-term debt, amounting to 29% of equity. Institutions own 90% of the shares, and the price is bargain basement -- it takes just 37 cents in shares to control a dollar in sales.

Earnings are strongly seasonal, peaking in the 3rd quarter and then trailing off. The Q3 earnings were higher than the year ago in both 2011 and 2012.

The company has been profitable all quarters since the 2nd quarter of 2010. In that period, seven quarters have shown upside earnings surprises, and four have surprised to the downside. The peak 3rd quarters have all shown upside earnings surprises.

So this is a company whose finances I could like it looks solid on the books.

The downside is that it does business in Europe, and Europe is a mess embroiled in a tub of conventional wisdom that says, repeatedly and loudly, that it's going to get even messier.

Also, Staples is a business supply company, and if Europe drags the rest of the world down with it, the business of supplying business will be hit especially hard.

I don't usually trade based on a news, but the Europe thing is so pervasive, it has to be taken into account. A trader who believes Europe is likely to go under will not touch any trade in SPLS and indeed is probably moving away from stocks. A trader who finds it unthinkable that the really smart people who run Europe will let the Euro project fail will see SPLS as a great bargain.

The heavy call options volume, I presume, come from traders and speculators who stand firmly in the second camp.

SPLS has an adequate selection of option strike prices with fair open interest and narrow bid/ask spreads.

Implied volatility stands at 35%, slightly above the middle of the six-month range, and has been rising gently since mid-May. Options traders are pricing in a 68.2% chance that the stock will close between $11.92 and $14.58 a month from now, for a maximum gain or loss of 10%.

Staples next publishes earnings on Aug. 15. The stock goes ex-dividend in June for a quarterly payout yielding 3.32% annualized.

Decision for my account: I would consider a bull position in SPLS upon a break above $13.70 on higher volume. If the volume isn't there, I wouldn't touch it. The dividend yield is high enough that I would consider shares rather than options as the vehicle of a trade.


I'm not trading now, however, for reasons intrinsic to my account -- I'm fully committed at this point. Also, this is the first time I've used the sizzle index to select a stock for analysis, and I want to see how it plays out before committing funds.


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.

BGS: A scribble chart

B&G Foods Inc. (BGS) makes packaged edibles -- the sort of stuff you find in the middle of the grocery store after breezing past the fresh and healthy foods that line the walls.

Among the well-known brands made by the Parsipanny, New Jersey company are Cream of Wheat cereals, Crock Pot seasonings, the Emeril's line of flavorings, and Grandma's Molasses.

BGS had the most bullish chart out of 16 higher-volume stocks selected from 31 ranked as buys by analyst consensus.

That BGS came out on top of my chart screening today is most likely a testament to the sad state of the market. Frankly, B&G's chart didn't have a lot of a great competition.

For most of the last six months, the BGS chart has resembled a monitor you would see in a hospital emergency room, with a lot of scribbling signifying movement, but little more, beyond a very slight downward trend. The six-month BGS chart basically tells me that the stock is alive and breathing, but little else.

That changed, maybe, on May 22, when the price began a rise from  $21.92 that has continued, with a tendency toward opening gaps, up to today's high of $23.68.

For those six trading days BGS has been up intra-day, and for five of them -- through Tuesday -- has opened above the prior day's close.

Today's trading marks the first stall in that rise. The price did indeed set a higher high, but then quickly retreated back into Tuesday's range (so far, at least).

I say that the recent uptrend "maybe" marks a change in the past months' pattern because it can also be interpreted as a continuation.

The stock is trading well within the range of the past six months. It will take a break above the Dec. 22, 2011 high of $24.64 before BGS can be analyzed as being decisively in an uptrend. That point is also an all-time high, so a decisively break above it would return BGS to blue-sky territory.

B&G Foods has return on equity of 23%, but at the cost of a punishing load of long-term debt amounting to three times equity.

Institutional ownership is a bit on the low side, at 61%, and the price is a bit on the high side, requiring $2.00 in shares to control a dollar in sales.

Earnings declined through 2011, while producing upside surprises each quarter. They moved higher in the first report of 2012, with a downside surprise, and higher still in the most recent quarter. No quarter saw a loss.

I like the return on equity but loathe the debt and am thoroughly puzzled by the earnings, which I would expect to be more constant. The fundamentals for B&G give me an impression of instability.

BGS on average trades 376,000 shares a day, which supports only a poor selection of options. Open interest, at the money, is quite high, and the bid/ask spreads aren't unreasonable. These options would be tradeable, although poor open interest at strikes away from the current price would limit my strategy choices.

Implied volatility is at the lower end of the six-month range and has been trading with a gentle rise for most of May. Options traders are pricing in a 68.2% chance that the stock will close between $21.05 and $25.85 a month from now, for a maximum gain or loss of 10%.

B&G Foods next publishes earnings on July 26. The stock goes ex-dividend on June 27 for a quarterly payout yielding 4.6% annualized.

I said above that the options are playable, but given the high dividend yield, the stock itself might make a better play. The share price is low enough to allow position sizing to fit most traders' rules.

Decision for my account: I'm troubled by the BGS financials, but in any case I wouldn't be entering into a long-term position. Not what I do. Uneasy though I am about the financials, the facts are that the company has been earning money consistently and getting a great return. 


If I were to play BGS, it would be as shares, with the possibility of augmenting my return by selling covered calls against them. The cautious trader would wait for a break above $24.64 before entering. Generally, I'm not that cautious.


However, I won't be trading BGS at this time for reasons intrinsic to my own account: My trading funds are fully committed.

Methodology

I screened the stocks using a tourney bracket with a six-month daily chart and a five-year weekly chart. 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.

A Bond Curiousity

Here's a curious observation: 20-year U.S. Treasury bonds (TLT) are more volatile than corporate junk bonds (JNK). 


The options markets are pricing in a 68.2% chance that Treasuries will end with a gain or loss of up to 5.1% a month from now. The corresponding change for junk bonds is 4%. 


Since the conventional wisdom has it that junk bonds are dangerous for the unwary investors and Treasuries are havens of safety in an uncertain world, this is truly a counter-intuitive divergence.


Plus, Treasuries are yielding 3.03% a year in dividends, while junk bonds are yielding 7.45%. So the risk premium is also out of kilter.

WFM: Organic goodness

Whole Foods Market Inc. (WFM), through a chain of 311 stores in the U.S., Canada and U.K., sells organic and natural foods.

I shop at my local branch of the Austin, Texas company and despite paying higher prices than I would at Safeway, I keep coming back for more. The veggies stay fresher, longer, and the meats taste much better than what I find elsewhere.

The company puts a premium on pleasant service and community outreach. It may be a big chain, but it's trying very hard to act local.

Despite the healthy goodness, Whole Foods is a grocery store, and food decisions are sensitive to the social mood. If I think times are getting tough, I'll be less likely to pay the premium prices Whole Foods commands for its organics and will find someplace cheaper to shop, chemicals or no.

WFM had the most bullish chart among 16 higher volume stocks rated as bull plays by analyst consensus.

The stock, like many, faltered in early May after peaking at $91.50 on May 4. After falling to $82.69 on May 21, it began recovering, rising from $83.35.

The price remains $3 below the May 4 high, which was also an all-time high, breaking for the first time past a pre-recession peak set in late 2005.

The momentum is decidedly to the upside. Each of the last six trading days has shown an intra-day rise, and four have closed above the prior day's close.

Whole Foods has return on equity of 13% with very low long-term debt, amounting to only 1% of equity.

Institutions own 84% of shares, which have not been bid up to extraordinary levels. It takes $1.48 in shares to control a dollar in sales.

The company has shown positive earnings and upside earnings surprises every quarter since the 3rd of 2009. Profits tend to drop off each 4th quarter, and the other quarters have tended toward plateaus, with each year's plateau higher than its predecessors.

WFM on average trades 1.7 million shares a day and supports a good selectoin of options with high open interest and narrow bid/ask spreads.

Implied volatility stands at 29%, about mid-way through the six-month range. Options traders are pricing in a 68.2% chance that the stock will close between $80.86 and $95.88 a month from now, for a maximum gain or loss of 8.5%.

Whole Foods next publishes earnings on July 30. The stock goes ex-dividend in early July for a quarterly payout yielding 0.63% annualized.

Decision for my account: There's nothing I don't like about WFM. Good chart, good financials, not to mention good food. The options are such that it's possible to implement a wide variety of strategies in playing WFM. The cautious trader will wait for a break above the $91.50 peak, but I would not do that for my own account.


However, I won't be trading WFM at this point. My trading funds are fully committed. I will consider it for my next round of diagonal spreads in mid-June.

Methodology

I screened the stocks using a tourney bracket with a six-month daily chart and a five-year weekly chart. 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.

The Week Ahead: Jobs and GDP

This week's theme is jobs and GDP, which is another way of saying that this week is about everything that counts in assessing the broad course and impacts of the economy. All of that, jammed into a short four-day, week.

The gross domestic product will be released at 8:30 a.m. Eastern on Thursday. This is the preliminary version, the second look at the 1st quarter. The GDP is released three times for each quarter; each time, it is hoped, with increasing accuracy. And things can change with each release, so I pay attention.

The Labor Department's monthly report on employment is out at 8:30 a.m. on Friday, and as always it has a few sneak previews before it hits the newsroom.

The payroll company ADP releases its employment report at 8:15 a.m. and weekly jobless claims are out at 8:30 a.m., both on Thursday.

The online recruiting site Monster.com (aka Monster Worldwide Inc. -- MWW) will announce its employment index sometime on Friday, at a time unspecified.

Jobs are a trailing economic indicator, as is the GDP. These reports tell us a lot about where we've been and very little about where we'll probably going. But they grab the headlines, and  by doing so, they change the universe they measure, as traders and shoppers react to the news and alter their behavior as a result of the new knowledge.

By reporting on the economy, these reports change the economy, and so to an extent render themselves irrelevant. This is the heart of the Bovee Uncertainy Principle.

And so I never trade based on these reports, but I watch the market and follow trends that result as others respond to the news. I don't try to predict impacts. I trade what's before my baby blues.

Other events of note:

Tuesday: S&P Case-Shiller home price index -- this is the one that breaks housing down by metro area -- at 9 a.m., consumer confidence from the Conference Board at 10 a.m. and the Dallas Fed's manufacturing survey of Texas at 10:30 a.m.

Wednesday: Pending home sales at 10 a.m. -- these homes that are contracted for but not yet closed.

Thursday: Chicago purchasing managers index, based on a survey of Chicagoland, at 9:45 a.m., and petroleum inventories at 11 a.m.

Friday: Personal income and outlays at 8:30 a.m. -- the all-important savings rate is derived from those numbers. Plus, the Institute of Supply Management's national manufacturing index and construction spending, both at 10 a.m.

Money-policy makers at the mic:

-- Federal Open Market Committee vice chairman William Dudley, President of the New York Fed, at 1 p.m. Wednesday and FOMC member and Cleveland Fed Pres. Sandra Pianalto at 8:30 a.m. Thursday

-- FOMC alternate and Boston Fed Pres. Eric Rosengren at 4:30 p.m. Wednesday.


Practical trading:

By my rules, as of Tuesday I can trade September single options and straddles. The short legs of diagonal and calendar spreads expire in June, although it's a bit late to trade them, and new long positions of those spreads must expire in December or later. Of course, shares are good at any time.

Good trading!

HEES: Equipping the recovery

H&E Equipment Services (HEES) rents, sells and services heavy construction and industrial equipment. The Baton Rouge, Louisiana company carries a huge selection of equipment and brands. It's the sort of service that would be essential for putting together a major project.

In the broader context: The economy is recovering, and with recovery comes more construction, and therefore more business for H&E, which is equipping the recovery.

H&E's biggest competitors, by market capitalization, are CCI, ARGKF, URI and TMTNF.

HEES was selected by Zacks as today's short-term aggressive growth stock. The Zacks analysis, written by Brian Bolan,  is here. I haven't read it yet, and won't until I've completed my own analysis. You, Gentle Reader, get to compare.

The HEES chart shows a stock recovering to the upside from a downtrend, and faltering in that attempt.

The most recent leg of the downtrend  began May 3 from $19.54 and hit bottom on May 17 at $14.42. The upward correction peaked this week, on May 23 and May 24, at $16.36, and is off that peak today but within the prior day's trading range.

I say faltering because the last two days have been down intra-day, and the stock today has (so far) recorded a lower high, although not yet a lower low.

Big picture, the weekly chart shows HEES coming off of a double top, the first in April 2011 around $20.40, and the second in March of this year at $21.

The trough, between the twin peaks, bottomed at $6.80 in October 2011. The lore of double tops, if you believe that sort of thing, would have it that once that neckline is pierced, the downside target is the height for the double top, from the neck to the peak.

In this case, that would be a further $13.60 decline below the neck, effectively down to zero. Which just goes to show the sorts of crazy results that happen when playing with chart patterns (as opposed to what I do, which is working seriously with chart trends).

For practical trading, I would hope to be out of the stock well before it reaches the neckline again, and I would treat the $21 level as strong resistance.

HEES has a return on equity of 8%, which puts it in the slow and steady category, with high long-term debt, amounting to 102% of equity.

Institutions own 75% of shares, which are priced cheap. It takes only 75 cents in shares to control a dollar in sales.

Earnings were dismal, with large losses through the middle of last year. They then turned positive, with three quarterly rises in a row, before a seasonal drop-off in the 1st quarter of this year. The company has beat analysts expectations the past four quarters.

On average, HEES trades 275,000 shares a day. That supports a very limited selection of options, with low open interest and wide bid/ask spreads.

Implied volatility stands at 58%, at the rock bottom of the six-month range.

Options traders are pricing in a 68.2% chance that the stock will close between $13.42 and $18.78 a month from now, for a maximum gain or loss of 17%.

H&E next publishes earnings on Aug. 6.

Decision for my account: With such a dismal options selection, its shares or nothing in my book when it comes to trading HEES. I would want to see a break above the present near-term stall peak of  $16.36, re-establishing the uptrend begun off of the correction low. In my decision I'm entirely disregarding the double top on the weekly chart. It's too big a structure to matter for my time horizon, and the results of applying the standard double-top rules for the price are, frankly, absurd.


I won't be opening a bull position on HEES at this time because my trading funds are fully committed. If I had fund available, I would play the stock upon a persistent break above $16.36.

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.

SWI: Selling simplicity

SolarWinds Inc. (SWI) makes software tools used by companies to manage their computer servers, networks, email and database servers, information storage and, most recently, their cloud, the great way-out-there where increasingly our music and photos and much more live.

The Austin, Texas company has more than 93,000 customers globally, ranging from giants of the Fortune 500 to small businesses. Their motto is, "Unexpected simplicity".

Despite the name, SolarWinds has nothing to do with solar power or with moving spacecraft across the solar system using giant sails to ride the stream of molecules shot out by the Sun.

SWI had the most bullish chart among 16 higher-volume stocks out of 26 added today to the Zacks top-buy list.

On the chart, SWI began its most recent leg up on May 21 from $44.29 and today hit an all-time high of $48.42. That bump was a breakout from a sideways trend in forde from April 27, and the price quickly retreated back to within the range and at this writing (about 1:45 p.m. Eastern) is down intra-day.

A 32% positive earnings surprise prompted an 11% opening gap to the upside, setting up the trading range in effect so far this month.

SolarWinds has return on equity of 28%, quite a high level, with no long-term debt. That makes it a growth stock under my definition.

Institutions own 79% of shares and have bid up the price to an extraordinary level. It takes $16.47 in shares to control a dollar in sales.

SolarWinds has produced 12 quarterly earnings surprises in a a row. Earnings the last two quarter have  been on a plateau, slightly below the quarter before, which set the peak of past few years.

On average SWI trades 963,000 shares a day. The options selection is adequate, as is open interest. The bid/ask spreads are also fairly narrow for a stock trading at a volume that low.

Implied volatility stands at 47%, a bit below the midpoint of the six-month range. It has been rising this week after taking a sharp tumble.

Options traders are pricing in a 68.2% chance that the stock will close between $41.01 and $53.85 a month from now, for a maximum gain or loss of 14%.

Decision for my account: The cautious trader will wait for a decisive breakout above the recent price range, call it above $48. Those who want to benefit from a sharp breakout rise -- and breakouts often are sharp -- will either open a bull position now or wait for the next intra-day rise. I would play SWI as options rather than shares.

However, I won't be trading SWI at this point. My trading funds are fully committed.

Methodology

I screened the stocks using a tourney bracket with a six-month daily chart and a five-year weekly chart. 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.

TRIP: Testing the blue skies.

Tripadvisor Inc. (TRIP) does just what the name says -- it advises people when their planning a trip, with reviews and information about flights, vacation rentals, packages, resorts, hotels. It relies heavily on user reviews and is tied closely into Facebook accounts.

The Newton, Massachusetts company used to be part of the ticketing company Expedia and was spun off at the end of last year.

What's not to like about this business model is the European debt crisis and the two dozen other possibilities that make us all nervous about our financial well-being. Travel for fun is an optional part of most people's lives. If the Euro Zone breaks up and we all go into a second recession, then Tripadvisor's business will drop off.

TRIP had the most bullish chart of 16 higher-volume stocks among 87 added today to the Zacks top-buy list.

The stock's current levels were reached after a 28% earnings surprise prompted an 18% upside gap on May 2.

TRIP has been trading mainly in blue-sky territory, although that's not a huge achievement for a new listing. There aren't all of those pre-recession bubble levels to cast a shadow of price resistance on TRIP's rise.

TRIP began its most recent leg up on May 21 from $40.87, part of a mid-term rise from Feb. 15 from $27.80, or even an all-time rise from its first day of trading, from $30 on Dec. 19, 2011.

The price set a higher high -- all-time high -- of $44.48 today, but then drew back below the prior peak of $44.46 on the May 2 gap day.

The overall structure from the May 2 gap until today counts as a sideways move. Today's breakout failed to hold, and the near-term trend counts as neutral until the price moves persistently above the $44.46 level.

Notably, the first up-day of the current three-day rise came on lower volume from the prior trading day, and volume has remained low relative to that level.

TRIP has return on equity of 83% but with a high level of long-term debt, amounting to 104% of equity.

This new listing has only two quarters of earnings history. The most recent quarter was higher than the one before with an upside earnings surprise. The quarter before had a slight negative surprise.

Institutions own 76% of shares. The price has been bid up to an extraordinary high multiple of sales. It takes $8.33 in shares to control a dollar in sales.

On average TRIP trades 2.9 million shares a day, enough to support a broad selection of options with high open interest and fairly narrow bid/ask spreads.

Implied volatility stands at 45%, about a third of the way from from the six-month low.  It has been rising since May 14, with one short correction to the downside.

Traders are pricing in a 68.2% chance that the stock will close between $38.22 and $49.58 a month from now, for a maximum 13% gain or loss.

The company will next publish earnings around Aug. 1.

Decision for my account: I'm not trading TRIP for reasons that have to do with my own account. My funds are pretty much fully committed. If I were trading TRIP, it would be as options after a persistent break above $44.46. I wouldn't open a bull position immediately. I would look hard at the high price level relative to sales. It's not necessarily a deal breaker, but it tells me some folks will be wanting to take profits. For longer term traders, the high level of debt is something to note.

Methodology

I screened the stocks using a tourney bracket with a six-month daily chart and a five-year weekly chart. 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.

SBH: Beauty and the Beast.

Sally Beauty Holdings Inc. (SBH) distributes professional beauty supplies through a chain of more than 4,128 stores in the U.S., Latin America and Europe, 181 franchised stores and 1,116 sales consultants.

Some of the Denton, Texas company's brands are Sally Beauty Supply, CosmoProf and  Sally Hair & Beauty.

SBH had the most bullish chart among 16 higher-volume stocks out of 66 added over the weekend and today to the Zacks top-buy list.

The recent downturn has hammered Sally far less than many other equities.

SBH began its most recent leg up on Feb. 2 from $20.93 and hit a swing high of $27.74 on May 3. From that point it corrected downward to $25.42 on May 18, and has risen the past two days back to above $26.50.

The stock has been trading mainly in blue-sky territory, with no resistance overhead, from the beginning of 2010.

The recent correction was a zig-zag, with an interim lower high of $27.19. A cautious trader would wait for a breakout above that level before entering. An even more cautious approach would be to await a breakout above the all-time high of $27.74.

The upside momentum of the last two days is a compelling counter-argument against waiting to enter, but it is, on the chart, the more risky approach.

So much for the beauty. Now for the beast.

Sally has negative equity, and so no return on equity. Liabilities stands 13% above assets.

For anyone who trades mainly on the basis of a company's financials, this is a deal killer.

Yet, somewhat to my surprise, institutions own 85% of shares, and the stock is trading at a premium. It takes $1.42 in shares to control a dollar in sales.

Earnings were up the most recent quarter, following a three-quarter plateau. The company has surpassed analysts' expectations for the past nine quarters.

SBH on average trades 1.8 million shares a day. The options selection is limited to seven strike prices, with three- and four-figure open interest at-the-money. The bid/ask spread is a bit wider than I like but not catastrophic for a stock at this level of liquidity.

Implied volatility stands at 37%, at the lower end of the six-month range. It has been falling since mid-April.

Traders are pricing in a 68.2% chance that the stock will close between $23.70 and $29.30 a month from now, for a maximum gain or loss of 11%.

Sally next publishes earnings on Aug. 1.

Decision for my account: I'm passing on SBH at this point because the liquidity is below what I like, the  financials are truly ugly and the price, very near term, is in a downtrend. That makes me cautious. A break above the recent swing high of $27.74 would persuade to revisit the decision.

Methodology

I screened the stocks using a tourney bracket with a six-month daily chart and a five-year weekly chart. 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.

The Week Ahead: Homes and durables

Home sales -- both existing and new -- join big-ticket durables in dominating the week's economic reports.

Tuesday: Existing home sales, by the far the bigger share of the housing market, will be released at 10 a.m. Eastern.

Wednesday: New home sales, also at 10 a.m.

Thursday: Durable goods and weekly jobless claims,  both at 8:30 a.m.

Also of note: Petroleum inventories on Wednesday at 10:30 a.m., and the University of Michigan's consumer sentiment index on Friday at 9:55 a.m.

The U.S. markets close early on Friday, at 2 p.m. Eastern, so traders can get a jump on the long Memorial Day weekend.

One member of the Federal Open Market Committee, Atlanta Fed Pres. Dennis Lockhart, is at the podium, speaking on Monday in Tokyo and Tuesday in Hong Kong.


Practical trading:

By my rules, as of Monday I can trade June butterfly and vertical spreads, covered calls and iron condors, and September single options and straddles. The short legs of diagonal and calendar spreads expire in June, and new long positions of those spreads must expire in November or later. Of course, shares are good at any time.

Good trading!

A: Taking Agilent's measure

Agilent Technologies (A) makes equipment to measure things -- not rulers to find out how tall your child is or scales to determine how overweight you are, but tools for technically demanding measurements in chemical analysis, life sciences and electronics.

The Santa Clara, California company serves customers in more than 100 countries.

Analysts are mainly neutral about Agilent -- neither bullish nor bearish.

The chart, however, shows a bearish cast. The financials are bullish. It's an interesting contrst, and that's why I've chosen to analyze Agilent today.

Agilent began its most recent leg down from its March 28 swing high of $48.28 and reached a low of $38.44 on May 14. The current leg is part of a broader decline from the May 2011 high of $55.33.

No declining stock is free from historical resistance. Falling generally mean the equity's price has been at that level before.

The next strong resistance within the decline from the 2011 high is $32.51, a reversal point encountered on Dec. 21, 2011.

A rise above $43.27 would set up the possibility of a renewed uptrend.

This is a downtrending chart. Yet, disturbingly, the volume keeps spiking on the upswings as the price zig-zags downward. These zag spikes suggest that there's some serious buying interest keeping tabs on this stock.

Despite analysts' and traders' negative view, Agilent has some fairly decent financials. The return on equity is 25% -- growth stock territory -- and long-term debt, although higher than I like, is 45% of equity, far lower than that of many companies considered to be potential bull plays.

The institutional investors are on board, owning 81% of Agilent's shares, and they've bid up the price so that it takes $2.03 in shares to control a dollar in sales.

Agilent's earnings have risen from the prior period every quarter since the beginning of 2010, with only two exceptions. All quarters from the end of 2009 onward have positive earnings that have bet the analysts' consensus.

So, this is not a portrait of a company in trouble.

Agilent announced in May that it is buying a Danish company, Dako, which develops cancer diagnosis tools. I suspect that the negative vibes about Agilent are based on the cost of the deal and on its European exposure in the midst of the EU's debt crisis. Europe is the source of 23% of the company's revenues.

Agilent on average trades 4.1 million shares a day, sufficient to support a wide inventory of options with high open interest and narrow bid/ask spreads.

Implied volatility stands at 42%, slightly below the midpoint of the six-month range. Volatility has been gently stair-stepping upward since early May.

Options traders are pricing in a 68.2% chance that the stock will close between $34.39 and $43.87 a month from now, for a maximum gain or loss of 12%.

Agilent next publishes earnings on Aug. 13. The stock goes ex-dividend in June for a quarterly payout yielding 1.02% annualized.

Decision for my account: I'm passing I'm Agilent. The upside volume spikes are the main reason for my caution when it comes to a bearish play, the only direction open to me as a technical trader, given the nature of the chart. If the company's financials were awful, then that might overcome the chart. But Agilent actually looks pretty good in that area.


A higher high within the current leg down would cause me to revisit Agilent, as a bull play.

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.

PG: An ambiguous bear

Procter & Gamble Co. (PG) sells packaged goods for grooming and cleaning. Some well-known brand names in the PG stable are Vidal Sassoon, Cheer, Joy, Pepto-Bismol., Tampax, Mr. Clean, Vicks, CoverGirl, Gillette, Oral-B...

Name the task and the odds are good that the Cincinnati, Ohio company has a household name to match.

PG was among 24 stocks added today to the Zacks top-sell list. The charts on the top-buy list were mainly bearish, and awful. I didn't scan the entire sell list. For bear plays, it's crucial to be able to construct option positions, and that requires high volume.

Two of the 24 stocks had volume exceeding 3 million shares. The top volume, ITUB, sells for only $13 plus change. PG had the next highest volume but is trading in the $60 range.  Generally, I trade stocks selling for $20 or more.

Also, ITUB is a Brazilian company. I have a preference for U.S. shares because there's less currency exchange risk.

ITUB has the more bearish chart -- it has been in free-fall since March. PG hit a plateau at the start of 2010 and has been zig-zagging between $68 and around $60 ever since. it has, in fact, been setting higher highs and higher lows within that sideways range since September 2011.

I'll consider PG as a bearish chart in the face of that evidence for two reasons.

First, the price has approached or touched $68 on two occasions in the past six months: Once in late December and again  for an extended period from February to April. In both cases, it fell back.

Second, although the most recent earnings were 1% above the analyst consensus, the result on the chart was a downside opening gap of 2.6%. The price has sayed within that lower level, from around 63.25 to $64.80, for the ensuing 14 trading days.

However, the price has yet to set a lower low. For that it would need to break below the Feb. 3 low of $62.56.

It's a bearish chart in my view, but one filled with ambiguities. Thankfully, in the world of options positions, there are ways to deal with that. More on that subject below in the "Decision" section.

PG has a return on equity of 18% -- a quite respectable level -- and with long-term debt amounting to 33% of equity -- not the best I've seen, obviously, but not a crippling level.

Institutions own 55% of shares, suggesting only tepid interest, yet the price has been bid up to the point where it takes $2.09 in shares to control a dollar in sales. That could reasonably be called overpriced for a stock sweating in the doldrums.

PG on average trades 11.4 million shares a day. That high liquidity supports a reasonable selectoin of options with four- and five-figure open interest and narrow bid/ask spreads.

Implied volatility stands at 19%, in the lower half of the six-month range. It has been rising since May 11.

Options traders are pricing in a 68.2% chance that the stock will close beetween $60.61 and $67.65 a month from now, for a maximum gain or loss of 5.5%.

Procter & Gamble next publishes earnings on July 30. The stock goes ex-dividend in July for a quarterly payout yielding 3.51% annualized.

Decision for my account: Because of range-bound nature of PG's trading, I would want to construct the position as a vertical option spread that can be profitable both of the stock declines or if it stays in the same range.


I would also want the spread to be profitable up to the top of the present range, which is $65.


There are two ways to build spreads. One way, called theta positive,  gains value as the options approach expiration. The other, theta negative, loses value as expiration approaches.


A theta positive spread meeting my criteria would be to sell the $65 strike June calls and buy the $67.5 strike June calls for a net credit.


A theta negative spread would be buy and sell the same strikes but as puts expiring in October, for a net debit.


Spreads such as these do better with higher volatility levels. PG's are rather low.


Another play, of course, would simply be to buy put options expiring in October, for a net debit, or sell the stock short. In those two cases, however, the stock would have to fall for the position to profit.


I'm passing on PG at this point, mainly because of the ambiguities in the bearish case for the chart. A break below $62.50 would strengthen the case for opening a short position.

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.

MANH: Supply chains

Manhattan Associates Inc. (MANH) designs software systems to manage supply chains and inventory in the broadest sense of the terms -- not just the goods but the people tasked with managing those goods.

The Atlanta, Georgia company's serves a global customer base of more than 1,200 companies. The American supermarket chain Winn-Dixie and the Chinese retailer of children's products Boshiwa are among the most recent customers to adopt the Manhattan Associates system.

MANH had the most bullish chart among 24 stocks added today to the Zacks top-buy list. The selection was pretty poor -- most have low average volumes and downtrending charts. But, as traders, we play the hands we're dealt, or at least analyze those hands to decide whether or not to fold.

Manhattan Associates is a small-cap company, with a market capitalization of $988 million. This puts it outside my normal trading domain -- the large caps and mega caps and super-duper-really-big caps.

Often, small-cap charts will have a chaotic quality, like static on an old analog TV screen. That's not the case with MANH. The trends are very clear.

The stock began a stairstep rise in April 2009. The most recent leg up began April 25 of this year from $47.43, after a 36% upside earnings surprise. The price hit a swing high of $51 on the third trading day, April 27, and has since retraced to has low as $47.42.

Given the rise on the weekly chart, I'm tempted into using a term I never use in my analysis: The MANH pullback looks like a buying opportunity to me. 

Of course, "buying opportunity" implies a forecast that the price will go up again. I have no crystal ball, nor am I a prophet, so it's really a stupid term to use under any circumstances.

The prudent trader will wait for a break above $49.76 -- the highest high since the correction low -- before entering. The really prudent trader will wait for a break above $51.

Manhattan Associates has return on equity of 29% with no long-term debt. That makes it a growth stock by my definition. Institutions own 98% of the shares, and the price has been bid up so that it takes $2.90 in shares to control a dollar in sales.

Earnings in 2011 were about double those in 2010. All quarters since the 2nd quarter of 2009 have seen earnings surprises.

The results are really quite impressive.

On average the company trades 82,000 shares a day. That's not enough to support a wide options selection. Open interest is quite low and the bid/ask spreads are astronomical.

The only way I would trade MANH, then, is through shares.

Implied volatility stands at 53%, in the lower half of the six-month range. It has been declining since April 13.

Options traders are pricing in a 68.2% chance that the stock will close between $41.17 and $56.21 a month from now, for a maximum gain/loss of 15%.

The company will next publish earnings on July 16.

Decision for my account: MANH doesn't meet my liquidity standards so I won't be playing it. If I were to play it, I would buy shares and possibly sell covered call against them. When selling calls, the wide  bid/ask spread works in my favor. However, the liquidity issue remains, and I might not be able to exit a covered call quickly.

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.

SPPI: Speculating on drugs

Spectrum Pharmaceuticals Inc. (SPPI) develops and sells biotech products relating to the blood and cancers. Two drugs have won government approval in the United States and are on the market: Zevalen, used in radiotherapy to treat non-Hodgkins lymphoma, and Fusilev, used in treating bone and colon cancers.

The Henderson, Nevada company also has 10 drugs under development, two of them in late-stage development.

Pharmaceutical companies are more speculative than other sectors. They always carry the risk of regulatory shock. If the Food and Drug Administration disapproves one of the late-stage development drugs, then that will cause a downward price gap on the chart that could be of considerable magnitude.

SPPI had the most bullish chart of seven highly liquid stocks added today to the Zacks top-buy list. Actually, there were 47 stocks added, but I spent much of the morning rolling diagonal spreads and taking profits that I've run out of time to go through a list that long.

No big. The fact is that most of the stocks are too illiquid for me to trade. And as much as I love the exercise of running through charts, the practical work of trading must take precedence.

SPPI began its most recent leg up on April 16 from $9.50 and reached a swing high of $12.10 (so far) today.

In fact, is was only today that the price exceeded the prior high set on April 26. On that day, before the open, Spectrum reported a 155% earnings surprise -- that's what accounts for the high of $12.00 -- and the stock then plummeted throughout the day to a low of $10.47. I blame the plummet on the company's announcement that it was beginning a tender offer for all shares of a competitor, Allos Therapeutics, which trades under the ticker symbol ALTH.

But it's what happened next that gives me a positive view of the SPPI chart. After bouncing around sideways for seven trading days, the price began a steady rise that so far has lasted six days without a break.

SPPI's post-recession high of $16 occurred on Jan. 12. On the weekly chart, SPPI set a higher low in the recent correction must set a high above $16 prior to the next correction in order to keep the uptrend in place.

The price, if it continues to rise, faces recent resistance at $13.46 and $14.85. A retreat below the prior upswing high of $12.10 would stall the uptrend, and a drop below the correction low of $9.31 would suggestion that a downtrend is beginning.

Spectrum has a stunningly high return on equity of 50% with no long-term debt. Institutions ow 63% of the shares -- not a particularly high level -- and the price has bid bid up so that it takes $2.90 in shares to control a dollar in sales.

Quarterly earnings have tended to be all over the place. The 1st quarter of 2011 marked the end of a string of losses, and the company has been profitable each quarter ever since. Out of six quarters, four have shown positive earnings surprises.

On average SPPI trades 2 million shares a day. That's high enough to support a healthy selection of options with good open interest and narrow bid/ask spreads.

Implied volatility stands at 62%, in the middle of the six-month range, and has been in a gentle downward slope since the end of April.

Options traders are pricing in a 68.2% chance that the price will close between $9.92 and $14.41 a month from now, for a maximum gain or loss of 18%.

Spectrum next publishes earnings on July 30.

Decision for my account: This is a stock I would willingly trade if the price were higher. For low-priced stocks like SPPI, it takes a lot of options contracts to put together a position. For example, a short vertical spread (bull put spread) with about $1,500 in risk takes 25 contracts, and then slows fill times and increases trading costs. 


A covered call works nicely, providing about an 8% return from the sale of the option without a high contract count. But I'm looking for the greater returns that diagonal spreads provide.


So I'll pass for my account. But I think SPPI is a fine trade for someone who is interested in owning shares buttressed by call sales and/or insured by out-of-the-money puts.

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.

MNTX: The lifter

Manitex International Inc. (MNTX) makes tools for lifting.

When you see an electrical company worker high among the trees at the end of a crane, there's a chance that the Bridgeport, Illinois company made that gear. Same thing when a container is moved from point A to point B at your local shipping terminal, if you have such a place in your neighborhood and if you can get past the gate.

The company's products, at the most basic level, are part of the infrastructure that allows goods -- from durables to electric current -- to reach customers.

MNTX had the most bullish chart among 44 stocks added over the weekend to the Zacks top buy list.

The company's stock began its most recent leg up on Jan. 5 from $4.10 and has stair-stepped with corrections lasting a week or two, up to today's high of $10.56. The most recent correction of the upswing began last Thursday from $8.27.

The corrections experienced by this stock are enough to give a trader pause. The most recent carried the price from $10.00 down to $8.13 in 16 trading days. And it was a 7% upside earnings surprise that pulled the price out of its slide.

In the leg up since January, the upward swings have lasted from six to as few as three days. This stock spends a lot more time falling that it does rising. It's only the magnitude of the upswings that keeps it from being a loser.

Having cast a dark shadow on this bullish chart, I must in fairness add that MNTX has been trading in blue-sky territory since last March.

Manitex in no shooting star, with return on equity of 8%. Long-term debt is a punishing 93% of equity.

Institutions own 44% of shares, and the price is quite depressed even at today's all-time highs. It takes only 75 cents worth of stock to control a dollar in sales. If you're a glass-half-full trader, you'll interpret the price/sales number to mean that there's room to grow. half empty, and you'll call it the market's just verdict on the company's financials.

Quarterly earnings lack a trend. They've been positive five out of the six quarters from 2011 onward.

MNTX trades 100,000 shares a day on average. Even for that level of liquidity, the options selection is abysmal, with only three strike prices to choose from and single-digit open interest. The single digit is "one".

So it's shares or nothing when it comes to trading MNTX.

Manitex next publishes earnings on Aug. 10, 2012.

Decision for my account: Nice chart, despite the bumps, but this stock is too illiquid for my taste. The lack of options is a deal-killer. I'm passing it. The only way I would consider trading it would be to buy shares, tuck them away in a corner of my account and check the trend once a quarter on a weekly chart. If up, I would keep the shares. If down, sell.

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.

The Week Ahead: Inflation

This is inflation week. The consumer price index will be released on Tuesday at 8:30 a.m. Eastern.

Inflation in March rose by 0.3%, down from a gain of 0.4% in February. Inflation after food and energy costs are subtracted rose 0.2% in each of the two months.

The consumer price index is a major component of the Federal Reserve's decision-making. Falling inflation gives allows for greater stimulus in monetary policy.

The issue is heavily political, however, with rightists, fearful of inflation, advocating a tightening of the money supply through higher interest rates and people from the center to the left advocating greater stimulus.

Put more simply, the lower the inflation, the more the Fed can do to encourage the economy to grow. Less inflation = more jobs.

Also Tuesday, the government's retail sales report will be out at 8:30 a.m.

Wednesday sees three major events: Housing starts at 8:30 a.m., Industrial production at 9:15 a.m. and the Federal Open Market Committee minutes at 2 p.m.

And on Thursday, look for jobless claims at 8:30 a.m. and the Philadelphia Federal Reserve Bank's survey of its district at 10 a.m.

Also of note,

Monday: The Empire State manufacturing survey -- that's New York -- at 8:30 a.m., Treasury's report on foreign investment in the U.S. at 9 a.m., and business inventories and the Homebuilders' housing market index at 10 a.m.

Tuesday: Petroleum inventories at 10:30 a.m.

There are no economic reports on Friday, but for traders, it is still an important day: The last opportunity to trade May options before they expire on the weekend.

Expiration week is a big deal for people who play covered calls and diagonals. It means buying back the May short calls that we've sold against our long shares and options, and selling June short calls to replace them. I'll be doing that for my own holdings, which are diagonal spreads, on Monday and Tuesday.

My major project this weekend was doing the analysis to for rolling over the short options, and also for identifying opportunities for new diagonal spreads.

Hidden among the flashier reports is a player often ignored, except by us who are its fans. The leading economic indicators index is no longer considered to be a major forecasting tool. Although it has fallen on hard times, there are those of us who love it.

Leading economic indicators is sort of a meta-indicator. It combines 10 components into a single index that is intended to forecast the future course of the economic cycle.

The leading economic indicators index for April will be released by the Conference Board on Thursday at 10 a.m. In March, the LEI was up 0.3% from the prior month, following a 0.7% rise in February and 0.2% rise in January.

Big picture, the LEI began rising from a recession low in early 2009, and has been rising ever since, with the exception of a decline in mid-2011. The index has since topped the prior high. It is setting higher highs and therefore is in an uptrend.

The LEI in many ways tells us what we already know: The economy stumbled, but then quickly recovered and continues to grow, albeit at a moderate pace. Still, it's good to hear it from a source that takes into account a wide variety of data.


The ten components of leading economic indicators are average weekly manufacturing hours,
average weekly initial claims for unemployment insurance, manufacturers’ new orders for consumer goods and materials, Institute of Supply Management index of new orders, manufacturers' new orders for non-defense capital goods excluding aircraft orders, building permits of new private housing units, stock prices of 500 common stocks, leading credit index, interest rate spread of 10-year Treasury bonds less federal funds, and average consumer expectations for business conditions


Practical trading:

By my rules, as of Monday I can trade June calendar, butterfly and vertical spreads, covered calls and diagonal spreads and iron condors, and August single options and straddles. Of course, shares are good at any time.

Good trading!

FB: Playing the IPO

The big week has finally arrived. Facebook Inc. (FB) goes public on May 18 (Friday) in an initial public offering intended to raise $10.6 billion for the social networking company that we have all grown to love.

The initial price offering is expected to be from $28 to $35. The IPO is said to be wildly over-subscribed, and that large demand will no doubt make for a few days of interesting trading.

So how to play FB?

Long-time readers will know of my intense aversion to news-based trading, and an IPO is the ultimate news play.

The London financier Baron Nathan Rothschild said in 1810, in the context of the Napoleonic wars, "Buy on the sound of cannons, sell on the sound of trumpets."

In the case of the Facebook IPO, the cannons sounded long ago when the company announced it was going public. And we all know when the trumpets will sound: At 9:30 a.m. Eastern on Friday, May 18.

The event is fully anticipated, and everything knowable about Facebook will be entirely priced in upon the opening. Where the price goes from there will depend largely on the degree of hysteria, a feeble vehicle upon which to base my hopes of future riches.

The smart money -- the big brokerages -- will already be locked in to a price. They'll be hoping to sell shares to the dumb money without inside access, who will come rushing in to try to get some shares on the market.

Everyone is talking up FB as the next GOOG or AAPL. And so it may well be. Or not. It may well be the next RHAT. As a trader, I lack a crystal ball. I can only trade what I see before me on the charts.

So I won't be trading on opening day.

First, I want to see a trend. That means at least three bars on the daily chart, and they must be up intra-day and setting higher highs and higher lows before I'll be willing to call them a trend.

A more cautious trader will wait until there is a reversal from a high, followed by a reversal from a low that is above the opening price, and then a higher high. That rising zig-zag requires four days minimum, and could take much longer.

Second, I want stock options, so I can gain leverage and use a full range of strategies. Options on FB don't go on sale until six days after the shares start trading.

That day, when options go on sale, is the first day that I would consider trading FB.

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.

BBNK: Banking on emerging tech

Bridge Capital Holdings (BBNK) is a bank holding company with a difference. It bills itself as a professional business bank emphasizing corporate banking and emerging tech companies.

So this San Jose, California company isn't where you open your personal checking account. But if you're developing The Next Big Thing, Bridge might well have a role in your start-up's future.

BBNK had the most bullish chart of 42 stocks added today to the Zacks top buy list. The pool had some really big names, such as US Bancorp, Harley Davidson and Caterpllar. and it is a symptom of the market carnage of the week that the winner is a micro-cap stock, with a market worth of only $234.4 million.

On the chart, BBNK's price has been on the rise since Nov. 30, 2011, when it opened at $9.33. It hit a swing high of $15.92 on May 1, pulled back for two days, and then resumed its rise for seven trading days, so far. It is trading now about 30 cents below the swing high.

Like all banks, BBNK was hammered hard by the recession, so it is trading well below its pre-recession peak of $24.58 set in July 2007.

Bridge Capital has a return on equity of 7% and, unusually for a bank, a very low long-term debt amounting to only 13% of equity. The return is well below growth stock territory, but I love the debt level.

Institutions own only 38% of shares -- the big guns tend to avoid micro-caps -- yet the price has been bid up to a high level. It takes $3.80 in shares to control a dollar in sales.

Earnings have risen steadily beginning the first quarter of 2011, and for the last four quarters have beaten analysts' estimates.

BBNK on average trades 60,000 shares a day. It has no stock options. The stock itself is low beta, moving 60 cents for dollar of the movement on the S&P 500.

Earnings will be published next on July 26. The stock pays no dividends.

Decision for my account: I love the chart and the financials. Clearly, they've found a way in San Jose to make this small banking company sparkle. The lack of options means that there is no way to gain leverage or insure a position. The low liquidity means that a  trader could have difficulty getting orders filled immediately in times of market stress, and the bid/ask spread on the stock is wide, amounting to 41 cents, or 2.7%.


The lack leverage is a deal killer for me. I can get far better returns with optionable stocks. The lack of liquidity and insurability are also big negatives for me. If I were trading BBNK, I would buy the shares and stash them in a quiet corner of my account, playing the position on the weekly chart in order to catch longer-term moves.

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.

SHW: A free-rise stock

Sherman Williams Co. (SHW) makes paint and other coatings and sells them through its own chain of stores as well as stores owned by other companies. Altogether, the Cleveland, Ohio company had 3,390 stores in North America and the Caribbean a the end of 2010.

SHW had the most bullish chart of 34 stocks added today to the Zacks top-buy list. The S&P 500 remains in a near-term downtrend -- it will take a rise above 1415.52 to begin reestablishing the uptrend -- but the air-pocket decline caused by Europe's inability to manage its monetary system has paused, and the broad U.S. market is seeing more price rises. Out of the 34 stocks, only three at this writing (2:15 p.m. Eastern) are showing declines of more than 1%.

I've often heard the term "free-fall" applied to a stock. SHW is an example of free-rise.

The most recent leg up began Dec. 16, 2011 at $84.65, and the price has risen on the daily chart with no correction lasting more more than a week. The price hit its first all-time high in that month and has been flying through blue-sky territory ever since.

I've had traders lament that getting into an uptrend late is dangerous, because most of the rise is past. I prefer to follow the wisdom of Yogi Berra, "The game isn't over till it's over." I'll play an uprend as long as it is in force, no matter how long it has been in place. What the trend falters, then I'll exit.

Sherman Williams has return on equity of 34%, with long-term debt of 88% of equity, higher than I like in a growth stock. But money is cheap these days, and will remain cheap until the Federal Reserve reverses course, so perhaps debt isn't a deal killer.

Institutional ownership is low for a major sector player. It amounts 68% of shares, and I would expect something in the 80% range. It takes $1.42 in shares to control a dollar in sales, a premium but not an outrageously high one.

Earnings are seasonal, peaking in the 2nd and 3rd quarter -- spring and summer, when people paint their houses. Those quarters were down slightly in 2011 from the prior year, and up very slightly in 2010.

The stocks gtrades 1.2 million shares a day on average, enough to support a good options selection with three- and four-figure open interest and narrow bid/ask spreads.

Implied volatility stands at 26%, in the lower half of the six-month range. It began rising steeply on Wednesday.

Traders are pricing in a 68.2% chance that SHW will close between $114.83 and $133.11 a month from now, for a maximum gain or loss of 7%.

The company net publishes earnings on July 23. The stock goes ex-dividend on May 16 for a quarterly payout of 1.26% annualized.

Decision for my account: I've opened a short bullish vertical spread (bull put spread) on SHW, using options that expire in June. I'm short the 120 put and long the 115 put.

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.

CNK: Ignoring the trend

Cinemark Holdings Inc. (CNK) operates theaters in the United States and Latin Americda. Altogether, the Plano, Texas company has 456 theatres and 5,152 screens.

CNK is the stock having the highest average volume and an uptrending chart among 47 stocks added to the Zacks top-buy list. 

Of those 47 stocks, 15 are trading more than 1% below the prior day's close as of this writing (1:30 p.m. Eastern). Only 15 are trading above yesterday's close. So rather than wasting time doing a full screening of stocks that I'm not going to even consider buying, I cherry-picked.

In judging the market overall, I'm sitting on the fence. The S&P 500 pushed down to a lower low before retreating to the top of today's range (so far). Near term, the index remains in a downtrend, so I'm reluctant to open any new bull position at this point.

But, there are stocks that have ignored the course of the broader market, and I would be remiss if I didn't take note of them.

Cinemark's immunity (so far) to the recent market downturn may be a result of both its industry and its geographical diversity.

Movies are cheap entertainment in tough times, when other venues may be priced at more than the market will bear. 

Its Latin American holdings, amounting to a quarter of its movie screens, give it a different exposure to Europe than North American companies have. LatAm's ties are to Spain and Portugal, countries that have already undergone some of the worst stages of financial failure.

CNK's most recent leg up began Jan . 6 from $18.11 and reached a highest high of $24.43 on Monday. The stock has been trading in blue-sky territory since April.

While the S&P 500 saw its decline from May 2 accelerate on Monday, CNK hit its high, drew back to within the prior week's range, and then enjoyed to intra-day rises on Tuesday and Wednesday to levels that are above the prior range although still below the all-time high.

On the books, Cinemark is far from being a high flier. Return on equity is a staid 4%, and long-term debt is a disturbing 162% of equity.

Institutional ownership is respectable although not spectacular, amounting to 80% of shares. The price is almost at parity with performance. It takes $1.16 in shares to control a dollar in sales.

Quarterly earnings show no trend -- they tend to be all over the map. The two quarters of 2011 below the consensus. The rest from 2012 onward did better than analysts expected.

CNK on average trades 1.4 million shares a day. That's enough to support a moderate selection of options, with adequate yet highly concentrated open interest and wide bid/ask spreads.

With open interest so concentrated, it would be difficult for me to construct an sufficiently liquid options spread. One leg would have three-figure open interest, and the other would have none.

So, given that pathetic options inventory, the only way I would trade this company on my own account is as shares.

Implied volatility stands at 32%, which is the lower part of a 6-month range that hit bottom in mid-April at 29%. The overall volatility trend has been sideways since May 1.

Traders are pricing in a 68.2 chance that the stock will close between $21.89 and $26.33 a  month from now, for a maximum gain or loss of 9%.

Decision for my account: I won't be trading CNK at this time. I don't want to trade shares and thereby forego the leverage I get from options. Also, my ambiguity about the broader market trend discourages me from opening a new bull position today.


Methodology

I cherry-picked this stock from the Zacks selection, judged its trend from a six-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context. 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.

Air Pockets

Open most histories of the stock market crash of 1929, and your eyes will eventually come across the phrase "air pockets", referring to sudden and unexpected whooshes downward by stocks that quickly recovered, but that left traders increasingly nervous.

The phrase was much used in discussion of the market prior to the crash.

I am not in any way predicting a new 1929-style crash. Markets today aren't the markets then. Stocks exist in a totally different universe than they did eight decades ago.

But, I think a case can be made that we're in a market environment that is filled with air pockets. And like the traders of 1929, it makes me nervous.

Case in point. Zacks added 50 stocks to its top-buy list today. The list is based on a compilation of analyst opinion. So these are stocks that analysts think well of.

As of this writing, about 1 p.m. Eastern, 26 of those stocks are down more than 1% from the prior day's close. Nine of them are down more than 3%, and three are down more than 7%.

Nineteen stocks out of the 50 are showing intra-day declines.

I started work today with the full intention of analyzing two stocks -- the most bullish charts from yesterday and today.

Yesterday's top pick, Whole Foods Market (WFM), is down 1.8% from yesterday's close. It is one of 21 stocks, out of 38 added to the Zacks top-buy list, to be down more than 1% so far today.

The S&P 500, which showed a lower low -- the start of a downtrend -- in futures trading on Sunday, made it official on the index today by dropping to 1347.75, so far. (See my discussion Monday of the after-hours low.)

On the index chart, the swing high is 1422.38 on April 2, the first correction low is 1357.38 on April 10, the lower high is 1415.32 on May 1, and the lower low today is at the least 1347.75.

It's an extremely clear pattern, with no ambiguity.

Yet it is early days still. One of my mentors in trading was fond of saying, "One day does not a trend make."

Bottom line: I'm not doing chart scans or analyses until I understand the trend the better. I mean, there's no point. I'm certainly not going to open a new bull position in this market. I'm keeping my focus on mitigating the damage.

For the future, if the downtrend continues then I'll need to switch to analyzing bearish stocks. That's not my favorite way of trading, by far. Bearish trades are limited to stocks having options or to short sales, which have a carrying charge.

Also, a falling stock suggests that there are problems within the company, and companies with problems sometimes fail, taking their stocks and options with them down to zero. I've had that happen to me once. Thank you, PSI. Never again.

Absent a working crystal ball, the smart trader follows the market. And that I shall do, when I understand more clearly what path I'm following.

Long term, on the weekly chart, the S&P 500 remains in an uptrend. It would take a decline below  1074.77, a level set last October, to indicate a downtrend in the making. 

That would be a 24% decline from the swing high, and I think all traders would have headed for the lifeboats long before, leaving only the buy-and-hold 401(k) and IRA crowd to go down with the ship.

For my own account, I've been reducing my theta negative positions. These are options spreads whose value is eroded by the passage of time. Examples of such spreads are long vertical spreads, such as bull call spreads and bear put spreads. 

My theta positive positions, which gain value with the passage of time, remain in place. 

My diagonal spreads, which work much like covered calls, remain in place. These sorts of constructions have a short component which is theta positive and which expires within a month, and a long component which is theta negative and which expires six months or so out in the case of a new diagonal spread, or which never expires in the case of a covered call.

The long components of my diagonal spreads were all insured when they were opened as I bought out-of-the-money covered puts, and are protected further by the premiums earned from selling the short components.

So my diagonal spreads will remain in place for now.

Note: In this discussion, "yesterday" refers to Monday, May 7.

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.

Trend: S&P 500 futures signal downtrend

The S&P 500 has moved into a downtrend if I count after-hours trading of e-mini futures on the index.

The index gapped down from Friday's futures close of of 1362.50 to at open at 3 p.m. Eastern on Sunday of 1354.00. That's trading in Asia and was doubtless keyed to the French and Greek election results.

From there the price dropped to 1342.50, and has since recovered top above Friday's close.

The prior low on the futures was 1352.50 on April 1, so Sunday showed a lower low on the futures.

The May 1 high from which the price began a decline was 1411.75. The prior high before that was 1419.75. So the futures show a high followed by a lower high.

Lower high lower low -- that's a downtrend.

The index itself and its exchange-traded fund avatar SPY don't show the lower low because they trade only during New York exchange hours.

It's up to each trader, of course, to decide whether to give credence to after-hours trading. I tend to base my opinion on what happened next.

If the price upon the market open moves back to the prior in-hours trading range, then I tend to ignore the after-hours extreme. If the price remains below the in-hours range, even if that doesn't produce a lower low within normal trading hours, I tend to use the after-hours low in reaching a trend decision.

In this case, the S&P 500 futures moved back above Friday's low at this morning's opening in New York. So that would negate the downtrend.

But the downside blip did happen, and I shall keep it in mind as I make my trading decision over this week.

Note: I won't be filing a stock analysis today. I have a conflict. I'll make it up by filing two on Tuesday.

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.

Week Ahead: Producer prices, trade

Normally, the two principal price indexes -- producer and consumer -- are released in the same week, with producer prices as the overture and consumer prices as the grand finale.

Not in May. Producer prices will be released Friday this week at 8:30 a.m. Eastern, and consumer prices on Tuesday of next week (May 15). Why the change? Don't know. Don't much care, either, as I don't think the switch will have significant impact.

Two other major reports are due out, both on Thursday at 8:30 a.m.. They are international trade and weekly jobless claims.

Otherwise, it's a fairly slow week for econ. The action will be in earnings announcements.

Other reports of note:

Wednesday: Petroleum inventories at 10:30 a.m.

Thursday: Import and export prices at 8:30 a.m. and the Treasury budget at 2 p.m.

Friday: Consumer sentiment from the University of Michigan at 9:55 a.m.

Federal Reserve Chairman Ben Bernanke addresses a bankers conference on Thursday. My best guess is that it will be technical, boring to the layperson, and fairly free of market impact. But, guesses can be wrong, so it's worth watching.

Other members of the Federal Open Market Committee scheduled to speak are Richmond Fed Pres. Jeffrey Lacker at 6 p.m. Monday and 9:45 a.m. and 9:45 a.m. Tuesday and Cleveland Fed Pres. Sandra Pianalto at 10:45 a.m. on Wednesday.


Practical trading:

By my rules, as of Monday I can trade June calendar and vertical spreads, and August single options and straddles. Of course, shares are good at any time.

Good trading!

CMCSA/K: Vertical empire

There's scarcely a need to profile Comcast Corp. (CMCSA, CMCSK), it is such a household name. Comcast is that length of twisty cable and the box on top your TV set in 40 states and the District of Columbia, and the other cable that feeds the Internet to your wireless router.

It is "The Voice" and "Days of Our Lives" on NBC, and the always clever and insightful Rachel Maddow on MSNBC.

The Philadelphia, Pennsylvania company is E! Entertainment, the Style Network and The Golf Channel and the Olympics and the Super Bowl.

Comcast is to entertainment what John D. Rockefeller's Standard Oil was to energy: A vertical empire that encompasses its sector top to bottom.

The company has two publicly traded classes of stock, each with its own ticker symbol. CMCSA has a 2.1 billion share float and each share has a 0.1374 vote. CMCSK, with 765.1 million shares outstanding, has no voting rights.

I'll use the more liquid CMCSA chart as the basis of my discussion.

CMCSA had the most bullish chart among 36 stocks added today to the Zacks top-buy list.

The price began its most recent leg up on Nov. 25, 2011 from $20.90. After an upside opening gap in mid-February following a 10% earnings surprise, the ascent moderated into a sideways pattern that still tended, modestly, to the upside.

The most recent highest high was $30.88 on May 1.

Big picture, CMCSA has pushed past its pre-recession high of $30.18 from January 2007. But the move to a sideways pattern tells me that there is still money trapped at that level by the recession collapse that's just itching to get out with a modest profit.

Long story short, I see chart signs that it will be a challenge to break decisively beyond present levels. This month, May, sees CMCSA in the midst of its first intra-month decline since last autumn.

But, in trading as in other areas of life, money overcomes all challenges. If traders believe that Comcast has the earning power to propel prices higher, then prices will rise, whatever resistance history might offer.

Comcast has a return on equity 9% -- not a super-enticing level of return. Long-term debt is 80% of equity, which is higher than I like.

Institutions own 81% of shares, but the price remains relatively low. It takes $1.40 in shares to control a dollar in sales.

Earnings are higher this year than they were to 2011 or 2010 but there is no marked uptrend quarter to quarter. Three of the last 12 quarters has seen a loss, two of them in 2011.

CMCSA on average trades 15.8 million shares a day, and CMCSK trades 3.8 million shares.

Both classes of stock have a moderately good selection of options with adequate open interest and narrow bid/ask spreads. The open interest is more concentrated around the at-the-money level in the CMCSK options, providing greater liquidity but with more limited choice.

Implied volatility on CMCSA stands at 26%, in the lower half of the six-month range. It has risen today following a decline from late April.

Options traders on CMCSA are pricing in 68.2% chance that the stock will close between $27.40 and $31.84 a month from now, for a 7.5% maximum gain or loss.

Comcast next publishes earnings on July 30. Both classes of stock go ex-dividend in July for a quarterly payout yielding 2.2% annualized.

Decision for my account: I would want to see a more decisive break beyond the pre-recession high of $30.18 and a steeper uptrend before opening a bull position. Otherwise, I like CMCSA chart. The financials aren't the best, but as a short-term trader, they're fairly irrelevant in the face of analyst happy talk.

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.