This week is book-ended by major reports, with a selection of lesser yet interesting releases in between. Busy busy.
The Labor Department releases the March employment report at 8:30 a.m. Eastern on Friday, including the politically important unemployment rate that will dominate the headlines. Simultaneously, the Commerce Department will announce the February international trade statistics.
The other bookend, on Monday at 10 a.m., is the Institute of Supply Management's manufacturing index, based on a wide-ranging survey of more than 300 manufacturers.
The employment announcement has the usual build-up: The payroll company ADP employment report on Wednesday at 8:15 a.m. and the Challenger, Gray & Christmas job-cut report -- tracking layoffs -- on Thursday at 7:30 a.m.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The average hourly workweek in manufacturing, from the employment report, at 8:30 a.m. Friday.
Manufacturers' new orders for consumer goods and materials, from the factory orders report at 10 a.m. on Tuesday.
Vendor performance -- also called the delivery times index -- from the ISM manufacturing survey at 10 a.m. Monday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Thursday.
Manufacturers' new orders for non-defense capital goods, from the factory orders report at 10 a.m. Tuesday.
Other reports of interest:
Monday: Motor vehicle sales throug out the day, the Purchasing Managers manufacturing index just before 9 a.m. and construction spending at 10 a.m.
Wednesday: The Institute of Supply Management non-manufacturing index at 10 a.m. and petroleum inventories at 10:30 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Trading calendar
By my rules, I'm trading May options for short vertical spreads as well as July options for single calls and puts. Of course, shares are good at any time.
Good trading!
Sunday, March 31, 2013
Friday, March 29, 2013
Building a Better Universe
It is a fact of trading that what you see limits what you get.
Analyze optionable stocks with volumes of 5 million or more shares a day, and you'll have a universe of about 50 symbols, and trading signals with be few and far between.
Look at all stocks traded on the major exchanges, and you'll have a universe of 9,199 symbols, with many more trading signals.
My method in recent months has been to select all stocks tracked by the rating company Zacks that are priced at $15 and up with volume of 1,000 shares or more per day. That produces a universe of about 2,400 symbols.
A universe is just a starting point, of course. Once the universe is in hand (an interesting image), then the screening begins, with the goal of having a manageable list of stocks and exchange-traded funds from which to pick a trade or two.
My initial screening method is simple: I want stocks and exchange-traded funds that, historically, have produced profitable trades in the direction of the most recent breakout. Other ways of putting it is that they have better than 50:50 odds of success, or a success rate of better than 50%.
It's a brutal barrier. When I analyzed the Zacks universe Thursday night, only eight stocks among the 57 that produced a trading signal had better than even odds in the direction of breakout. (See my posting from last night here.)
Further tests for earnings within 30 days and a sufficiently high yield for winning trades after adjustment for the success rate reduced the survivor list to two symbols out of 2,399.
That's not many, and as we dive into the 1st quarter earnings announcement season, my rule excluding new positions on stocks that are within 30 days of earnings means fewer opportunities to trade.
So, when the old universe goes bad, the obvious answer is: Build a better universe.
My goals are to increase the number of symbols in my analytical universe, but to limit them as far as possible to those that have a better chance of surviving the initial barriers.
I began with the 9,199 symbols traded on the major exchanges. From those, I selected the 2,220 symbols that had a better than 50% success rate in the case of bull or bear signals (or both).
This universe has no limit on price or volume.
I then did my usual screen for new trading signals, and found 18 bull signals and 12 bear signals. Of course, my pre-screening method is no guarantee that a symbol's new signal will meet my test for better than even odds in the direction of the signal.
GOOG, for example, gave a bear signal, but it only has a 35% success rate in that direction. It has a place in my universe because of its 57% success rate to the bull side. Nineteen stocks failed the odds test, reducing my universe to 11 symbols.
Five symbols had sufficiently good odds, but the returns were too low to produce a high enough score when adjusted for the success rate. I require an adjusted yield score of at least 5%. The five failed that test, reducing the universe to six symbols
In addition, two have earnings announcements within 30 days of Monday, when trading resumes.
That exclusion shrinks my universe to four symbols, one of them an exchange-traded fund. The stocks, in descending volume order, are FLR, MENT and FFBH. The fund, with extremely low volume, is UMX.
My redesigned universe is a super-set of the Zacks-based universe. It includes the two survivors from my Zacks analysis, but doubles it to four.
The new universe delivers more symbols, but at the cost of liquidity. The universe of 50 stocks having very high volume would produce few trading signals, but the ones that appeared would allow me to trade options structured a vertical credit spreads, providing both liquidity and a hedge.
Many more of the signals drawn from my redesigned universe will be rejected because of the logistics of trading.
On Monday I'll be looking at the four survivors from my new analytical universe and will use that universe all week, to get a sense of whether it really is better.
Analyze optionable stocks with volumes of 5 million or more shares a day, and you'll have a universe of about 50 symbols, and trading signals with be few and far between.
Look at all stocks traded on the major exchanges, and you'll have a universe of 9,199 symbols, with many more trading signals.
My method in recent months has been to select all stocks tracked by the rating company Zacks that are priced at $15 and up with volume of 1,000 shares or more per day. That produces a universe of about 2,400 symbols.
A universe is just a starting point, of course. Once the universe is in hand (an interesting image), then the screening begins, with the goal of having a manageable list of stocks and exchange-traded funds from which to pick a trade or two.
My initial screening method is simple: I want stocks and exchange-traded funds that, historically, have produced profitable trades in the direction of the most recent breakout. Other ways of putting it is that they have better than 50:50 odds of success, or a success rate of better than 50%.
It's a brutal barrier. When I analyzed the Zacks universe Thursday night, only eight stocks among the 57 that produced a trading signal had better than even odds in the direction of breakout. (See my posting from last night here.)
Further tests for earnings within 30 days and a sufficiently high yield for winning trades after adjustment for the success rate reduced the survivor list to two symbols out of 2,399.
That's not many, and as we dive into the 1st quarter earnings announcement season, my rule excluding new positions on stocks that are within 30 days of earnings means fewer opportunities to trade.
So, when the old universe goes bad, the obvious answer is: Build a better universe.
My goals are to increase the number of symbols in my analytical universe, but to limit them as far as possible to those that have a better chance of surviving the initial barriers.
I began with the 9,199 symbols traded on the major exchanges. From those, I selected the 2,220 symbols that had a better than 50% success rate in the case of bull or bear signals (or both).
This universe has no limit on price or volume.
I then did my usual screen for new trading signals, and found 18 bull signals and 12 bear signals. Of course, my pre-screening method is no guarantee that a symbol's new signal will meet my test for better than even odds in the direction of the signal.
GOOG, for example, gave a bear signal, but it only has a 35% success rate in that direction. It has a place in my universe because of its 57% success rate to the bull side. Nineteen stocks failed the odds test, reducing my universe to 11 symbols.
Five symbols had sufficiently good odds, but the returns were too low to produce a high enough score when adjusted for the success rate. I require an adjusted yield score of at least 5%. The five failed that test, reducing the universe to six symbols
In addition, two have earnings announcements within 30 days of Monday, when trading resumes.
That exclusion shrinks my universe to four symbols, one of them an exchange-traded fund. The stocks, in descending volume order, are FLR, MENT and FFBH. The fund, with extremely low volume, is UMX.
My redesigned universe is a super-set of the Zacks-based universe. It includes the two survivors from my Zacks analysis, but doubles it to four.
The new universe delivers more symbols, but at the cost of liquidity. The universe of 50 stocks having very high volume would produce few trading signals, but the ones that appeared would allow me to trade options structured a vertical credit spreads, providing both liquidity and a hedge.
Many more of the signals drawn from my redesigned universe will be rejected because of the logistics of trading.
On Monday I'll be looking at the four survivors from my new analytical universe and will use that universe all week, to get a sense of whether it really is better.
Thursday, March 28, 2013
Thursday's Breakouts
Thursday, March 28:
Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 57 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 37 to the upside and 20 to the downside.
Two survived my initial screens, all with bull signals. In descending volume order, they are FLR and MENT.
Three that would have otherwise survived were knocked out by my rule excluding stocks within 30 days of an earnings announcement. The traditional start the 1st quarter of 2013, the AA announcement, is on April 8. The ensuing flood of earnings announcements will it difficult over the next few weeks to find trades that meet my standards.
Three over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, one the upside and two to the downside. None had the better than even success rate needed to survive initial screening.
The surviving issues that confirm their signals by trading on Monday beyond their breakout levels will merit further analysis.
Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 57 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 37 to the upside and 20 to the downside.
Two survived my initial screens, all with bull signals. In descending volume order, they are FLR and MENT.
Three that would have otherwise survived were knocked out by my rule excluding stocks within 30 days of an earnings announcement. The traditional start the 1st quarter of 2013, the AA announcement, is on April 8. The ensuing flood of earnings announcements will it difficult over the next few weeks to find trades that meet my standards.
Three over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, one the upside and two to the downside. None had the better than even success rate needed to survive initial screening.
The surviving issues that confirm their signals by trading on Monday beyond their breakout levels will merit further analysis.
LBTYA: An interesting play, lacking a hedge
Liberty Global Inc. (LBTYA) broke above its 20- and 55-day price channels on Wednesday and today confirmed the bull signal by trading above the breakout level, $71.83.
Liberty Global has been in an uptrend from $32.06 since early October 2011, with the most recent leg up having begun on Nov. 15, 2012 from $54.05. The price today has reached (so far) an all-time high of $73.46.
This stock is in blue-sky territory, with no upside resistance.
Prior to Wednesday's breakout, LBTYA has sent 17 bull signals, and 10 of them produced a profit, with an average yield of 16.9%. The seven unsuccessful trades lost, on average, 6.2%.
Adjusting the average profit by the 58.8% success rate produces a score of 10%, the highest among the three stocks listed in last night's posting as having survived my initial screens. LBTYA alone among the three confirmed Wednesday's signal.
The most recent leg up has produced two bull signals prior to Wednesday's breakout. One earned a 10% profit, and the other fell for a 3.6% loss. Two signals is insufficient to calculate meaningful odds of success.
Since the present uptrend began in October 2011, LBTYA has had six upside breakouts prior to this week, evenly split between profitable and losing trades. The yield on successful positions was 17.6%, and on unsuccessful position, a 3.2% average loss.
Generally, I prefer better than even odds on a trade, but a large average yield for winners compared to the losses suffered by losers can do a lot to make even a 50% chance of success look pretty good.
Liberty Global, headquartered in Englewood, Colorado, provides video, broadband internet and telephone services to 19.5 million customers, mainly in Europe and Chile. They are in the process of buying Virgin Media Inc. (VMED), company I rejected as a trade on Wednesday. (See my analysis here.)
LBTYA is followed by only a handful of analysts, who are unanimously enthusiastic about the company's prospects.
Liberty global reports return on equity of 7% -- OK but not exciting -- and a huge load of debt amounting to 13% equity, a result of a recent buying spree.
If I were a Warren Buffett style trader, I would look at the debt level and throw up my hands in dismay. The question he would ask, of course, is whether that debt will result in earnings that can be used to grow the company.
It's a long-term question. I'm a short-term trader. So while I need to note the debt level as possibly pointing to a problem, it's not a trade killer in itself.
LBTYA's earnings have been all over the map, mainly in the badlands. It has reported losses in seven of the last 12 quarters, most recently the last quarter of 2012. The most recent profit was the 2nd quarter of 2012.
There has been no acceleration to the profitable or the losing side. The earnings pattern is fairly random. The profitable quarters have all surprised to the upside, and the losing quarters, to the downside.
Institutions own 94% of shares. It takes $1.75 in shares to control a dollar in sales.
LBTYA on average trades 2.6 million shares a day, sufficient to support a moderate selection of option strike prices spaced at $5 intervals.
Open interest runs in the three- and four-figure range. The front-month, at-the-money calls have a bid/ask spread of 5.7%, which is low for a stock of this degree of liquidity.
Implied volatility stands at 27%, just below the middle of the six-month range. It has been tracking mainly sideways since mid-March.
In the following discussion I use the term "68.2%" in several places. This comes from statistics, where one standard deviation -- a measure of confidence -- contains 68.2% of whatever is being studied, political opinions, for example, or stock trades.
Options are pricing in confidence that 68.2% of trades will fall between $67.35 and $78.89 over the next month, for a potential gain or loss of 8%, and between $70.35 and $75.89 over the next week.
There is a great deal of options speculation this morning, with calls trading at 17 times their five-month average volume, and puts at four times the average.
The fair-price zone runs from $71.55 to $73.44, encompassing 68.2% of transactions surrounding the most-traded price, $73.03. The stock is trading near the most-traded price two hours since the opening bell.
Liberty Global next publishes earnings on May 6.
Decision for my account: Aside from the longer-term financial concerns discussed above, there's nothing I actively hate about this stock.
However, I'm unable to put together an April vertical credit spread that will meet my needs. The only reasonable candidate is a bull put spread, short the $70 puts and long the $65 puts, which provides a 4.3% cushion against a fall the stock's price.
However, that produces a 9:1 risk/reward ratio, and I'm quite reluctant to ever go above 4:1.
Reasonable alternatives would be to go buy long calls, which are leveraged but lack a protective hedge, or shares, which lack both. Leverage is always important, of course, in order to earn a decent profit. And the hedge is especially important for trading a company engaged in a major purchase that might fall through.
So absent the ability to construct a hedged position, I won't be opening a bull position in LBTYA for my account.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Liberty Global has been in an uptrend from $32.06 since early October 2011, with the most recent leg up having begun on Nov. 15, 2012 from $54.05. The price today has reached (so far) an all-time high of $73.46.
This stock is in blue-sky territory, with no upside resistance.
Prior to Wednesday's breakout, LBTYA has sent 17 bull signals, and 10 of them produced a profit, with an average yield of 16.9%. The seven unsuccessful trades lost, on average, 6.2%.
Adjusting the average profit by the 58.8% success rate produces a score of 10%, the highest among the three stocks listed in last night's posting as having survived my initial screens. LBTYA alone among the three confirmed Wednesday's signal.
The most recent leg up has produced two bull signals prior to Wednesday's breakout. One earned a 10% profit, and the other fell for a 3.6% loss. Two signals is insufficient to calculate meaningful odds of success.
Since the present uptrend began in October 2011, LBTYA has had six upside breakouts prior to this week, evenly split between profitable and losing trades. The yield on successful positions was 17.6%, and on unsuccessful position, a 3.2% average loss.
Generally, I prefer better than even odds on a trade, but a large average yield for winners compared to the losses suffered by losers can do a lot to make even a 50% chance of success look pretty good.
Liberty Global, headquartered in Englewood, Colorado, provides video, broadband internet and telephone services to 19.5 million customers, mainly in Europe and Chile. They are in the process of buying Virgin Media Inc. (VMED), company I rejected as a trade on Wednesday. (See my analysis here.)
LBTYA is followed by only a handful of analysts, who are unanimously enthusiastic about the company's prospects.
Liberty global reports return on equity of 7% -- OK but not exciting -- and a huge load of debt amounting to 13% equity, a result of a recent buying spree.
If I were a Warren Buffett style trader, I would look at the debt level and throw up my hands in dismay. The question he would ask, of course, is whether that debt will result in earnings that can be used to grow the company.
It's a long-term question. I'm a short-term trader. So while I need to note the debt level as possibly pointing to a problem, it's not a trade killer in itself.
LBTYA's earnings have been all over the map, mainly in the badlands. It has reported losses in seven of the last 12 quarters, most recently the last quarter of 2012. The most recent profit was the 2nd quarter of 2012.
There has been no acceleration to the profitable or the losing side. The earnings pattern is fairly random. The profitable quarters have all surprised to the upside, and the losing quarters, to the downside.
Institutions own 94% of shares. It takes $1.75 in shares to control a dollar in sales.
LBTYA on average trades 2.6 million shares a day, sufficient to support a moderate selection of option strike prices spaced at $5 intervals.
Open interest runs in the three- and four-figure range. The front-month, at-the-money calls have a bid/ask spread of 5.7%, which is low for a stock of this degree of liquidity.
Implied volatility stands at 27%, just below the middle of the six-month range. It has been tracking mainly sideways since mid-March.
In the following discussion I use the term "68.2%" in several places. This comes from statistics, where one standard deviation -- a measure of confidence -- contains 68.2% of whatever is being studied, political opinions, for example, or stock trades.
Options are pricing in confidence that 68.2% of trades will fall between $67.35 and $78.89 over the next month, for a potential gain or loss of 8%, and between $70.35 and $75.89 over the next week.
There is a great deal of options speculation this morning, with calls trading at 17 times their five-month average volume, and puts at four times the average.
The fair-price zone runs from $71.55 to $73.44, encompassing 68.2% of transactions surrounding the most-traded price, $73.03. The stock is trading near the most-traded price two hours since the opening bell.
Liberty Global next publishes earnings on May 6.
Decision for my account: Aside from the longer-term financial concerns discussed above, there's nothing I actively hate about this stock.
However, I'm unable to put together an April vertical credit spread that will meet my needs. The only reasonable candidate is a bull put spread, short the $70 puts and long the $65 puts, which provides a 4.3% cushion against a fall the stock's price.
However, that produces a 9:1 risk/reward ratio, and I'm quite reluctant to ever go above 4:1.
Reasonable alternatives would be to go buy long calls, which are leveraged but lack a protective hedge, or shares, which lack both. Leverage is always important, of course, in order to earn a decent profit. And the hedge is especially important for trading a company engaged in a major purchase that might fall through.
So absent the ability to construct a hedged position, I won't be opening a bull position in LBTYA for my account.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 27, 2013
Wednesday's Breakouts
Wednesday, March 27:
Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 35 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 18 to the upside and 17 to the downside.
Three survived my initial screens, all with bull signals. In descending volume order, they are LBTYA, MO and ROST.
Six over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, two to the upside and four to the downside. None survived initial screening.
The surviving issues that confirm their signals by trading on Thursday beyond their breakout levels will merit further analysis.
Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 35 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 18 to the upside and 17 to the downside.
Three survived my initial screens, all with bull signals. In descending volume order, they are LBTYA, MO and ROST.
Six over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, two to the upside and four to the downside. None survived initial screening.
The surviving issues that confirm their signals by trading on Thursday beyond their breakout levels will merit further analysis.
DPM: A problem chart
Of the four Tuesday bull signals that survived my initial screen (see last night's posting), two failed confirmation.
One, VMED, was worth further analysis, and I posted earlier today on my findings and why I rejected the trade. A second, AFL, had an earnings release for March 24 pop up (schedule change, perhaps?), running afoul of my no-trade rule within 30 days of earnings.
The final survivor, the natural gas company DCP Midstream Partners LP (DPM), is a lower liquidity stock, with an average volume 1.1 million shares, return on equity of 8.9% and a high level of debt amounting to 150% of equity.
Looking at prices beginning with the broad market's recovery from the post-recession crash, DPM has broken out to the upside 16 times prior to Tuesday, and 11 of those bull signals were profitable, with an average return of 10%. The average loss for the five unprofitable trades was 3.1%.
So far so good. The problem is, the chart.
DPM has been in a sideways trend for two years. A stock going nowhere is generally a stock that won't generate profit for a trend-following strategy. There are other ways to play it that will make money, but that's not what I'm doing these days.
The odds since the sideways trend began tell the story: Nine breakouts, four of them successful, with an average return of 2.2%. The five losers lost 3.1% on average.
In addition, Tuesday's breakout pierced the 20-day price channel at $46.19. Today's continued rise pierced the 55-day price channel, at $46.63. Then the price withdrew to within the 55-day channel.
So there may be a breakout in the cards someday, but it's not really happening today.
The high point of the sideways trend has been $49.93, and a move above that level would suggest the resumption of the uptrend that has been in place since early 2009.
Decision on my account: I won't be opening a bull position in DPM.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
One, VMED, was worth further analysis, and I posted earlier today on my findings and why I rejected the trade. A second, AFL, had an earnings release for March 24 pop up (schedule change, perhaps?), running afoul of my no-trade rule within 30 days of earnings.
The final survivor, the natural gas company DCP Midstream Partners LP (DPM), is a lower liquidity stock, with an average volume 1.1 million shares, return on equity of 8.9% and a high level of debt amounting to 150% of equity.
Looking at prices beginning with the broad market's recovery from the post-recession crash, DPM has broken out to the upside 16 times prior to Tuesday, and 11 of those bull signals were profitable, with an average return of 10%. The average loss for the five unprofitable trades was 3.1%.
So far so good. The problem is, the chart.
DPM has been in a sideways trend for two years. A stock going nowhere is generally a stock that won't generate profit for a trend-following strategy. There are other ways to play it that will make money, but that's not what I'm doing these days.
The odds since the sideways trend began tell the story: Nine breakouts, four of them successful, with an average return of 2.2%. The five losers lost 3.1% on average.
In addition, Tuesday's breakout pierced the 20-day price channel at $46.19. Today's continued rise pierced the 55-day price channel, at $46.63. Then the price withdrew to within the 55-day channel.
So there may be a breakout in the cards someday, but it's not really happening today.
The high point of the sideways trend has been $49.93, and a move above that level would suggest the resumption of the uptrend that has been in place since early 2009.
Decision on my account: I won't be opening a bull position in DPM.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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.
BOOM closed
I've closed BOOM for a loss as the price crossed below its 10-day price channel, giving a sell signal. I've updated the entry posting with details.
VMED: Options complications tarnish a bull signal
Virgin Media Inc. (VMED) moved beyond its 20-day price channel on Tuesday and confirmed the bull signal on Wednesday by trading above the breakout level, $47.85.
The move continues a largely unbroken uptrend from $21.47 that has been in place since mid-June 2012. Today's high, $48.22 so far, places the stock in blue-sky territory, with no upside resistance.
It was VMED's 17th bull signal since the broad markets began to recover in early 2009 from the post-recession crash. Eleven of the 16 prior breakouts were profitable, with an average yield of 16.9%. The average loss of the five unsuccessful signals was 7%.
The strength of the uptrend is illustrated by the fact that there have been only two breakouts during its progress, both successful for an average yield of 34.7%.
A weaker uptrend would have more breakouts as the price zigged and zagged, generating bull signals and sell signals in rapid succession. With VMED, it has been all zig all the time.
Virgin Media is an Anglo-American entertainment and telecommunications empire whose operations are largely focused on the U.K. but whose headquarters is in New York. Shares are primarily traded on the NASDAQ, with a secondary listing in London.
It is in the process of being purchased by Liberty Global Inc. (LBTYA).
Perhaps it's a case of the stock having moved too far too fast, but analysts aren't enamored with VMED, collectively coming down with a 25% negative enthusiasm rating.
Profits have been accelerating at an incredible pace, from 16 cents per share in the 4th quarter of 2011 to 59.9 cents per share a year later.
Nine of the last 11 quarters have been profitable, and two shoed losses, the most recent being in Q3 of 2011. Earnings have surprised to the upside eight times, and to the downside, three times.
The accelerating earnings have pushed return on equity up to a ridiculous 150%, but with a very high level of debt amounting to 188% of equity.
Are those levels healthy and sustainable? If I were a long-term investor, I would be digging into the details of Virgin Media's financials to try to understand the depths of their situation. Being a technical trader, I shall simply note that the financials buttress the direction of the chart signal, and move on.
Institutions own nearly all of VMED's shares, and the price is high: It takes $2.08 in shares to control a dollar in sales.
VMED on average trades 6.4 million shares a day and has a moderate selecton of optoins with open interest running in the two- and three-figure range.
The front-month at-the-money bid/ask spread on calls is 22.4%, which is quite high for such as liquid stock.
Implied volatility stands at 17%, which is on the low side. Compare it to 13% for the S&P 500. Low volatility depresses the initial credit on short vertical option spreads, making it hard to construct a position with a decent return.
The volatility level is near the middle of VMED's six-month range and has been tracking sideways since mid-March.
In the analysis that follows I refer several times to "68.2%". This comes from statistics and the concept of one standard deviation, a set of boundaries that encompasses 68.2% of whatever is being analyzed, such as political opinions or stock prices.
Options are pricing in confidence that 68.2% of trades will fall between $45.77 and $50.57 over the next month, for a potential gain or loss of 5%, and between $47.02 and $49.32 over the next week.
Call options are trading at 96% above their five-day average volume, indicating a high degree of speculation. And it's all to the upside. Puts are trading at only 7% of average volume.
The fair-price zone on today's 30-minute chart runs from $47.62 to $47.98, encompassing 68.2% of trades surrounding the most-traded price, $47.92. In the 2nd hour of trading, VMED has moved above the zone.
Virgin Media next publishes earnings on April 24. The stock goes ex-dividend in June for a quarterly payout yielding 0.33% annualized at current prices.
Decision for my account: I'm passing on the trade because of the low volatility. I find it impossible to put together a vertical credit spread that will provide sufficient yield to cover my risk. The task is complicated by the fact that the near-the-money puts have low open interest, below 50 contracts. The high bid/ask spread is another complication.
It's possible to build a position out of shares or long calls (despite the wide bid/ask spread), but I prefer to direct my resources toward positions that provide both leverage and a hedge.
In addition, even though the company is a take-over target, there's still room to profit from its stock. Arguably, however, most of the risk is to the downside because of a chance that the deal could fall through.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
The move continues a largely unbroken uptrend from $21.47 that has been in place since mid-June 2012. Today's high, $48.22 so far, places the stock in blue-sky territory, with no upside resistance.
It was VMED's 17th bull signal since the broad markets began to recover in early 2009 from the post-recession crash. Eleven of the 16 prior breakouts were profitable, with an average yield of 16.9%. The average loss of the five unsuccessful signals was 7%.
The strength of the uptrend is illustrated by the fact that there have been only two breakouts during its progress, both successful for an average yield of 34.7%.
A weaker uptrend would have more breakouts as the price zigged and zagged, generating bull signals and sell signals in rapid succession. With VMED, it has been all zig all the time.
Virgin Media is an Anglo-American entertainment and telecommunications empire whose operations are largely focused on the U.K. but whose headquarters is in New York. Shares are primarily traded on the NASDAQ, with a secondary listing in London.
It is in the process of being purchased by Liberty Global Inc. (LBTYA).
Perhaps it's a case of the stock having moved too far too fast, but analysts aren't enamored with VMED, collectively coming down with a 25% negative enthusiasm rating.
Profits have been accelerating at an incredible pace, from 16 cents per share in the 4th quarter of 2011 to 59.9 cents per share a year later.
Nine of the last 11 quarters have been profitable, and two shoed losses, the most recent being in Q3 of 2011. Earnings have surprised to the upside eight times, and to the downside, three times.
The accelerating earnings have pushed return on equity up to a ridiculous 150%, but with a very high level of debt amounting to 188% of equity.
Are those levels healthy and sustainable? If I were a long-term investor, I would be digging into the details of Virgin Media's financials to try to understand the depths of their situation. Being a technical trader, I shall simply note that the financials buttress the direction of the chart signal, and move on.
Institutions own nearly all of VMED's shares, and the price is high: It takes $2.08 in shares to control a dollar in sales.
VMED on average trades 6.4 million shares a day and has a moderate selecton of optoins with open interest running in the two- and three-figure range.
The front-month at-the-money bid/ask spread on calls is 22.4%, which is quite high for such as liquid stock.
Implied volatility stands at 17%, which is on the low side. Compare it to 13% for the S&P 500. Low volatility depresses the initial credit on short vertical option spreads, making it hard to construct a position with a decent return.
The volatility level is near the middle of VMED's six-month range and has been tracking sideways since mid-March.
In the analysis that follows I refer several times to "68.2%". This comes from statistics and the concept of one standard deviation, a set of boundaries that encompasses 68.2% of whatever is being analyzed, such as political opinions or stock prices.
Options are pricing in confidence that 68.2% of trades will fall between $45.77 and $50.57 over the next month, for a potential gain or loss of 5%, and between $47.02 and $49.32 over the next week.
Call options are trading at 96% above their five-day average volume, indicating a high degree of speculation. And it's all to the upside. Puts are trading at only 7% of average volume.
The fair-price zone on today's 30-minute chart runs from $47.62 to $47.98, encompassing 68.2% of trades surrounding the most-traded price, $47.92. In the 2nd hour of trading, VMED has moved above the zone.
Virgin Media next publishes earnings on April 24. The stock goes ex-dividend in June for a quarterly payout yielding 0.33% annualized at current prices.
Decision for my account: I'm passing on the trade because of the low volatility. I find it impossible to put together a vertical credit spread that will provide sufficient yield to cover my risk. The task is complicated by the fact that the near-the-money puts have low open interest, below 50 contracts. The high bid/ask spread is another complication.
It's possible to build a position out of shares or long calls (despite the wide bid/ask spread), but I prefer to direct my resources toward positions that provide both leverage and a hedge.
In addition, even though the company is a take-over target, there's still room to profit from its stock. Arguably, however, most of the risk is to the downside because of a chance that the deal could fall through.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 26, 2013
Tuesday's Breakouts
Tuesday, March 26:
Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 65 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 48 to the upside and 17 to the downside.
Four survived my initial screens, all with bull signals. In descending volume order, they are VMED, AFL, JLL and DPM.
Seven over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, two to the upside and five to the downside. None survived initial screening.
The surviving issues whose signals are confirmed on Wednesday by trading beyond their breakout levels will merit further analysis.
Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 65 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 48 to the upside and 17 to the downside.
Four survived my initial screens, all with bull signals. In descending volume order, they are VMED, AFL, JLL and DPM.
Seven over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, two to the upside and five to the downside. None survived initial screening.
The surviving issues whose signals are confirmed on Wednesday by trading beyond their breakout levels will merit further analysis.
GPS partial closure
GPS fell below its 10-day price channel in trading today and I've closed part of my bull position. I've updated the entry posting with details of this rather complex holding.
Monday, March 25, 2013
Monday's Breakouts
Monday, March 25:
Of 2,399 stocks and funds in this week's analytical universe, 29 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 12 to the upside and 17 to the downside.
None survived my initial screens. The two that came closest to surviving -- V and BT -- had a better than 50% success rate, but low average returns on the successful trades reduced the score to below my preferred minimum, 5%. Both stocks had given bull signals.
The week is being shortened by Friday's holiday, so a quieting of the market isn't at all unexpected. I was surprised by the preponderance of bear signals over bull signals.
Two over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, one to the upside and one down. None survived initial screening.
With no surviving issues from Monday's breakouts, I won't be looking to open any new positions on Tuesday.
Of 2,399 stocks and funds in this week's analytical universe, 29 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 12 to the upside and 17 to the downside.
None survived my initial screens. The two that came closest to surviving -- V and BT -- had a better than 50% success rate, but low average returns on the successful trades reduced the score to below my preferred minimum, 5%. Both stocks had given bull signals.
The week is being shortened by Friday's holiday, so a quieting of the market isn't at all unexpected. I was surprised by the preponderance of bear signals over bull signals.
Two over-the-counter stocks from my analytical universe broke beyond their 20-day price channels, one to the upside and one down. None survived initial screening.
With no surviving issues from Monday's breakouts, I won't be looking to open any new positions on Tuesday.
ALV position closed
I've closed my bull position in ALV and have updated the entry posting with details.
AAPL: Bull signal
Apple Inc. (AAPL) broke above its 20-day price channel on Friday and confirmed the bull signal this morning by trading above the $460.97 beakout level.
AAPL has been in a downtrend since last September, tracing a series of lower lows and lower highs. To open a bull position at this point would be to engage in a counter-trend play.
I'm a trend follower. My idea of fun is to jump on board the train and ride it for awhile. I never stand on the tracks and command the train to turn around.
So taking a bull position in the midst of an AAPL bear trend would be a strong violation of my preferences.
Having said that, I also think that AAPL isn't so far away from reversing the downtrend, if the trading consensus works out that way.
The most recent lower high, on Feb. 11, was $484.94. The price fell to a lower low of $419 on March 4, and from there began the present leg up.
A move above $484.94 would set a higher high, putting in place a third of what is needed for an uptrend. If the higher high is followed by a drop and then a reversal, all above $419 level, then AAPL would be either in an uptrend or a triangle formation of some sort. A new higher high would sort that out and mean that an uptrend is in fact in place.
The proper point for a trend-following trader to jump in depends upon the degree of risk the trader is willing to accept. I'm not entirely risk averse, and I hedge risk through options spreads, so absent other information, I would treat a break above $484.94 as a trading signal (and I've put in an alert to track any breakout above that level). More risk averse traders would wait for the reversal from a higher low, and people who hate risk with operatic passion would wait for the second higher high before trading.
AAPL's odds, since the broad markets began to recover in early 2009 from the post-recession crash, have been strongly skewed toward the upside, with 10 out of the bull signals producing a profit averaging 14%. Adjusting the profit by the 16.5% success rate produces a score of 8.7%, well above the 5% minimum I prefer.
However, since the present trend began last September, AAPL has produced no bull signals. Two of the three bear signals were profitable, with an average yield of 8.8%.
Decision for my account: For the reasons discussed above, I'm not trading AAPL to the upside at this point. But a trade may be possible soon.
The remaining survivors of my screening process are all lower-volume trades. (See my weekend posting on Friday's breakouts for details of my screening.)
My funds for lower liquidity trades are committed, so AAPL was my one opportunity to trade today.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
AAPL has been in a downtrend since last September, tracing a series of lower lows and lower highs. To open a bull position at this point would be to engage in a counter-trend play.
I'm a trend follower. My idea of fun is to jump on board the train and ride it for awhile. I never stand on the tracks and command the train to turn around.
So taking a bull position in the midst of an AAPL bear trend would be a strong violation of my preferences.
Having said that, I also think that AAPL isn't so far away from reversing the downtrend, if the trading consensus works out that way.
The most recent lower high, on Feb. 11, was $484.94. The price fell to a lower low of $419 on March 4, and from there began the present leg up.
A move above $484.94 would set a higher high, putting in place a third of what is needed for an uptrend. If the higher high is followed by a drop and then a reversal, all above $419 level, then AAPL would be either in an uptrend or a triangle formation of some sort. A new higher high would sort that out and mean that an uptrend is in fact in place.
The proper point for a trend-following trader to jump in depends upon the degree of risk the trader is willing to accept. I'm not entirely risk averse, and I hedge risk through options spreads, so absent other information, I would treat a break above $484.94 as a trading signal (and I've put in an alert to track any breakout above that level). More risk averse traders would wait for the reversal from a higher low, and people who hate risk with operatic passion would wait for the second higher high before trading.
AAPL's odds, since the broad markets began to recover in early 2009 from the post-recession crash, have been strongly skewed toward the upside, with 10 out of the bull signals producing a profit averaging 14%. Adjusting the profit by the 16.5% success rate produces a score of 8.7%, well above the 5% minimum I prefer.
However, since the present trend began last September, AAPL has produced no bull signals. Two of the three bear signals were profitable, with an average yield of 8.8%.
Decision for my account: For the reasons discussed above, I'm not trading AAPL to the upside at this point. But a trade may be possible soon.
The remaining survivors of my screening process are all lower-volume trades. (See my weekend posting on Friday's breakouts for details of my screening.)
My funds for lower liquidity trades are committed, so AAPL was my one opportunity to trade today.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 23, 2013
The Week Ahead: Incomes, houses and GDP
The good news: U.S. stock traders get Friday off because of the Christian Good Friday holiday.
The bad news: The government doesn't recognize the holiday and will release a major report, and you, as a private trader, will be unable to act on it until Monday.
Boo!
Moreover, the stock markets close early on Thursday, at 2 p.m. Eastern.
I could go into a diatribe about how the traditions of the American exchanges are so retro that they leave these important institutions unfitted to deal with a globalized 24-7 world, to the detriment of traders trying to rationally manage risk in the face of sudden changes in the economic winds that can blow in from any direction with very little warning.
But I won't.
The Friday report, out at 8:30 a.m. Eastern, is personal income and outlays. It tracks how much we made and how much we spent and from it comes the calculation of how much we saved.
The last data set isn't considered to be a leading indicator, but it is a good consumer attitudes indicator. And until consumers are willing to stop saving so much and to shop till they drop, the economic recovery will be speeding along with the alacrity of cold molasses.
Three other major government reports are scheduled. Durable goods orders on Tuesday at 8:30 a.m. tracks activity in big-ticket items of the sort that keep factories busy. New home sales on Tuesday at 10 a.m. is important for the housing sector, although the new homes share of the market is dwarfed by sales of existing homes. The gross domestic product release on Thursday at 8:30 a.m. is the third and final version of the 4th quarter 2012 numbers.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Thursday.
The Reuters/University of Michigan consumer sentiment report, at 9:55 a.m. Friday.
Other reports of interest:
Monday: The Dallas Federal Reserve Bank's manufacturing survey of conditions in Texas, at 10:30 a.m.
Tuesday: The S&P Case-Shiller home pricing index, at 9 a.m. This is the one housing report that recognizes that all real estate is local, reporting price for major metro areas. Also, the government's consumer confidence report at 10 a.m.
Wednesday: The Realtors' pending home sales index at 10 a.m., and petroleum inventories at 10:30 a.m.
Thursday: The Chicago purchasing managers index at 9:45 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Federal Reserve folk are out in force this week, as is common after a major Federal Open Market Committee meeting.
The headliner is Fed Chairman Bernanke, who takes part in a panel discussion with the head of the International Monetary Fund at the London School of Economics and Political Science, on Monday at 1:15 p.m. Eastern.
Other FOMC members making public appearances are, on Monday, New York Fed Pres. William Dudley, and on Wednesday, Chicago Fed Pres. Charles Evans and Boston Fed Pres Eric Rosengren.
Also makes appearances on Wednesday are two FOMC alternates: Minneapolis Fed Pres. Narayana Kocherlakota and Cleveland Fed Pres Sandra Pianalto.
Trading calendar
By my rules, I'm trading April options for short vertical spreads, iron condors and butterfly spreads, and the short legs of calendar and diagonal spreads and covered calls, as well as July options for single calls and puts and the long vertical spreads and the long leg of other spreads. Of course, shares are good at any time.
Good trading!
The bad news: The government doesn't recognize the holiday and will release a major report, and you, as a private trader, will be unable to act on it until Monday.
Boo!
Moreover, the stock markets close early on Thursday, at 2 p.m. Eastern.
I could go into a diatribe about how the traditions of the American exchanges are so retro that they leave these important institutions unfitted to deal with a globalized 24-7 world, to the detriment of traders trying to rationally manage risk in the face of sudden changes in the economic winds that can blow in from any direction with very little warning.
But I won't.
The Friday report, out at 8:30 a.m. Eastern, is personal income and outlays. It tracks how much we made and how much we spent and from it comes the calculation of how much we saved.
The last data set isn't considered to be a leading indicator, but it is a good consumer attitudes indicator. And until consumers are willing to stop saving so much and to shop till they drop, the economic recovery will be speeding along with the alacrity of cold molasses.
Three other major government reports are scheduled. Durable goods orders on Tuesday at 8:30 a.m. tracks activity in big-ticket items of the sort that keep factories busy. New home sales on Tuesday at 10 a.m. is important for the housing sector, although the new homes share of the market is dwarfed by sales of existing homes. The gross domestic product release on Thursday at 8:30 a.m. is the third and final version of the 4th quarter 2012 numbers.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Thursday.
The Reuters/University of Michigan consumer sentiment report, at 9:55 a.m. Friday.
Other reports of interest:
Monday: The Dallas Federal Reserve Bank's manufacturing survey of conditions in Texas, at 10:30 a.m.
Tuesday: The S&P Case-Shiller home pricing index, at 9 a.m. This is the one housing report that recognizes that all real estate is local, reporting price for major metro areas. Also, the government's consumer confidence report at 10 a.m.
Wednesday: The Realtors' pending home sales index at 10 a.m., and petroleum inventories at 10:30 a.m.
Thursday: The Chicago purchasing managers index at 9:45 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Federal Reserve folk are out in force this week, as is common after a major Federal Open Market Committee meeting.
The headliner is Fed Chairman Bernanke, who takes part in a panel discussion with the head of the International Monetary Fund at the London School of Economics and Political Science, on Monday at 1:15 p.m. Eastern.
Other FOMC members making public appearances are, on Monday, New York Fed Pres. William Dudley, and on Wednesday, Chicago Fed Pres. Charles Evans and Boston Fed Pres Eric Rosengren.
Also makes appearances on Wednesday are two FOMC alternates: Minneapolis Fed Pres. Narayana Kocherlakota and Cleveland Fed Pres Sandra Pianalto.
Trading calendar
By my rules, I'm trading April options for short vertical spreads, iron condors and butterfly spreads, and the short legs of calendar and diagonal spreads and covered calls, as well as July options for single calls and puts and the long vertical spreads and the long leg of other spreads. Of course, shares are good at any time.
Good trading!
Friday, March 22, 2013
Friday's Breakouts
Friday, March 22:
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 45 that are traded on the NYSE, NASDAQ or AMEX broke beyond their 20-day price channels, 25 to the upside and 20 to the downside.
Six survived my initial screens, all but one with bull signals. In descending volume order, they are AAPL, SSYS, SUI, MIC, IIVI and RXN. The bear signal is on the IIVI chart.
Four over-the-counter stocks from my analytical universe broke below their 20-day price channels. None survived initial screening.
The surviving issues whose signals are confirmed on Monday by trading beyond their breakout levels will merit further analysis.
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 45 that are traded on the NYSE, NASDAQ or AMEX broke beyond their 20-day price channels, 25 to the upside and 20 to the downside.
Six survived my initial screens, all but one with bull signals. In descending volume order, they are AAPL, SSYS, SUI, MIC, IIVI and RXN. The bear signal is on the IIVI chart.
Four over-the-counter stocks from my analytical universe broke below their 20-day price channels. None survived initial screening.
The surviving issues whose signals are confirmed on Monday by trading beyond their breakout levels will merit further analysis.
SINA closed
I've closed the SINA position and updated the original entry posting with details. This leaves me without any bear positions, which says a lot about the upward momentum of the U.S. markets.
IPGP: Bull play in lasers
Update: My bull position in IPGP was closed on April 3 when the price fell below the 10-day price channel. The lower boundary level that triggered the closure was $63.42. The gain from initial entry was 3.2%. My position was in the form of long stocks, and I added to the position twice, raising the basis. The overall result was a 1.6% profit.
IPG Photonics Corp. (IPGP) broke above its 20-day price channel on Thursday and confirmed the bull signal today by trading above the breakout level, $64.50.
The breakout came as IPGP rose following a correction that resulted in a higher low, part of a zig-zag uptrend that began in mid-December 2011 from $33.33. Looking at the chart even more broadly, IPGP has been in an uptrend since early 2009, when it hit bottom at $6.79.
This is IPGP's 17th bull signal since the broad markets began to recover in early 2009 from the post-recession crash.
Nine of the 16 prior breakouts to the upside were profitable, with each trade on average returning 25.5%.
The yield, adjusted by the 56.3% success rate, gives a score of 14.4%, nearly triple the 5% minimum I prefer.
This is the fifth bullish breakout since the present uptrend began in December 2011. Three of the four prior breakouts to the upside were successful, each on average yielding 21.2%.
The eight stocks surviving my initial screens last night tended toward lower liquidity. The most liquid, ICON, has an average volume of only 1.3 million. (See last night's posting for a complete list of the survivors.)
I ended up picking IPGP for further analysis based mainly on its high score -- average yield adjusted by the success rate -- and also its good success rate in recent months.
IPG Photonics, headquartered in Oxford, Massachusetts makes fiber lasers, fiber amplifiers and diode lasers used in communications, medicine and manufacturing. Fiber lasers use rare-earth ions to increase the quality and power of the optical output.
Analysts are generally positive about IPGP's prospects. Their collective opinion works out to a 20% enthusiasm rating.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
IPG Photonics Corp. (IPGP) broke above its 20-day price channel on Thursday and confirmed the bull signal today by trading above the breakout level, $64.50.
The breakout came as IPGP rose following a correction that resulted in a higher low, part of a zig-zag uptrend that began in mid-December 2011 from $33.33. Looking at the chart even more broadly, IPGP has been in an uptrend since early 2009, when it hit bottom at $6.79.
This is IPGP's 17th bull signal since the broad markets began to recover in early 2009 from the post-recession crash.
Nine of the 16 prior breakouts to the upside were profitable, with each trade on average returning 25.5%.
The yield, adjusted by the 56.3% success rate, gives a score of 14.4%, nearly triple the 5% minimum I prefer.
This is the fifth bullish breakout since the present uptrend began in December 2011. Three of the four prior breakouts to the upside were successful, each on average yielding 21.2%.
The eight stocks surviving my initial screens last night tended toward lower liquidity. The most liquid, ICON, has an average volume of only 1.3 million. (See last night's posting for a complete list of the survivors.)
I ended up picking IPGP for further analysis based mainly on its high score -- average yield adjusted by the success rate -- and also its good success rate in recent months.
IPG Photonics, headquartered in Oxford, Massachusetts makes fiber lasers, fiber amplifiers and diode lasers used in communications, medicine and manufacturing. Fiber lasers use rare-earth ions to increase the quality and power of the optical output.
Analysts are generally positive about IPGP's prospects. Their collective opinion works out to a 20% enthusiasm rating.
The company reports return on equity of 21%, which is growth-stock territory by my criteria, and has a very low debt level amounting to only 2% of equity.
The company has been profitable each of the past 12 quarters, with each quarter coming higher than the year-ago quarter. Earnings have surprised to the upside 10 times, and to the downside, twice.
Institutions own 70% of shares, whose price has been bid up to a high level. It takes $5.93 in shares to control a dollar in sales.
IPGP on average trades 318,000 shares a day. Surprisingly for stock with such low liquidity, it supports a fair selection of option strike prices with open interest running to three- and four-figures near the money in the front month.
The front-month at-the-money bid/ask spread on calls is quite broad, at 19.6%.
Calls are trading at only 12.7% of their five-day average volume. Puts are running at more than double the average volume. Speculation, it would seem, is leaning toward the downside.
In the analysis that follows, in several places I use the term "68.2%". This derives from statistics and, specifically, the concept of a standard deviation. One standard deviation means that an individual item being studied, be it political opinions or stock trades or tribolite fossils, has a 68.2% chance of falling within a certain distance of a reference level, often the mean for all of the items under study.
Implied volatility for IPGP options stands at 37%, just below the mid-point of the six-month range. Volatility has been tracking sideways since early March.
Based on that volatility, options are pricing in a 68.2% chance that trades will fall between $58.02 and $71.90 over the next month, for a potential gain or loss of 10.7%, and between $61.62 and $68.30 over the next week.
The fair-price zone on today's 30-minute chart ranges from $64.40 to $65.20, encompassing 68.2% of trades surrounding the most-traded price, $64.89. IPGP opened near the top of the zone, dropped below the zone in the first half hour of trading, and in the third hour of trading is near the most-traded price.
IPGP next publishes earnings on April 29.
Decision for my account: IPGP options have sufficient liquidity to trade, but the bid/ask spread is too rich for my money. I've opened a bull position in IPGP, structuring it as long shares.
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 21, 2013
Thursday's Breakouts
Thursday, March 21:
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 58 that are traded on the NYSE, NASDAQ or AMEX broke beyond their 20-day price channels, evenly divided between the upside and the downside.
Eight survived my initial screens, all but one with bull signals. In descending volume order, they are: ICON, PVR, RGLD, IPGP, ORIG, NRGY, MATX and SPH. The bear signal is on the MATX chart.
Twelve over-the-counter stocks from my analytical universe broke above their 20-day price channels. None survived initial screening.
The surviving issues whose signals are confirmed on Frirsday by trading beyond their breakout levels will merit further analysis.
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 58 that are traded on the NYSE, NASDAQ or AMEX broke beyond their 20-day price channels, evenly divided between the upside and the downside.
Eight survived my initial screens, all but one with bull signals. In descending volume order, they are: ICON, PVR, RGLD, IPGP, ORIG, NRGY, MATX and SPH. The bear signal is on the MATX chart.
Twelve over-the-counter stocks from my analytical universe broke above their 20-day price channels. None survived initial screening.
The surviving issues whose signals are confirmed on Frirsday by trading beyond their breakout levels will merit further analysis.
MPEL: Bull play on Macau casinos
Update: I closed my bull position in MPEL on April 8, based on the close signal given on April 5. This is an example of a tactical close -- rather than closing immediately upon the signal, I waited, gambling that I could get a better deal after the weekend.
And so it proved. I closed the positions at $22.66 on the underlying stock for a profit of 0.7%. My position was structured as short vertical options spreads. They sold for a 63.6% profit. (Had a closed immediately upon the signal, the options result would have been a loss of similar proportion.)
Update: MPEL on April 5 gave a signal to exit my bull position as the price cross below the 10-day price channel at $21.49.
My position is structured entirely as short vertical option spreads whose last day of trading is April 19. If the price is above the breakeven point, they options make money the closer they get to expiration.
So rather than exiting immediately, I'm taking a more strategic approach in the hope of trading time for profit. The trade will be profitable if the options expire with the stock price above $21.75
Looking solely at the underlying stock, the exit signal came 1.5% below my initial entry. I added to the position three times, and the exit signal is 4.5% below the basis for the whole position.
Melco Crown Entertainment Ltd. (MPEL) moved above its 20- day price channels on Wednesday, its 16th bull signal since the broad markets began to recover in early 2009 from the post-recession crash.
MPEL has been in an uptrend since July 26, 2012, when it hit a low of $9.13.
Wednesday's move above the breakout level, $21.29, was confirmed today as the stock continued its rise, hitting a high of $22.24 in the first two hours of trading.
Since the present uptrend began, MPEL has sent three bull signals, two of them profitable with an average yield of 28.4%.
Nine of the 15 prior breakouts from early 2009 have been profitable, with an average gain of 26.4%. Adjusted the gain by the 60% success rate gives a score of 15.9%, triple my minimum preference.
A dozen stocks survived screening of Wednesday's breakouts. The three most liquid contenders LVS -- also a casino operator -- and the department store M.
I rejected LVS because the stock is in a sideways trend, and M had less than even odds of success in bullish breakouts since its current uptrend began. (See last night's post of Wednesday's breakouts for a list of stocks surviving my initial screens.)
Melco Crown Entertainment's casino and entertainment holdings are in Macau across the Pearl River from Hong Kong.
Analysts collectively love MPEL, giving it an enthusiasm index of 67%.
The company reports return on equity of 12%, which is below growth-stock territory, and has long-term debt that is higher than I like to see, amounting to 67% of equity.
Earnings the last three quarters of 2012 were below the corresponding quarters of 2011. Out of the last 12 quarters, the company has been profitable in all but two. The losses occurred back in 2010.
Melco Crown Entertainment earnings have surprised to the upside six times in 12 quarters, and five times to the downside.
Institutional ownership is quite low for such a liquid stock, at 28% of shares. The stock price is well above sales parity. It takes $2.78 in shares to control a dollar in sales.
MPEL on average trades 5.3 million shares a day, sufficient to give it an excellent selection of option strike prices with open interest mainly running to the five figures. The at-the-money front-month bid/ask spread on calls is quite narrow, at 3.3%.
In the following analysis I use the term "68.2%" in several places. It refers to the concept of a standard deviation in statistics. One standard deviation has boundaries that encompass 68.2% of whatever is being studied, such as opinions or stock trades.
MPEL's implied volatility, based on options trading, stands at 40%, near the bottom of the six-month range. It has been declining since mid-February.
Options are pricing in confidence that 68.2% of trades will fall between $19.32 and $24.36 over the next month, for a potential gain or loss of 11.6%, and between $20.63 and $23.05 over the next week.
Trading in options contracts today is running above the five-day average volume, with bearish puts leading at 154% above average, compared to calls at 37% above average.
The fair-price zone on today's 30-minute chart runs from $21.81 to $22.16, encompassing 68.2% of transactions surrounding the most traded price, $21.86.
The price quickly moved to the top of the zone in the first half hour of trading today, and then dropped back and in the third hour of trading was at the bottom of the zone, suggesting that momentum had stalled for the moment.
Melco Crown Entertainment next publishes earnings on May 6.
Decision for my account: There's nothing to dislike about the stock, its chart or the historical odds. The slowing momentum today are causes of concern for short-term trading.
I've opened a bull position on MPEL, structuring the initial position as a vertical spread for credit expiring in April, short the $21 put and long the $19 put. The position is profitable down to $20.55, providing a 6% cushion. The risk/reward ratio is 3:1, and the potential yield is up to 18.4%.
If the price continues to rise, I'll add to the position by buying long calls with deltas as close to 70 as I can manage.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
And so it proved. I closed the positions at $22.66 on the underlying stock for a profit of 0.7%. My position was structured as short vertical options spreads. They sold for a 63.6% profit. (Had a closed immediately upon the signal, the options result would have been a loss of similar proportion.)
Update: MPEL on April 5 gave a signal to exit my bull position as the price cross below the 10-day price channel at $21.49.
My position is structured entirely as short vertical option spreads whose last day of trading is April 19. If the price is above the breakeven point, they options make money the closer they get to expiration.
So rather than exiting immediately, I'm taking a more strategic approach in the hope of trading time for profit. The trade will be profitable if the options expire with the stock price above $21.75
Looking solely at the underlying stock, the exit signal came 1.5% below my initial entry. I added to the position three times, and the exit signal is 4.5% below the basis for the whole position.
Melco Crown Entertainment Ltd. (MPEL) moved above its 20- day price channels on Wednesday, its 16th bull signal since the broad markets began to recover in early 2009 from the post-recession crash.
MPEL has been in an uptrend since July 26, 2012, when it hit a low of $9.13.
Wednesday's move above the breakout level, $21.29, was confirmed today as the stock continued its rise, hitting a high of $22.24 in the first two hours of trading.
Since the present uptrend began, MPEL has sent three bull signals, two of them profitable with an average yield of 28.4%.
Nine of the 15 prior breakouts from early 2009 have been profitable, with an average gain of 26.4%. Adjusted the gain by the 60% success rate gives a score of 15.9%, triple my minimum preference.
A dozen stocks survived screening of Wednesday's breakouts. The three most liquid contenders LVS -- also a casino operator -- and the department store M.
I rejected LVS because the stock is in a sideways trend, and M had less than even odds of success in bullish breakouts since its current uptrend began. (See last night's post of Wednesday's breakouts for a list of stocks surviving my initial screens.)
Melco Crown Entertainment's casino and entertainment holdings are in Macau across the Pearl River from Hong Kong.
Analysts collectively love MPEL, giving it an enthusiasm index of 67%.
The company reports return on equity of 12%, which is below growth-stock territory, and has long-term debt that is higher than I like to see, amounting to 67% of equity.
Earnings the last three quarters of 2012 were below the corresponding quarters of 2011. Out of the last 12 quarters, the company has been profitable in all but two. The losses occurred back in 2010.
Melco Crown Entertainment earnings have surprised to the upside six times in 12 quarters, and five times to the downside.
Institutional ownership is quite low for such a liquid stock, at 28% of shares. The stock price is well above sales parity. It takes $2.78 in shares to control a dollar in sales.
MPEL on average trades 5.3 million shares a day, sufficient to give it an excellent selection of option strike prices with open interest mainly running to the five figures. The at-the-money front-month bid/ask spread on calls is quite narrow, at 3.3%.
In the following analysis I use the term "68.2%" in several places. It refers to the concept of a standard deviation in statistics. One standard deviation has boundaries that encompass 68.2% of whatever is being studied, such as opinions or stock trades.
MPEL's implied volatility, based on options trading, stands at 40%, near the bottom of the six-month range. It has been declining since mid-February.
Options are pricing in confidence that 68.2% of trades will fall between $19.32 and $24.36 over the next month, for a potential gain or loss of 11.6%, and between $20.63 and $23.05 over the next week.
Trading in options contracts today is running above the five-day average volume, with bearish puts leading at 154% above average, compared to calls at 37% above average.
The fair-price zone on today's 30-minute chart runs from $21.81 to $22.16, encompassing 68.2% of transactions surrounding the most traded price, $21.86.
The price quickly moved to the top of the zone in the first half hour of trading today, and then dropped back and in the third hour of trading was at the bottom of the zone, suggesting that momentum had stalled for the moment.
Melco Crown Entertainment next publishes earnings on May 6.
Decision for my account: There's nothing to dislike about the stock, its chart or the historical odds. The slowing momentum today are causes of concern for short-term trading.
I've opened a bull position on MPEL, structuring the initial position as a vertical spread for credit expiring in April, short the $21 put and long the $19 put. The position is profitable down to $20.55, providing a 6% cushion. The risk/reward ratio is 3:1, and the potential yield is up to 18.4%.
If the price continues to rise, I'll add to the position by buying long calls with deltas as close to 70 as I can manage.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 20, 2013
Wednesday's Breakouts
Wednesday, March 20:
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 51 that are traded on the NYSE, NASDAQ or AMEX broke beyond their 20-day price channels, 45 to the upside and six to the downside.
Sixteen survived my initial screens, all with bull signals. In descending volume order, they are: LVS, M, MPEL, WY, TEX, WYNN, EEP, RGC, TRGP, PB, TRS, PBH, AIT, WRLD, APFC and MTSC.
Four over-the-counter stocks from my analytical universe broke above their 20-day price channels. None survived initial screening.
The surviving issues whose signals are confirmed on Thursday by trading beyond their breakout levels will merit further analysis.
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 51 that are traded on the NYSE, NASDAQ or AMEX broke beyond their 20-day price channels, 45 to the upside and six to the downside.
Sixteen survived my initial screens, all with bull signals. In descending volume order, they are: LVS, M, MPEL, WY, TEX, WYNN, EEP, RGC, TRGP, PB, TRS, PBH, AIT, WRLD, APFC and MTSC.
Four over-the-counter stocks from my analytical universe broke above their 20-day price channels. None survived initial screening.
The surviving issues whose signals are confirmed on Thursday by trading beyond their breakout levels will merit further analysis.
HAIN: Celestial bull play
Update 4/12 2013: I've completed my strategic closure of HAIN, buying back my short vertical spreads. The final result for the underlying stock is a 0.7% gain and for the vertical spread, a 20.3% profit (the premium less the cost of buying back the position as a percentage of maximum risk.)
HAIN has dropped off its highs beginning on April 11 (yesterday). I don't intend to roll to a continuation of the position but instead shall wait for a new bull or bear signal. Earnings are to be published on May 2, so until that date HAIN is in my 30-day earnings exclusion period.
Update 4/4/2013: HAIN on April 4 broke below $59.72 -- the lower boundary of its 10-day price channel -- triggering closure of a potion of my bull position for a 1.2% loss on the underlying stock.
My HAIN position was complex: Short vertical option spreads expiring in April for the initial position and the 1st add, and long calls for the 2nd add. The long calls were closed immediately upon the signal for a 4.3% loss on the underlying and a 25.3% loss on the calls themselves.
In accordance with my rules, I'll continue to hold the spreads with a stop/loss at the breakeven point, $58.91. The verticals will be closed at a profit if the price stands above the break-even point on the April 20 expiration.
Hain Celestial Group Inc. (HAIN) broke above its 20-day price channel on Tuesday. The bull signal was confirmed the next day as the stock traded beyond the $60.23 breakout level.
It was the 17th bull signal by HAIN since the broad markets began their recovery from the post-recession crash in early 2009. Ten of the 16 prior breakouts were profitable, producing an average yield of 9.4%.
HAIN has been moving sideways all of this year in a correction from the Sept. 6, 2012 peak of $73.72, with a channel floor of about $51.50 and a ceiling of about $61.90.
The final leg of the rise to the September 2012 high began in August 2011 from $26.10. From then to the present HAIN has broken out to the upside six times. Three of the five prior breakouts was profitable, with an average gain of 15.5%.
In the rise from August 2011 to the September 2012 high, HAIN paused in the $50 to $58 range, spiking down to a low of $49.63. That low has not been pierced in the present correction, and so HAIN has not set a lower low and remains in an uptrend.
HAIN was one of four breakout stocks that survived my initial screening. (See my post on Tuesday's breakouts.) Two of those stocks moved back within their price channels and failed confirmation. HAIN has a higher volume than the other confirmed stock, RLGY. My rule of thumb is to prefer higher volumes over lower. Also, HAIN has greater option liquidity.
The company, headquartered in Melville, New York, makes natural and organic products under a variety of brand names, such as Celestial Seasonings, Rice Dream, Soy Dream and Earth's Best.
Analysts' collective opinion gives HAIN a 21% enthusiasm rating. That's less than a happy group hug but is optimistic about the company's prospects.
Hain Celestial Group reports return on equity of 10%, not a growth stock level but still respectable. The debt is higher than I like, at 57% of equity.
The company has been profitable for at least the last 12 quarters. Earnings in each of the 2012 quarters exceeded its counterpart in 2011, which in turn exceeded the 2010 counterparts.
Earnings surprised to the upside 10 times, and to the downside, twice.
Institutions own nearly all of HAIN shares, and the price has been bid up a bit. It takes $1.84 in shares to control a dollar in sales.
HAIN on average trades 744,000 shares a day. That's normally fairly low liquidity to support options trading, but HAIN is a pleasant surprise.
Open interest in April options is running mainly at three figures. Front-month at-the-money calls have a bid/ask spread of 6.5%, quite low for a stock with average volume under a million.
In the following analysis I use "68.2%" in a couple of places. In statistics, one standard deviation has boundaries that encompass 68.2% of trades or opinions or whatever is being studied. It's a measure of confidence that future items will fall within those boundaries.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $55.45 and $66.11, for a potential gain or loss of 8.8%, and between $58.22 and $63.34 over the next week.
The trading pace in options early in the trading day was above the five-day average volume. However, an hour into the day, trading has dropped to 5% below average volume for calls, and 12% below average for puts.
The fair-price zone on today's 30-minute chart ranges from $60.51 to $60.99, encompassing 68.2% of transactions surrounding the most-traded price, $60.90. The price opened above the zone this morning but in an hour has dropped below the zone.
This suggests that the bullish momentum that began the day has started to fade.
Hain Celestial Group next publishes earnings on April 29.
Decision for my account: I've opened a bull position on HAIN, structuring it as a vertical credit spread expiring in April, short the $60 put and long the $55 put. The position is profitable at expiration down to $58.73, giving me a 2.8% cushion in case the price falls. The maximum potential yield on the position is 20.3%, with a risk/reward ratio of about 3:1.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
HAIN has dropped off its highs beginning on April 11 (yesterday). I don't intend to roll to a continuation of the position but instead shall wait for a new bull or bear signal. Earnings are to be published on May 2, so until that date HAIN is in my 30-day earnings exclusion period.
Update 4/4/2013: HAIN on April 4 broke below $59.72 -- the lower boundary of its 10-day price channel -- triggering closure of a potion of my bull position for a 1.2% loss on the underlying stock.
My HAIN position was complex: Short vertical option spreads expiring in April for the initial position and the 1st add, and long calls for the 2nd add. The long calls were closed immediately upon the signal for a 4.3% loss on the underlying and a 25.3% loss on the calls themselves.
In accordance with my rules, I'll continue to hold the spreads with a stop/loss at the breakeven point, $58.91. The verticals will be closed at a profit if the price stands above the break-even point on the April 20 expiration.
Hain Celestial Group Inc. (HAIN) broke above its 20-day price channel on Tuesday. The bull signal was confirmed the next day as the stock traded beyond the $60.23 breakout level.
It was the 17th bull signal by HAIN since the broad markets began their recovery from the post-recession crash in early 2009. Ten of the 16 prior breakouts were profitable, producing an average yield of 9.4%.
HAIN has been moving sideways all of this year in a correction from the Sept. 6, 2012 peak of $73.72, with a channel floor of about $51.50 and a ceiling of about $61.90.
The final leg of the rise to the September 2012 high began in August 2011 from $26.10. From then to the present HAIN has broken out to the upside six times. Three of the five prior breakouts was profitable, with an average gain of 15.5%.
In the rise from August 2011 to the September 2012 high, HAIN paused in the $50 to $58 range, spiking down to a low of $49.63. That low has not been pierced in the present correction, and so HAIN has not set a lower low and remains in an uptrend.
HAIN was one of four breakout stocks that survived my initial screening. (See my post on Tuesday's breakouts.) Two of those stocks moved back within their price channels and failed confirmation. HAIN has a higher volume than the other confirmed stock, RLGY. My rule of thumb is to prefer higher volumes over lower. Also, HAIN has greater option liquidity.
The company, headquartered in Melville, New York, makes natural and organic products under a variety of brand names, such as Celestial Seasonings, Rice Dream, Soy Dream and Earth's Best.
Analysts' collective opinion gives HAIN a 21% enthusiasm rating. That's less than a happy group hug but is optimistic about the company's prospects.
Hain Celestial Group reports return on equity of 10%, not a growth stock level but still respectable. The debt is higher than I like, at 57% of equity.
The company has been profitable for at least the last 12 quarters. Earnings in each of the 2012 quarters exceeded its counterpart in 2011, which in turn exceeded the 2010 counterparts.
Earnings surprised to the upside 10 times, and to the downside, twice.
Institutions own nearly all of HAIN shares, and the price has been bid up a bit. It takes $1.84 in shares to control a dollar in sales.
HAIN on average trades 744,000 shares a day. That's normally fairly low liquidity to support options trading, but HAIN is a pleasant surprise.
Open interest in April options is running mainly at three figures. Front-month at-the-money calls have a bid/ask spread of 6.5%, quite low for a stock with average volume under a million.
In the following analysis I use "68.2%" in a couple of places. In statistics, one standard deviation has boundaries that encompass 68.2% of trades or opinions or whatever is being studied. It's a measure of confidence that future items will fall within those boundaries.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $55.45 and $66.11, for a potential gain or loss of 8.8%, and between $58.22 and $63.34 over the next week.
The trading pace in options early in the trading day was above the five-day average volume. However, an hour into the day, trading has dropped to 5% below average volume for calls, and 12% below average for puts.
The fair-price zone on today's 30-minute chart ranges from $60.51 to $60.99, encompassing 68.2% of transactions surrounding the most-traded price, $60.90. The price opened above the zone this morning but in an hour has dropped below the zone.
This suggests that the bullish momentum that began the day has started to fade.
Hain Celestial Group next publishes earnings on April 29.
Decision for my account: I've opened a bull position on HAIN, structuring it as a vertical credit spread expiring in April, short the $60 put and long the $55 put. The position is profitable at expiration down to $58.73, giving me a 2.8% cushion in case the price falls. The maximum potential yield on the position is 20.3%, with a risk/reward ratio of about 3:1.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 19, 2013
Tuesday's Breakouts
Tuesday, March 19:
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 51 broke beyond their 20-day price channels, 13 to the upside and 38 to the downside.
Four stocks survived my initial screens. HAIN, RLGY and FLO gave bull signals, and YNDX gave a bear signal.
The issues whose signals are confirmed on Wednesday by trading beyond their breakout levels will merit further analysis.
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 51 broke beyond their 20-day price channels, 13 to the upside and 38 to the downside.
Four stocks survived my initial screens. HAIN, RLGY and FLO gave bull signals, and YNDX gave a bear signal.
The issues whose signals are confirmed on Wednesday by trading beyond their breakout levels will merit further analysis.
Screening Methods
Two issues survived my initial screen of Monday's breakouts, as noted in last night's post. They are Mid America Apartment Communities Inc. (MAA), which broke out to the upside, and Monolithic Power Systems Inc. (MPWR), to the downside.
Both have six-figure average volumes but below the 500,000 level. Both support options, but the open interest is so low as to make options impractical vehicles under my trading rules.
With this post I want to go into my process in some detail so readers can understand how I'm reaching my conclusions.
The initial screens toss out stocks that have even or less historical odds of success in the direction of the most recent breakout, calculating the odds based on data going back to January 2009, around the time that the broad markets began to recover from the post-recession crash.
In that period, MAA broke out to the upside 19 times, and MPWR to the downside, 15 times.
Both survivors did fine with the odds test, both with a 53% success rate. MAA's winning bull trade's on average yielded 5.8%. MPWR's winning bear trades were less productive, yielding 3.7%.
I also toss out stocks that are within 30 days of an earnings announcement. We're not in earnings season at this point, and so MAA and MPWR passed this test easily.
This morning, an hour or so into the trading day, I checked the two stocks, and found that they were trading beyond their breakout points, confirming the trading signals.
Confirmation is a key point in the process. Everything up through confirmation is based on fixed, non-negotiable rules. A stock must have better than even odds of being profitable over the period back to early 2009, earnings must be at least 30 days out, and the stock must allow entry the next day beyond the price channel.
After confirmation, I did some quick checks on the survivors to see whether they really are worth further analysis.
One method I use is to adjust the average yield by the odds of success to produce a score. I prefer that it be 5% or higher. Both stocks failed that test. MAA had a score of 3.1%, and MPWR, 2.0%.
That isn't necessarily fatal to a stock as a potential trade, however.
Maybe something has changed in recent times that is improving the odds of success.
To understand that, I go to the charts, identify on a weekly chart the start of the present trend,, generally covering the past year or so, and then see how the breakouts fared from that date to the present.
MAA's present sideways trend began Nov. 21, 2011. Since that date, MAA has completed six upside breakouts, half of them successful, for an average return of 2.3%.
MPWR is correcting downward within an uptrend that began Oct. 3, 2011. It has broken out to the downside four times, and only one of those trades was profitable, yielding 1.6%.
At this point, I quickly conclude that neither stock is a viable trade.
I noted above that the analysis after confirmation is based on flexible preferences. They can be over-ridden by other information.
If MAA or MPWR had produced scores of 5% or better when I combined their yield with their success rate, I might have done a full analysis.
If either had been liquid enough for an options trade, I would have considered a trade to be possible, since options leverage the profit and also allow me to hedge against failure.
An interesting chart can prompt me to look further. MAA isn't interesting; it's in a sideways trend. But MPWR is in a pronounced uptrend. Had Monday's breakout been to the upside after a correction, then I might have looked at it further.
But those are counterfactuals. I won't be placing a new trade today, and I am wandering away from my trading station to brew a pot of genmaicha tea and dive into a book about my future, The Plutocrats, by Chrystia Freeland.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Both have six-figure average volumes but below the 500,000 level. Both support options, but the open interest is so low as to make options impractical vehicles under my trading rules.
With this post I want to go into my process in some detail so readers can understand how I'm reaching my conclusions.
The initial screens toss out stocks that have even or less historical odds of success in the direction of the most recent breakout, calculating the odds based on data going back to January 2009, around the time that the broad markets began to recover from the post-recession crash.
In that period, MAA broke out to the upside 19 times, and MPWR to the downside, 15 times.
Both survivors did fine with the odds test, both with a 53% success rate. MAA's winning bull trade's on average yielded 5.8%. MPWR's winning bear trades were less productive, yielding 3.7%.
I also toss out stocks that are within 30 days of an earnings announcement. We're not in earnings season at this point, and so MAA and MPWR passed this test easily.
This morning, an hour or so into the trading day, I checked the two stocks, and found that they were trading beyond their breakout points, confirming the trading signals.
Confirmation is a key point in the process. Everything up through confirmation is based on fixed, non-negotiable rules. A stock must have better than even odds of being profitable over the period back to early 2009, earnings must be at least 30 days out, and the stock must allow entry the next day beyond the price channel.
Going forward, my methods are based on flexible preferences.
One method I use is to adjust the average yield by the odds of success to produce a score. I prefer that it be 5% or higher. Both stocks failed that test. MAA had a score of 3.1%, and MPWR, 2.0%.
That isn't necessarily fatal to a stock as a potential trade, however.
Maybe something has changed in recent times that is improving the odds of success.
To understand that, I go to the charts, identify on a weekly chart the start of the present trend,, generally covering the past year or so, and then see how the breakouts fared from that date to the present.
MAA's present sideways trend began Nov. 21, 2011. Since that date, MAA has completed six upside breakouts, half of them successful, for an average return of 2.3%.
MPWR is correcting downward within an uptrend that began Oct. 3, 2011. It has broken out to the downside four times, and only one of those trades was profitable, yielding 1.6%.
At this point, I quickly conclude that neither stock is a viable trade.
I noted above that the analysis after confirmation is based on flexible preferences. They can be over-ridden by other information.
If MAA or MPWR had produced scores of 5% or better when I combined their yield with their success rate, I might have done a full analysis.
If either had been liquid enough for an options trade, I would have considered a trade to be possible, since options leverage the profit and also allow me to hedge against failure.
An interesting chart can prompt me to look further. MAA isn't interesting; it's in a sideways trend. But MPWR is in a pronounced uptrend. Had Monday's breakout been to the upside after a correction, then I might have looked at it further.
But those are counterfactuals. I won't be placing a new trade today, and I am wandering away from my trading station to brew a pot of genmaicha tea and dive into a book about my future, The Plutocrats, by Chrystia Freeland.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 18, 2013
Monday's Breakouts
Monday, March 18:
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 23 broke beyond their 20-day price channels, 16 of them to the downside.
Two stocks survived my initial screens, MAA to the upside and MPWR to the downside.
The issues that are confirmed on Tuesday by trading beyond their breakout levels will merit further analysis.
Of 2,423 stocks and exchange-traded funds in this week's analytical universe, 23 broke beyond their 20-day price channels, 16 of them to the downside.
Two stocks survived my initial screens, MAA to the upside and MPWR to the downside.
The issues that are confirmed on Tuesday by trading beyond their breakout levels will merit further analysis.
BOOM: A lower liquidity trade
Update: BOOM on March 27 fell below its 10-day price channel, crossing the lower boundary at $17.46. My position was in long shares, and they were sold at $17.45 for a 4.8% loss from the initial entry price. The position had been added to once as the price rose, and the loss was 5.7% from the average basis of the whole position.
Dynamic Materials Corp. (BOOM) moved above it's 20- and 55-day price channels on Friday, and confirmed the bull signal by trading above the $17.91 breakout level today.
Only three of the 11 breakouts that survived my screens were confirmed today by trading above their breakout levels. The markets as a whole are down sharply -- Cyprus, anyone? -- and most of Friday's breakouts have seen sharp reversals.
Of the three that were confirmed, it's a case of Goldilocks and the Three Bears.
The one with the highest volume, OGE, ended up closing Friday 10.6% above the prior day's close. It's porridge was too hot. I tend to avoid jumping in after such a large move, on grounds that most of the action has already happened and there will most likely be a decline in trading interest for awhile.
The one with the lowest volume, WTM, has nearly a 60% success rate in upside breakouts in the past four years. But since the current leg up began, losing breakouts have outnumbered winners 2:1. WTM's porridge is too cold.
That leaves BOOM, with volume in the middle. And its porridge might be just right.
BOOM has previously broken out to the upside 11 times since the broad markets began their post-recession recovery in early 2009. Eight were profitable, with an average yield of 19.4%. That's extremely high.
The price has been declining since early 2011 in a series of zig-zags. The most recent move is an upward zag that began from $12.18 in late October. In that period BOOM has broken out to the upside only once before. The trade was profitable, returning 16.2%.
In a still broader view, BOOM has been marching in place since recovering in May 2009 from the recession crash, ranging from $12 to $14 as a floor and $24 to $30 for the ceiling. In that broad pattern it has set both a lower low and a lower high, so the stock has clearly been in a downtrend for the past two years.
Dynamic Materials is one one of those companies, difficult for outsiders to understand, that makes stuff that other companies use in their processes. Dynamic's niche is explosion-welded clad metal plates for the oil and gas industry.
BOOM doesn't have a wide following among analysts. The less-than-a-handful who track the company collectively fall in with a 50% enthusiasm rating.
Dynamic Materials reports return on equity of 8.2%, respectable but not outstanding, with debt amounting to 23% of equity, slightly higher than I like but by no means is it awful.
The company has shown only one loss in the last 12 quarters, and that was back in 2010. Earnings tend to peak in the third quarter, and the 2012 Q3 was below its 2011 counterpart. The 2012 Q4 is also below its 2011 counterpart.
Earnings have surprised to the upside 10 times, and to the downside twice.
Institutions own 69% of shares and the price is near par; it takes $1.22 in shares to control a dollar in sales.
BOOM on average trades 54,000 shares a day. It has a moderate selection strike prices, but the open interest is lower than I'm willing to trade. The front-month at-the-money bid/ask spread on calls is 56%, another reason not even to come close to these options.
However, although the options don't meet my criteria for trading, they can still be of some use in analysis.
Implied volatility is running at 31%, near the bottom of the six-month range. Volatility has been declining in a series of zig-zag steps since mid-February.
In several places that follow I'll use the percentage "68.2%". In statistics, one standard deviation encompasses 68.2% of trades surrounding a reference prices. It measures confidence that the actual outcome will fall within the boundaries.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $16.57 and $19.83, for a potential gain or loss of 9%, and between $17.41 and $18.99 over the next week.
Trading in options today is below their five-day average volume, with a bias toward speculation to the upside. Calls are at 81% of average volume, and puts at 49%.
The fair-price zone on today's 30-minute chart runs from $18.18 to $18.36, encompassing 68.2% of trades surrounding the most-traded price, $18.20.
The fact that, 2-1/2 hours into the trading day, the most-traded price is so near the floor of the zone suggests that traders have been making runs toward the upside, but have lacked the power to succeed.
Dynamic Materials next publishes earnings on April 29. The stock goes ex-dividend March 26 for a quarterly payout yielding 0.88% annualized at today's prices.
Decision for my account: There's no reason not to open a bull position in BOOM, If I'm comfortable with the low liquidity and the lacks of options to provide leverage and thereby boost the potential yield.
I've opened a bull position in BOOM, structuring it as long shares.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Dynamic Materials Corp. (BOOM) moved above it's 20- and 55-day price channels on Friday, and confirmed the bull signal by trading above the $17.91 breakout level today.
Only three of the 11 breakouts that survived my screens were confirmed today by trading above their breakout levels. The markets as a whole are down sharply -- Cyprus, anyone? -- and most of Friday's breakouts have seen sharp reversals.
Of the three that were confirmed, it's a case of Goldilocks and the Three Bears.
The one with the highest volume, OGE, ended up closing Friday 10.6% above the prior day's close. It's porridge was too hot. I tend to avoid jumping in after such a large move, on grounds that most of the action has already happened and there will most likely be a decline in trading interest for awhile.
The one with the lowest volume, WTM, has nearly a 60% success rate in upside breakouts in the past four years. But since the current leg up began, losing breakouts have outnumbered winners 2:1. WTM's porridge is too cold.
That leaves BOOM, with volume in the middle. And its porridge might be just right.
BOOM has previously broken out to the upside 11 times since the broad markets began their post-recession recovery in early 2009. Eight were profitable, with an average yield of 19.4%. That's extremely high.
The price has been declining since early 2011 in a series of zig-zags. The most recent move is an upward zag that began from $12.18 in late October. In that period BOOM has broken out to the upside only once before. The trade was profitable, returning 16.2%.
In a still broader view, BOOM has been marching in place since recovering in May 2009 from the recession crash, ranging from $12 to $14 as a floor and $24 to $30 for the ceiling. In that broad pattern it has set both a lower low and a lower high, so the stock has clearly been in a downtrend for the past two years.
Dynamic Materials is one one of those companies, difficult for outsiders to understand, that makes stuff that other companies use in their processes. Dynamic's niche is explosion-welded clad metal plates for the oil and gas industry.
BOOM doesn't have a wide following among analysts. The less-than-a-handful who track the company collectively fall in with a 50% enthusiasm rating.
Dynamic Materials reports return on equity of 8.2%, respectable but not outstanding, with debt amounting to 23% of equity, slightly higher than I like but by no means is it awful.
The company has shown only one loss in the last 12 quarters, and that was back in 2010. Earnings tend to peak in the third quarter, and the 2012 Q3 was below its 2011 counterpart. The 2012 Q4 is also below its 2011 counterpart.
Earnings have surprised to the upside 10 times, and to the downside twice.
Institutions own 69% of shares and the price is near par; it takes $1.22 in shares to control a dollar in sales.
BOOM on average trades 54,000 shares a day. It has a moderate selection strike prices, but the open interest is lower than I'm willing to trade. The front-month at-the-money bid/ask spread on calls is 56%, another reason not even to come close to these options.
However, although the options don't meet my criteria for trading, they can still be of some use in analysis.
Implied volatility is running at 31%, near the bottom of the six-month range. Volatility has been declining in a series of zig-zag steps since mid-February.
In several places that follow I'll use the percentage "68.2%". In statistics, one standard deviation encompasses 68.2% of trades surrounding a reference prices. It measures confidence that the actual outcome will fall within the boundaries.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $16.57 and $19.83, for a potential gain or loss of 9%, and between $17.41 and $18.99 over the next week.
Trading in options today is below their five-day average volume, with a bias toward speculation to the upside. Calls are at 81% of average volume, and puts at 49%.
The fair-price zone on today's 30-minute chart runs from $18.18 to $18.36, encompassing 68.2% of trades surrounding the most-traded price, $18.20.
The fact that, 2-1/2 hours into the trading day, the most-traded price is so near the floor of the zone suggests that traders have been making runs toward the upside, but have lacked the power to succeed.
Dynamic Materials next publishes earnings on April 29. The stock goes ex-dividend March 26 for a quarterly payout yielding 0.88% annualized at today's prices.
Decision for my account: There's no reason not to open a bull position in BOOM, If I'm comfortable with the low liquidity and the lacks of options to provide leverage and thereby boost the potential yield.
I've opened a bull position in BOOM, structuring it as long shares.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 17, 2013
Friday's Breakouts
On Friday, March 15, out of 2,414 stocks and exchange-traded funds in the week's analytical universe, 72 broke beyond their 20-day price channels, 21 of them to the downside.
Eleven issues survived my initial screens, all of them potential bull plays. They are, in descending order by average volume, FITB, PHM, PRI, OIS, TRP, OGE, WTFC, EIG, BOOM, MEAS and WTM.
The issues that are confirmed on Friday by trading above their breakout levels will merit further analysis.
Eleven issues survived my initial screens, all of them potential bull plays. They are, in descending order by average volume, FITB, PHM, PRI, OIS, TRP, OGE, WTFC, EIG, BOOM, MEAS and WTM.
The issues that are confirmed on Friday by trading above their breakout levels will merit further analysis.
The Week Ahead: Money policy forecasts
The week is dominated by a three-ring circus, one of the year's four major money policy meetings, with the announcement supplemented by forecasts and a news conference.
The Federal Open Market Committee meets on Wednesday and, at 2 p.m., will make the policy announcement and release forecasts by the FOMC members. Fed Chairman Bernanke will follow at 2:30 p.m. with a news conference.
With the talk increasingly turning to how the FOMC will respond to the quickening recovery, Wednesday's events will provide plenty to fuel the prognosticators' fires.
The housing sector will also see two major reports: Housing starts on Tuesday at 8:30 a.m., and existing home sales on Thursday at 10 a.m.
Also on Thursday at 10 a.m., the Philadelphia Federal Reserve Bank releases a survey on conditions in the mid-Atlantic states which is sometimes read as an avatar for the country as a whole.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Thursday.
Building permits for new private homes from the housing starts report, at 8:30 a.m. Tuesday.
Also out, the Conference Board's index of leading indicators. Although itself a trailing indicator, it takes the leading indicator tracked here and combines them into a single index that I find useful in understanding where we are now in the economic cycle.
Other reports of interest:
Monday: The Home Builders' housing market index at 10 a.m. Monday.
Wednesday: Petroleum inventories at 10:30 a.m.
Thursday: The Purchasing Managers manufacturing index flash release, shortly before 9 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Trading calendar
By my rules, I'm trading April options for short vertical spreads, iron condors and butterfly spreads, and the short legs of calendar and diagonal spreads and covered calls, as well as June options for single calls and puts and the long vertical spreads and the long leg of other spreads. Of course, shares are good at any time.
Good trading!
The Federal Open Market Committee meets on Wednesday and, at 2 p.m., will make the policy announcement and release forecasts by the FOMC members. Fed Chairman Bernanke will follow at 2:30 p.m. with a news conference.
With the talk increasingly turning to how the FOMC will respond to the quickening recovery, Wednesday's events will provide plenty to fuel the prognosticators' fires.
The housing sector will also see two major reports: Housing starts on Tuesday at 8:30 a.m., and existing home sales on Thursday at 10 a.m.
Also on Thursday at 10 a.m., the Philadelphia Federal Reserve Bank releases a survey on conditions in the mid-Atlantic states which is sometimes read as an avatar for the country as a whole.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Thursday.
Building permits for new private homes from the housing starts report, at 8:30 a.m. Tuesday.
Also out, the Conference Board's index of leading indicators. Although itself a trailing indicator, it takes the leading indicator tracked here and combines them into a single index that I find useful in understanding where we are now in the economic cycle.
Other reports of interest:
Monday: The Home Builders' housing market index at 10 a.m. Monday.
Wednesday: Petroleum inventories at 10:30 a.m.
Thursday: The Purchasing Managers manufacturing index flash release, shortly before 9 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Trading calendar
By my rules, I'm trading April options for short vertical spreads, iron condors and butterfly spreads, and the short legs of calendar and diagonal spreads and covered calls, as well as June options for single calls and puts and the long vertical spreads and the long leg of other spreads. Of course, shares are good at any time.
Good trading!
Friday, March 15, 2013
WLL: A signal within a triangle
Update: I closed my bull position in WLL on April 2, for a loss on the underlying stock of 4.3%. The position in my portfolio was structured as a vertical credit spread. It closed for a net loss of 28.4% on the leveraged position.
The exit signal came as the price crossed below the lower boundary of its 10-day price day, $48.84.
Update: The order described below in the "Decision for my account" section has been filled and my bull position in WLL is active.
Whiting Petroleum Corp. (WLL) broke above its 20- and 55-day price channels on Thursday as it neared the apex of a long-term symmetrical triangle formation that began in early October 2011.
The price on Thursday and today (so far) has peaked at the triangle's upper trendline. A move beyond the line will mark continuation of the post-recession price rise.
The base of the triangle runs from $28.87, the low on Oct. 4, 2011, up to $75.91, the high set on March 30, 2011. The apex it appears will be at around $47.85. So my the Lore of the Triangle, the target upon breakout would be around $94.89.
I don't entirely believe in Triangle Lore, but there are many who do, and sometimes belief in the markets creates self-fulfilling prophecies.
This is WLL's 18th break above the 20-day price channel since the broad markets began their post-recession recovery in early 2009. Eleven of the beakouts has been profitable, with an average yield of 11.1%. Adjusting the yield by the 64.7% success rate produces a score of 7.2%, well above the 5% minimum I prefer.
Since the triangle's base was established in Oct. 2011, WLL has staged six upside breakouts, four of which produced a profit, averaging 4.8%.
The odds analysis shows diminishing returns, but that is to be expected from a symmetrical triangle, which after all is formed from a series of lower highs and higher lows. A triangle, by its structure, guarantees diminishing profits and losses.
Whiting is a Denver, Colorado-based indy oil and gas company operating in the United States.
Analysts are mainly positive about Whiting's prospects, with their collective opinion giving the stock a 48% enthusiasm rating.
Whiting reports return on equity of 13% -- around the lower range of bullish aceptability -- and high levels of debt amounting to 52% of equity, as is to be expected of a venture speculating in minerals.
The company has been profitable in each of the last 12 quarters, with profits having dropped off somewhat in 2012 compared to 2011. EArnings have surprised to the upside five times, and to the downside, seven times.
Institutions own 84% of shares, whose price has been bid up to the point where it takes $2.82 in shares to control a dollar in sales.
WLL on average trades 1.6 million shares a day and has a fine selection of option strike prices for a stock trading at that lower level of liquidity. Open interest runs to the four- and three-figure range near the money and is distributed widely enough to allow for construction of vertical spreads and other complex option positions.
The front-month at-the-money bid/ask spread on calls is 5.6%.
Implied volatility is running at 28% and has been zig-zagging downward since late February.
At several points in the following analysis I use the percentage 68.2%. This is derived from the statistical concept of a standard deviation, boundaries that encompass 68.2% of trades surrounding a base price.
Options are pricing in confidence that 68.2% of trades will fall between $47.64 and $56 over the next month, for a potential gain or loss of 8.1%, and between $49.81 and $53.83 over the next week.
Trading in options suggests speculation to the bear side, with put option volume running 31% above their five-day average volume, compared to only 38% of volume for calls.
The fair-price zone on today's 30-minute chart runs from $51.58 to $51.84, encompassing 61.8% of trades surrounding the most-traded price, $51.79. With 4-1/2 hours left in the trading day, WLL has stayed almost entirely within the zone.
Whiting next publishes earnings on April 22.
Decision for my account: I've put in an order, without much enthusiasm, to open a bull position in WLL, structuring it as a bull put spread expiring in April, short the $49 put and long the $48 put. The position is be profitable down to $48.75 and has a potential yield of 20%.
If I can get a decent fill, I'll have the position. If not, I'll check the chart out again on Monday to see where things stand.
My lack of enthusiasm mainly comes from the triangle structure. If you buy at the top boundary of a triangle, then the odds are good that the price will retreat, sincere there are many tests of the upper boundary but only one upside beakout.
On the other hand, I'm not proposing to open the position based on the triangle strcture, but rather on the price-channel breakout. So the triangle alone isn't enough to discourage me from trading.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
The exit signal came as the price crossed below the lower boundary of its 10-day price day, $48.84.
Update: The order described below in the "Decision for my account" section has been filled and my bull position in WLL is active.
Whiting Petroleum Corp. (WLL) broke above its 20- and 55-day price channels on Thursday as it neared the apex of a long-term symmetrical triangle formation that began in early October 2011.
The price on Thursday and today (so far) has peaked at the triangle's upper trendline. A move beyond the line will mark continuation of the post-recession price rise.
The base of the triangle runs from $28.87, the low on Oct. 4, 2011, up to $75.91, the high set on March 30, 2011. The apex it appears will be at around $47.85. So my the Lore of the Triangle, the target upon breakout would be around $94.89.
I don't entirely believe in Triangle Lore, but there are many who do, and sometimes belief in the markets creates self-fulfilling prophecies.
This is WLL's 18th break above the 20-day price channel since the broad markets began their post-recession recovery in early 2009. Eleven of the beakouts has been profitable, with an average yield of 11.1%. Adjusting the yield by the 64.7% success rate produces a score of 7.2%, well above the 5% minimum I prefer.
Since the triangle's base was established in Oct. 2011, WLL has staged six upside breakouts, four of which produced a profit, averaging 4.8%.
The odds analysis shows diminishing returns, but that is to be expected from a symmetrical triangle, which after all is formed from a series of lower highs and higher lows. A triangle, by its structure, guarantees diminishing profits and losses.
Whiting is a Denver, Colorado-based indy oil and gas company operating in the United States.
Analysts are mainly positive about Whiting's prospects, with their collective opinion giving the stock a 48% enthusiasm rating.
Whiting reports return on equity of 13% -- around the lower range of bullish aceptability -- and high levels of debt amounting to 52% of equity, as is to be expected of a venture speculating in minerals.
The company has been profitable in each of the last 12 quarters, with profits having dropped off somewhat in 2012 compared to 2011. EArnings have surprised to the upside five times, and to the downside, seven times.
Institutions own 84% of shares, whose price has been bid up to the point where it takes $2.82 in shares to control a dollar in sales.
WLL on average trades 1.6 million shares a day and has a fine selection of option strike prices for a stock trading at that lower level of liquidity. Open interest runs to the four- and three-figure range near the money and is distributed widely enough to allow for construction of vertical spreads and other complex option positions.
The front-month at-the-money bid/ask spread on calls is 5.6%.
Implied volatility is running at 28% and has been zig-zagging downward since late February.
At several points in the following analysis I use the percentage 68.2%. This is derived from the statistical concept of a standard deviation, boundaries that encompass 68.2% of trades surrounding a base price.
Options are pricing in confidence that 68.2% of trades will fall between $47.64 and $56 over the next month, for a potential gain or loss of 8.1%, and between $49.81 and $53.83 over the next week.
Trading in options suggests speculation to the bear side, with put option volume running 31% above their five-day average volume, compared to only 38% of volume for calls.
The fair-price zone on today's 30-minute chart runs from $51.58 to $51.84, encompassing 61.8% of trades surrounding the most-traded price, $51.79. With 4-1/2 hours left in the trading day, WLL has stayed almost entirely within the zone.
Whiting next publishes earnings on April 22.
Decision for my account: I've put in an order, without much enthusiasm, to open a bull position in WLL, structuring it as a bull put spread expiring in April, short the $49 put and long the $48 put. The position is be profitable down to $48.75 and has a potential yield of 20%.
If I can get a decent fill, I'll have the position. If not, I'll check the chart out again on Monday to see where things stand.
My lack of enthusiasm mainly comes from the triangle structure. If you buy at the top boundary of a triangle, then the odds are good that the price will retreat, sincere there are many tests of the upper boundary but only one upside beakout.
On the other hand, I'm not proposing to open the position based on the triangle strcture, but rather on the price-channel breakout. So the triangle alone isn't enough to discourage me from trading.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 14, 2013
Thursday's Breakouts
Of 2,414 stocks and exchange-traded funds in this week's analytical universe, 107 broke beyond their 20-day price channels on Thursday, seven of them to the downside.
Ten stocks survived my initial screens, all of them upside breakouts. The survivors, in descending order of volume, are TSN, MXIM, CAM, WLL, INFA, GRA, PRIM, COLB, BANR and WCBO.
The issues that are confirmed on Friday by trading above their breakout levels will merit further analysis.
Ten stocks survived my initial screens, all of them upside breakouts. The survivors, in descending order of volume, are TSN, MXIM, CAM, WLL, INFA, GRA, PRIM, COLB, BANR and WCBO.
The issues that are confirmed on Friday by trading above their breakout levels will merit further analysis.
STX staging a comeback
Update 4/15/2013: My bull position in STX gave an exit signal this day, crossing below $35.01, the lower boundary of the 10-day price channel. I've closed the position for a loss. It was built entirely of vertical credit spreads expiring in April -- at the end of this week -- and in May.
The stock hit its high during my holding period on April 10, when it rose to $37.90. The price fell in each of the ensuing three days. STX next publishes earnings on May 1.
The underlying shares lost 4% during the period I held the position. I closed the spreads for a 2.7% loss on risk.
Seagate Technology PLC (STX) broke above its 20-day price channel on Wednesday and continued to rise today. The bull signal is part of a broad uptrend that has stairstepped from $9.05 in October 2011 up to $37.94 on Jan. 23.
The price corrected downward beginning in January, to a higher low of $30.26 that kept the uptrend intact. Continuation of the uptrend will be confirmed once the price moves above the $37.94 level.
Since the broad markets began their post-recession recovery in early 2009, STX has broken above the 20-day price channel 16 times. Nine of the breakouts produced a profit, with an extremely high average return of 27.3%. Adjusting the return by the 56.3% success rate produces a score of 15.3%, more than triple my 5% minimum preference.
The analysis shows STX to be a stock that has both high odds of success and big rewards when it succeeds.
Since the present uptrend began in October 2011, STX has sent six bear signals, five of them profitable, with an average return of 22.4%.
Seagate, managed out of Cupertino, California, makes data storage products, both traditional hard drives and solid-state drives.
Analysts are anything but enamoured with STX. Their opinions collectively give the company a negative 70% enthusiasm index, down from a negative 50% two months ago.
It seems a poor return to a company that has seen its earnings more than quadruple in 2012 compared to the year before. The company has been profitable for at least the last 11 quarters but seems particularly prone to negative earnings surprises. STX has surprised to the down side six times in the last 11 quarters, and five times to the upside.
Seagate reports a ridiculously high return on equity, 99%, but with a heavy load of debt, amounting to 96% of equity.
Institutions own 77% of shares, and the price is cheap; it takes only 78 cents in shares to control a dollar in sales.
STX on average trades 5.3 million shares a day, sufficient to support a good selection of options strike prices with open interest running to the three- and four-figures. The front-month at-the-money bid/ask spread on calls is low, at 2.5%.
Open interest is running at 42%, just below the mid-point of the six-month range. It has been trending downward since late February but began what might be an uptrend on March 12.
In the following discussion I refer to 68.2% of trades. In statistics, one standard deviation refers to boundaries that encompass 68.2% of trades around a base price.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $31.36 and $40.06, for a potential profit or loss of 12.2%, and between $33.62 and $37.80 over the next week.
Options trading today is running 61% above the five-day average volume for calls, as 12% above average for puts.
The fair-price zone on today's 30-minute chart runs from $35.56 to $35.81, encompassing 68.2% of trades surrounding the most-traded price, $35.69. STX is trading at the most-traded price after having traded above the zone in the first hour after the open, and within the zone thereafter, with three hours left in the trading day.
Seagate next publishes eranings on April 18. Dividends are uncertain. In December, it made a quarterly payout hyielding 4.26% annualized at today's prices, but issued a statement saying that the December payment was in place of the one due in March.
The directors added, "The payment of any future quarterly dividends will be at the discretion of the Board and will be dependent upon Seagate's financial position, results of operations, available cash, cash flow, capital requirements and other factors deemed relevant by the Board."
To me, that sounds like a long way of saying, "Don't hold your breath."
Decision for my account: I've opened an initial bull position in STX, structuring it as a bull put spread expiring in April, short the $34 put and long the $32 put. The position provides a 7% cushion of profit below the entry price and a potential yield of 19%. The risk/reward ratio is 3:1.
If the price continues to rise, I'll add to the position by buying long June calls with deltas as close to 70 as I can manage.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
The stock hit its high during my holding period on April 10, when it rose to $37.90. The price fell in each of the ensuing three days. STX next publishes earnings on May 1.
The underlying shares lost 4% during the period I held the position. I closed the spreads for a 2.7% loss on risk.
Seagate Technology PLC (STX) broke above its 20-day price channel on Wednesday and continued to rise today. The bull signal is part of a broad uptrend that has stairstepped from $9.05 in October 2011 up to $37.94 on Jan. 23.
The price corrected downward beginning in January, to a higher low of $30.26 that kept the uptrend intact. Continuation of the uptrend will be confirmed once the price moves above the $37.94 level.
Since the broad markets began their post-recession recovery in early 2009, STX has broken above the 20-day price channel 16 times. Nine of the breakouts produced a profit, with an extremely high average return of 27.3%. Adjusting the return by the 56.3% success rate produces a score of 15.3%, more than triple my 5% minimum preference.
The analysis shows STX to be a stock that has both high odds of success and big rewards when it succeeds.
Since the present uptrend began in October 2011, STX has sent six bear signals, five of them profitable, with an average return of 22.4%.
Seagate, managed out of Cupertino, California, makes data storage products, both traditional hard drives and solid-state drives.
Analysts are anything but enamoured with STX. Their opinions collectively give the company a negative 70% enthusiasm index, down from a negative 50% two months ago.
It seems a poor return to a company that has seen its earnings more than quadruple in 2012 compared to the year before. The company has been profitable for at least the last 11 quarters but seems particularly prone to negative earnings surprises. STX has surprised to the down side six times in the last 11 quarters, and five times to the upside.
Seagate reports a ridiculously high return on equity, 99%, but with a heavy load of debt, amounting to 96% of equity.
Institutions own 77% of shares, and the price is cheap; it takes only 78 cents in shares to control a dollar in sales.
STX on average trades 5.3 million shares a day, sufficient to support a good selection of options strike prices with open interest running to the three- and four-figures. The front-month at-the-money bid/ask spread on calls is low, at 2.5%.
Open interest is running at 42%, just below the mid-point of the six-month range. It has been trending downward since late February but began what might be an uptrend on March 12.
In the following discussion I refer to 68.2% of trades. In statistics, one standard deviation refers to boundaries that encompass 68.2% of trades around a base price.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $31.36 and $40.06, for a potential profit or loss of 12.2%, and between $33.62 and $37.80 over the next week.
Options trading today is running 61% above the five-day average volume for calls, as 12% above average for puts.
The fair-price zone on today's 30-minute chart runs from $35.56 to $35.81, encompassing 68.2% of trades surrounding the most-traded price, $35.69. STX is trading at the most-traded price after having traded above the zone in the first hour after the open, and within the zone thereafter, with three hours left in the trading day.
Seagate next publishes eranings on April 18. Dividends are uncertain. In December, it made a quarterly payout hyielding 4.26% annualized at today's prices, but issued a statement saying that the December payment was in place of the one due in March.
The directors added, "The payment of any future quarterly dividends will be at the discretion of the Board and will be dependent upon Seagate's financial position, results of operations, available cash, cash flow, capital requirements and other factors deemed relevant by the Board."
To me, that sounds like a long way of saying, "Don't hold your breath."
Decision for my account: I've opened an initial bull position in STX, structuring it as a bull put spread expiring in April, short the $34 put and long the $32 put. The position provides a 7% cushion of profit below the entry price and a potential yield of 19%. The risk/reward ratio is 3:1.
If the price continues to rise, I'll add to the position by buying long June calls with deltas as close to 70 as I can manage.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
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, March 13, 2013
Wednesday's Breakouts
Of 2,414 stocks and exchange-traded funds in this week's analytical universe, 55 broke beyond their 20-day price channels on Wednesday, nine of them to the downside.
Five had better than even odds of success to the upside, the direction of all of the surviving breakouts. None were disqualified for other reasons, such as looming earnings.
The survivors today were unusual in that all are quite liquid, with average volumes ranging from 704,000 to 4.7 million shares per day.
The five survivors, in descending volume order, are CVS, STX, KSS, PPG and VAL.
The test for the five survivors is whether their beakouts will be confirmed by trading on Thursday beyond the price channel. I'll take a closer look at the issues that survive that test.
Five had better than even odds of success to the upside, the direction of all of the surviving breakouts. None were disqualified for other reasons, such as looming earnings.
The survivors today were unusual in that all are quite liquid, with average volumes ranging from 704,000 to 4.7 million shares per day.
The five survivors, in descending volume order, are CVS, STX, KSS, PPG and VAL.
The test for the five survivors is whether their beakouts will be confirmed by trading on Thursday beyond the price channel. I'll take a closer look at the issues that survive that test.
IRBT: Robotic recovery?
Update 4/15/2013: IRBT today crossed below the lower boundary, $24.45, of its 10-day price channel, giving an exit signal for my bull position, which was constructed out of long shares.
The downward momentum was quite strong, with the intra-day range running 40% above the average for the past 20 days.
Sharp moves often see minor bounces, and so I delayed the exit to see if there would be a very near term upward retracement to mitigate the loss.
And indeed there was. The price gave a brief upward spike seven minutes before the market close, and I was able to exit for a 1 cent profit, which is 0.06%. Essentially, a wash.
Not a good outcome, but one where a trader can slowly nod and drawl, "Could'a been worse."
iRobot Corp. (IRBT) is a well-worn story: A tech start-up takes off and the markets are enthralled and then slows, and the markets lose interest.
IRBT on Tuesday broke above its 20- and 55-day price channels on Tuesday, raising the possibility (although far from the certainty) that traders are again gaining interest.
The stock today is trading above the $24 breakout level, confirming the bull signal.
The stock hit a post-recession peak of $29 in late April 2011, followed by a choppy decline down to $16.25 in November 2012.
The ensuing stair-step upward has yet to set a higher high on the weekly chart and so doesn't yet count as a mid-term uptrend. A break above $26.17 would allow for an argument that an uptrend is in place.
IRBT has broken out to the upside 15 times since the broad markets began their post-recession recovery in early 2009. Nine were profitable, for an average yield of 14.6%.
Adjusting the 60% success rate by the yield produces a score of 8.8%, well above the 5% minimum score I like to see in a trade.
The current decline began in earnest in early February of last year. Since then there have been two upside breakouts, one of which was profitable, with a 5.5% yield.
iRobot, headquartered in Bedford, Massachussetts, makes a wide range of mobile robots for uses ranging from vacuuming floors and cleaning pools in the home to supporting law enforcement and the military in the field and in battle.
Analyst opinion reflects the fact that market interest in iRobot flagged after its initial "Wow!" concept days. It isn't widely followed, and the less than a handful of analysts that do follow the stock give it a negative 67% enthusiasm index.
In part, it's a game of over-expectation. iRobot has a respectable return on equity of 6% in the most recent quarter, about half that of the quarter before. That's not growth stock territory but is far from being a financial horror. And it is achieving those returns with no long-term debt.
Earnings faltered in the last quarter of 2011, hitting a low in 2011Q1. They then staged a strong recovery for two quarters before crashing for a loss in the 4th quarter of 2013.
So the bad news is: Loss. The good news is: Room for recovery.
The most recent quarters loss was the only negative earnings report of the last 12 quarters, and all quarters have shown upside surprises, even the loser.
Institutions own 65% of shares, and the price has not been bid up a lot. It takes $1.53 in shares to control a dollar in sales.
IRBT on average trades 491,000 shares a day. It has a sparse options grid with front-month open interest running to three- and two-figures near the money.
The front-month at-the-money bid/ask spread on calls is 11%.
There's not much I can do with this options grid in terms of setting up vertical spreads or other complex option constructions. So with IRBT, its shares or nothing.
The options, however, can help in my volatility analysis, which uses the statistical concept of one standard deviation, boundaries that encompass 68.2% of trades surrounding a reference price.
Options are pricing in confidence that 68.2% of IRBT trades will fall between $21.86 and $26.16 over the next month, for a potential gain or loss of 8.9%, and between $22.98 and $25.04 over the next week.
Options trading is far from active. Call volume is running at just 10% of the five-day average, and puts at 24% of the average.
This suggests that the breakout was a one-day wonder, and certainly the price on Tuesday opened at $25.10 and then fell to $23.93, below the beakout level, by the close. In trading today, the price has flirted with the breakout level, moving below and then return above as I did my analysis.
The fair-price zone on today's 30-minute chart runs from $23.76 to $24.08, encompassing 68.2% of transactions surrounding the most-traded price, $23.98. After a strong rise in the first half hour of trading, IRBT has stayed within the zone but, for the most part, above the most-traded price.
iRobot next publishes earnings on April 23.
Decision for my account: The chart and odds are good enough to work under my preferences. I've opened a bull position structured as long shares.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
The downward momentum was quite strong, with the intra-day range running 40% above the average for the past 20 days.
Sharp moves often see minor bounces, and so I delayed the exit to see if there would be a very near term upward retracement to mitigate the loss.
And indeed there was. The price gave a brief upward spike seven minutes before the market close, and I was able to exit for a 1 cent profit, which is 0.06%. Essentially, a wash.
Not a good outcome, but one where a trader can slowly nod and drawl, "Could'a been worse."
iRobot Corp. (IRBT) is a well-worn story: A tech start-up takes off and the markets are enthralled and then slows, and the markets lose interest.
IRBT on Tuesday broke above its 20- and 55-day price channels on Tuesday, raising the possibility (although far from the certainty) that traders are again gaining interest.
The stock today is trading above the $24 breakout level, confirming the bull signal.
The stock hit a post-recession peak of $29 in late April 2011, followed by a choppy decline down to $16.25 in November 2012.
The ensuing stair-step upward has yet to set a higher high on the weekly chart and so doesn't yet count as a mid-term uptrend. A break above $26.17 would allow for an argument that an uptrend is in place.
IRBT has broken out to the upside 15 times since the broad markets began their post-recession recovery in early 2009. Nine were profitable, for an average yield of 14.6%.
Adjusting the 60% success rate by the yield produces a score of 8.8%, well above the 5% minimum score I like to see in a trade.
The current decline began in earnest in early February of last year. Since then there have been two upside breakouts, one of which was profitable, with a 5.5% yield.
iRobot, headquartered in Bedford, Massachussetts, makes a wide range of mobile robots for uses ranging from vacuuming floors and cleaning pools in the home to supporting law enforcement and the military in the field and in battle.
Analyst opinion reflects the fact that market interest in iRobot flagged after its initial "Wow!" concept days. It isn't widely followed, and the less than a handful of analysts that do follow the stock give it a negative 67% enthusiasm index.
In part, it's a game of over-expectation. iRobot has a respectable return on equity of 6% in the most recent quarter, about half that of the quarter before. That's not growth stock territory but is far from being a financial horror. And it is achieving those returns with no long-term debt.
Earnings faltered in the last quarter of 2011, hitting a low in 2011Q1. They then staged a strong recovery for two quarters before crashing for a loss in the 4th quarter of 2013.
So the bad news is: Loss. The good news is: Room for recovery.
The most recent quarters loss was the only negative earnings report of the last 12 quarters, and all quarters have shown upside surprises, even the loser.
Institutions own 65% of shares, and the price has not been bid up a lot. It takes $1.53 in shares to control a dollar in sales.
IRBT on average trades 491,000 shares a day. It has a sparse options grid with front-month open interest running to three- and two-figures near the money.
The front-month at-the-money bid/ask spread on calls is 11%.
There's not much I can do with this options grid in terms of setting up vertical spreads or other complex option constructions. So with IRBT, its shares or nothing.
The options, however, can help in my volatility analysis, which uses the statistical concept of one standard deviation, boundaries that encompass 68.2% of trades surrounding a reference price.
Options are pricing in confidence that 68.2% of IRBT trades will fall between $21.86 and $26.16 over the next month, for a potential gain or loss of 8.9%, and between $22.98 and $25.04 over the next week.
Options trading is far from active. Call volume is running at just 10% of the five-day average, and puts at 24% of the average.
This suggests that the breakout was a one-day wonder, and certainly the price on Tuesday opened at $25.10 and then fell to $23.93, below the beakout level, by the close. In trading today, the price has flirted with the breakout level, moving below and then return above as I did my analysis.
The fair-price zone on today's 30-minute chart runs from $23.76 to $24.08, encompassing 68.2% of transactions surrounding the most-traded price, $23.98. After a strong rise in the first half hour of trading, IRBT has stayed within the zone but, for the most part, above the most-traded price.
iRobot next publishes earnings on April 23.
Decision for my account: The chart and odds are good enough to work under my preferences. I've opened a bull position structured as long shares.
References
My trading rules can be read here. A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.
And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
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