Wednesday, March 27, 2013

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.


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.

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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