On Tuesday, April 30:
Of 4,136 stocks and exchange-traded funds in this week's analytical universe, 153 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 140 to the upside and 13 to the downside.
In addition, 18 hat are traded over the counter broke out, 17 to the upside and one to the downside.
The symbols I'm analyzing are among those that have drawn at the least minimal attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the maximum.
Eleven of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are EDZ, FAS, HAL, HHS, OKSB, PFBX, PSTB, RNST, SBCF, TZA and WHX.
(AAPL also broke out to the upside but failed in my initial screening. I shall, however, take a further look at it because of its size.)
One of the over-the-counter symbols survived initial screening, with an upside breakout: YARIY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Wednesday, May 1.
Tuesday, April 30, 2013
GOOG: First bull signal since January
Update 6/7/2013: GOOG gave an exit signal on May 29 and I closed the position on June 7. The stock price gained 5.6% from initial entry to the exit. I rolled the position once and added to it several times. The gain on my basis was 3.1%. The vertical credit option spreads I used to construct the position produced a 19.4% gain on risk.
Google Inc. (GOOG) broke above its 20-day price channel on Monday, producing its first bull signal since January. The break above the channel boundary, $818, is the 22nd such occurrence since January 2009, when the broad markets began recovering from the post-recession crash.
The breakout was confirmed in Tuesday's trading as the price remained above the channel.
Twelve of the 21 completed trades since 2009 produced a profit, averaging 7.1%, compared to an average loss of 4.9% for unsuccessful trades. The success rate was 57%.
GOOG has been in an uptrend for so long that it's hard to pick a post-2009 starting point for the current trend. One reasonable candidate is early October 2011, when the price declined almost to the level of the prior low, rather than setting a clear higher low as part of a stair-step pattern.
During that period, GOOG has completed seven upside breakouts, five of them profitable, for an average yield of 5.8%. The two unsuccessful trades lost 4% on average. The success rate was 71%.
Like many widely traded stocks, GOOG trends toward moderation. There are so many minds making trading decisions that they tend to balance each other out when compared to less liquid shares, which can be moved great distances on the chart as a result of only a few decisions.
GOOG's yield, when adjusted by the success rate, produces scores below my 5% preferred minimum, 4.9% in the period from January 2009 and 4% during the current uptrend. The win/loss yield spread are also narrow: 2.2% for the long term and 1.8% for the current uptrend.
The run up since October 2011 began at $480.60 and continued up to $844 on March 6. From that point the price declined down to $761.26 on April 18. An earnings announcement after the close that day led to the seven day near-term uptrend that produced the bull signal.
Two other big names were on my break-out list from Monday's trading. The NASDAQ 100 exhcange-traded fund, QQQ, was eliminated because the odds were against success over the past year, and Amazon (AMZN) failed confirmation on its bear breakout.
Google, headquartered in Mountain View, California, is a household name and, despite the best efforts of the lawyers, a potential common noun in the making. It earns its living mainly though non-intrusive ads displayed on search results. And of course, as everyone knows, Google dominates global search.
Given that market dominance, it is not surprising that analysts following GOOG collectively come down to a fairly high 48% enthusiasm rating.
Google reports return on equity of 17%, just shy of growth-stock territory as I define it, with an extremely low level of debt amounting to just 4% of equity.
Looking at the last 12 quarters: Google has been consistently profitable with a fairly consistent quarter to quarter rise that has faltered only three times in the period. It's earnings have surprised eight times to the upside, and four to the downside.
Institutions own 83% of shares and the price has been bid up to a moderately high level; it takes $5.08 in shares to control a dollar in sales. Some price/sales ratio comparisons: Facebook (FB), $12.81; Microsoft (MSFT), $3.58; and Apple (AAPL), $2.39.
GOOG on average trades 2.8 million shares a day and supports a huge grid of option strike prices with open interest running to three and four figures and narrow front-month at-the-money bid/ask spread on calls of only 1.4%. As an options trader, I have a deep love for stocks like GOOG, that provide so much leverage and so many leveraging opportunities.
Implied volatility, however, is low, standing at 19%, near the floor of the six-month range. It has been declining since mid-April.
Options are pricing in confidence that 68.2% of trades will fall between $778.79 and $867.81 over the next month, for a potential gain or loss of 5.4%, and between $801.92 and $844.68 over the next week.
Options activity is a bit slower than it has been, with calls at 91% of their 5-day average volume and puts at 78% of average.
The fair-price zone runs from $817.91 to $821.89, encompassing 68.2% of transactions surrounding the most-traded price, $820.80. GOOG moved above the zone in the second hour of trading and remains there with a bit more than three hours to go before the closing bell.
Google next publishes earnings on July 15.
Decision for my account: I'm bending some rules on this one, but I've taken the trade, structuring it as a vertical credit spread expiring in May, short the $820 put and long the $805 put. This provides a fairly small cushion of 1.1% before I hit the breakeven point. The maximum potential yield at expiration is 24.1%.
Broken rules: I've already mentioned going against my preferences on the scoring. My way of sizing trades falls apart complete when faced with a share price as high as GOOG's, so that best practice has been thrown to the winds. And, as noted in my most recent "Week Ahead", I shouldn't be trading vertical spreads at all at this point in the calendar.
I truly don't like breaking rules. Yet in the case of Google, liquidity and the story have trumped good practice. I can only hope that it hasn't also trumped good sense.
And after all, the rules were made for the trader and not the trader for the rules.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
Google Inc. (GOOG) broke above its 20-day price channel on Monday, producing its first bull signal since January. The break above the channel boundary, $818, is the 22nd such occurrence since January 2009, when the broad markets began recovering from the post-recession crash.
The breakout was confirmed in Tuesday's trading as the price remained above the channel.
Twelve of the 21 completed trades since 2009 produced a profit, averaging 7.1%, compared to an average loss of 4.9% for unsuccessful trades. The success rate was 57%.
GOOG has been in an uptrend for so long that it's hard to pick a post-2009 starting point for the current trend. One reasonable candidate is early October 2011, when the price declined almost to the level of the prior low, rather than setting a clear higher low as part of a stair-step pattern.
During that period, GOOG has completed seven upside breakouts, five of them profitable, for an average yield of 5.8%. The two unsuccessful trades lost 4% on average. The success rate was 71%.
Like many widely traded stocks, GOOG trends toward moderation. There are so many minds making trading decisions that they tend to balance each other out when compared to less liquid shares, which can be moved great distances on the chart as a result of only a few decisions.
GOOG's yield, when adjusted by the success rate, produces scores below my 5% preferred minimum, 4.9% in the period from January 2009 and 4% during the current uptrend. The win/loss yield spread are also narrow: 2.2% for the long term and 1.8% for the current uptrend.
The run up since October 2011 began at $480.60 and continued up to $844 on March 6. From that point the price declined down to $761.26 on April 18. An earnings announcement after the close that day led to the seven day near-term uptrend that produced the bull signal.
Two other big names were on my break-out list from Monday's trading. The NASDAQ 100 exhcange-traded fund, QQQ, was eliminated because the odds were against success over the past year, and Amazon (AMZN) failed confirmation on its bear breakout.
Google, headquartered in Mountain View, California, is a household name and, despite the best efforts of the lawyers, a potential common noun in the making. It earns its living mainly though non-intrusive ads displayed on search results. And of course, as everyone knows, Google dominates global search.
Given that market dominance, it is not surprising that analysts following GOOG collectively come down to a fairly high 48% enthusiasm rating.
Google reports return on equity of 17%, just shy of growth-stock territory as I define it, with an extremely low level of debt amounting to just 4% of equity.
Looking at the last 12 quarters: Google has been consistently profitable with a fairly consistent quarter to quarter rise that has faltered only three times in the period. It's earnings have surprised eight times to the upside, and four to the downside.
Institutions own 83% of shares and the price has been bid up to a moderately high level; it takes $5.08 in shares to control a dollar in sales. Some price/sales ratio comparisons: Facebook (FB), $12.81; Microsoft (MSFT), $3.58; and Apple (AAPL), $2.39.
GOOG on average trades 2.8 million shares a day and supports a huge grid of option strike prices with open interest running to three and four figures and narrow front-month at-the-money bid/ask spread on calls of only 1.4%. As an options trader, I have a deep love for stocks like GOOG, that provide so much leverage and so many leveraging opportunities.
Implied volatility, however, is low, standing at 19%, near the floor of the six-month range. It has been declining since mid-April.
Options are pricing in confidence that 68.2% of trades will fall between $778.79 and $867.81 over the next month, for a potential gain or loss of 5.4%, and between $801.92 and $844.68 over the next week.
Options activity is a bit slower than it has been, with calls at 91% of their 5-day average volume and puts at 78% of average.
The fair-price zone runs from $817.91 to $821.89, encompassing 68.2% of transactions surrounding the most-traded price, $820.80. GOOG moved above the zone in the second hour of trading and remains there with a bit more than three hours to go before the closing bell.
Google next publishes earnings on July 15.
Decision for my account: I'm bending some rules on this one, but I've taken the trade, structuring it as a vertical credit spread expiring in May, short the $820 put and long the $805 put. This provides a fairly small cushion of 1.1% before I hit the breakeven point. The maximum potential yield at expiration is 24.1%.
Broken rules: I've already mentioned going against my preferences on the scoring. My way of sizing trades falls apart complete when faced with a share price as high as GOOG's, so that best practice has been thrown to the winds. And, as noted in my most recent "Week Ahead", I shouldn't be trading vertical spreads at all at this point in the calendar.
I truly don't like breaking rules. Yet in the case of Google, liquidity and the story have trumped good practice. I can only hope that it hasn't also trumped good sense.
And after all, the rules were made for the trader and not the trader for the rules.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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's Prospects
On Monday, April 29:
Of 4,136 stocks and exchange-traded funds in this week's analytical universe, 100 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 91 to the upside and nine to the downside.
In addition, 16 that are traded over the counter broke out, 14 to the upside and two to the downside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the maximum.
Ten of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are BANR, COBZ, EWG, FIBK, GOOG, KMT, MDCA, PKG, RF and YGE.
(QQQ and AMZN also broke out to the upside but failed in my initial screening. I shall, however, take a further look at them because of their size.)
One of the over-the-counter symbols survived initial screening, with an upside breakout: CICHY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, April 30.
Of 4,136 stocks and exchange-traded funds in this week's analytical universe, 100 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 91 to the upside and nine to the downside.
In addition, 16 that are traded over the counter broke out, 14 to the upside and two to the downside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the maximum.
Ten of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are BANR, COBZ, EWG, FIBK, GOOG, KMT, MDCA, PKG, RF and YGE.
(QQQ and AMZN also broke out to the upside but failed in my initial screening. I shall, however, take a further look at them because of their size.)
One of the over-the-counter symbols survived initial screening, with an upside breakout: CICHY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, April 30.
Monday, April 29, 2013
TSRO: Dr. No
Tesaro Inc. (TSRO) broke above its 20-day price channel on Friday following announcement that it had lost money in the most recent quarter. No surprise there. Tesaro has yet to earn a profit.
Even so, the price jumped 13.2%, close to close, and today continued to trade still higher, breaking through the channel boundary, $27.36, created by Friday's rise and thereby confirming the breakout under my rules that apply to earnings announcements.
Under those rules, I don't trade a breakout on the first trading day following an earnings announcement, and trade the second trading day post-announcement only if the breakout is confirmed by the stock trading beyond the new, post-announcement boundary.
Under my normal, non-earnings rules, the confirmation level is the boundary created prior to the breakout day.
Three of the six symbols that survived my initial screening were earnings breakouts that failed the more stringent confirmation test.
TSRO is a relatively new symbol; it began trading in June 2012, doing the traditional post-IPO slide down to $11.05 in August 2012, before bouncing back into the uptrend that remains in force today. It hit an all-time high of $30.65 on Monday before retracing to a significant degree, and indeed as I write this analysis it has moved below the breakout level, potentially negating the bull-signal confirmation.
This is the third upside breakout in TSRO's lifetime, and all have come during the uptrend. The two completed breakouts were profitable, yielding on average 14.5% each.
Tesaro, headquartered in Waltham, Massachusetts, develops pharmaceuticals for cancer patients. That fact alone is reason for the trader to treat TSRO as speculative, for new drugs are hostage to research results and regulator oversight, both of them factors over which Tesaro's management has limited control.
The rewards of such drug development can be great, and the losses devastating. And no stock chart can give even a hint as to whether rewards or losses lie beyond the horizon.
TSRO is followed by a handful of analysts that are mainly positive about the company's prospects.
And "prospects" is the important word when considering Tesaro, for the good days, if any, all lie ahead. Return on equity is a negative 71%.
The four quarters for which earnings have been reported all show NO profits ever. It's losses all the way. The most recent lost less than the quarter before, but more than the one before that. Tesaro has produced negative earnings surprises in three out of the four quarters, and only one positive surprise.
Institutions own 81% of shares. At this point, Tesaro's business is all development; it has NO sales.
TSRO on average trades 163,000 shares a day. There are NO options associated with the stock. Any bull play would need to be as long shares, with NO leverage and NO hedging ability.
The fair-prize zone on today's 30-minute chart runs from $27.76 to $29.38. With four hours left before the closing bell, TSRO is trading near the bottom of the zone after having begun the day at the zone's top.
Tesaro next publishes earnings on Aug. 5.
Decision for my account: No profits. No sales. No options. No brainer! No way am I taking this bull trade. Also, under my rules, I can't trade it unless the price is above $28.36, and it is at present below that level.
TSRO was the bad best of a bad lot. The other two survivors of my phase 2 analysis were MCRI, which is stuck in a long-term sideways trend, and the over-the-counter symbol TCEHY, which has entered a downtrend (lower low) after a long uptrend.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
Even so, the price jumped 13.2%, close to close, and today continued to trade still higher, breaking through the channel boundary, $27.36, created by Friday's rise and thereby confirming the breakout under my rules that apply to earnings announcements.
Under those rules, I don't trade a breakout on the first trading day following an earnings announcement, and trade the second trading day post-announcement only if the breakout is confirmed by the stock trading beyond the new, post-announcement boundary.
Under my normal, non-earnings rules, the confirmation level is the boundary created prior to the breakout day.
Three of the six symbols that survived my initial screening were earnings breakouts that failed the more stringent confirmation test.
TSRO is a relatively new symbol; it began trading in June 2012, doing the traditional post-IPO slide down to $11.05 in August 2012, before bouncing back into the uptrend that remains in force today. It hit an all-time high of $30.65 on Monday before retracing to a significant degree, and indeed as I write this analysis it has moved below the breakout level, potentially negating the bull-signal confirmation.
This is the third upside breakout in TSRO's lifetime, and all have come during the uptrend. The two completed breakouts were profitable, yielding on average 14.5% each.
Tesaro, headquartered in Waltham, Massachusetts, develops pharmaceuticals for cancer patients. That fact alone is reason for the trader to treat TSRO as speculative, for new drugs are hostage to research results and regulator oversight, both of them factors over which Tesaro's management has limited control.
The rewards of such drug development can be great, and the losses devastating. And no stock chart can give even a hint as to whether rewards or losses lie beyond the horizon.
TSRO is followed by a handful of analysts that are mainly positive about the company's prospects.
And "prospects" is the important word when considering Tesaro, for the good days, if any, all lie ahead. Return on equity is a negative 71%.
The four quarters for which earnings have been reported all show NO profits ever. It's losses all the way. The most recent lost less than the quarter before, but more than the one before that. Tesaro has produced negative earnings surprises in three out of the four quarters, and only one positive surprise.
Institutions own 81% of shares. At this point, Tesaro's business is all development; it has NO sales.
TSRO on average trades 163,000 shares a day. There are NO options associated with the stock. Any bull play would need to be as long shares, with NO leverage and NO hedging ability.
The fair-prize zone on today's 30-minute chart runs from $27.76 to $29.38. With four hours left before the closing bell, TSRO is trading near the bottom of the zone after having begun the day at the zone's top.
Tesaro next publishes earnings on Aug. 5.
Decision for my account: No profits. No sales. No options. No brainer! No way am I taking this bull trade. Also, under my rules, I can't trade it unless the price is above $28.36, and it is at present below that level.
TSRO was the bad best of a bad lot. The other two survivors of my phase 2 analysis were MCRI, which is stuck in a long-term sideways trend, and the over-the-counter symbol TCEHY, which has entered a downtrend (lower low) after a long uptrend.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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, April 28, 2013
Monday's Prospects
On Friday, April 26:
Note: CORRECTED to eliminate PUK, an ADR which announces earnings on May 7 and therefore falls within my 30-day exclusion period.
Of 4,136 stocks and exchange-traded funds in this week's analytical universe, 94 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 59 to the upside and 35 to the downside.
In addition, eight that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the maximum.
Seven Six of the major-exchange symbols survived my initial screening, six having broken out to the upside and one to the downside. The potential bull plays are MCRI, NR, PUK, SPSC, TSRO and TUES. The potential bear play is LOGI.
One of the over-the-counter symbols survived initial screening, with an upside breakout: TCEHY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, April 29.
Note: CORRECTED to eliminate PUK, an ADR which announces earnings on May 7 and therefore falls within my 30-day exclusion period.
Of 4,136 stocks and exchange-traded funds in this week's analytical universe, 94 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 59 to the upside and 35 to the downside.
In addition, eight that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the maximum.
One of the over-the-counter symbols survived initial screening, with an upside breakout: TCEHY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, April 29.
Saturday, April 27, 2013
The Week Ahead: Income, money and jobs
A busy week for economic events, from income on Monday to jobs on Friday with the Fed and much more in between. Everything this week will be framed by last week's gross domestic product report for the 1st quarter, which came in at 2.5%, within the consensus range but below the consensus level.
Some blame the poor performance on federal spending cuts ordered by Congress' budget sequester. The Washington Post wrote about that claim in a news report published Friday.
The personal income and outlays report will be published Monday at 8:30 a.m. Eastern. It is important in part as a window into the hearts and minds of consumers, who hold the future of the recovery in their hands. Subtract outlays from income and you get savings, and the more consumers save, the slower the recovery will be.
(Am I alone in remembering those happy days in the '90s when people in authority would emerge periodically to scold Americans for saving too little? Bet they wish they could take those words back now.)
The Federal Open Market Committee meets to set monetary policy on Wednesday and will announce their decision, or lack of, at 2 p.m. Arguably, the awful GDP report is a strong reason to think that the Fed won't come close to ending its loose-money policy anytime soon.
The Institute of Supply Management's manufacturing index is also out on Wednesday, at 10 a.m. and look for international trade on Thursday.
On Friday the employment report, including the politically important unemployment rate, at 8:30 a.m. caps the week. It also has a strong link to the sequester, since less government spending means fewer jobs. Anything below six digits will prompt scare stories. The usual sneak preview, the ADP employment report released by the payroll services company, will be out at 8:15 a.m. Wednesday.
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, Friday at 10 a.m.
Vendor performance (the deliveries times index) from the ISM manufacturing survey, at 10 a.m. Wednesday.
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 nondefense capital goods from the factory orders report, at 10 a.m. Friday.
Other reports of interest:
Monday: Pending home sales at 10 a.m., and the Dallas Federal Reserve Bank manufacturing survey of conditions in Texas, at 10:30 a.m.
Tuesday: The employment cost index at 8:30 a.m., the SYP Case-Shiller home price index, which gives stats for individual metro areas, at 9 a.m., the Chicago purchasing managers index at 9:45 a.m., and the Conference Board's consumer confidence survey at 10 a.m.
Wednesday: Motor vehicle sales throughout the day, the Purchasing Managers manufacturing index shortly before 9 a.m., construction spending at 10 a.m. and petroleum inventories at 10:30 a.m.
Thursday: Productivity and costs at 8:30 a.m.
Friday: Factory orders and the Institute of Supply Management non-manufacturing index, both at 10 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.
Analytical universe
This week I'll be analyzing new bull and bear signals among 4,136 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter.
Trading calendar
By my rules, we're entering that period when option spreads having short legs are disallowed. So, by the book, I'm trading August options for single calls and puts and for straddles. Of course, shares are good at any time.
Practically speaking, since I've had little chance to add new spreads in the past few weeks because of earnings season, I may well bend the rules and enter short vertical spreads, as opportunity allows.
My rules allow trading in June short spreads beginning May 3.
Good trading!
Some blame the poor performance on federal spending cuts ordered by Congress' budget sequester. The Washington Post wrote about that claim in a news report published Friday.
The personal income and outlays report will be published Monday at 8:30 a.m. Eastern. It is important in part as a window into the hearts and minds of consumers, who hold the future of the recovery in their hands. Subtract outlays from income and you get savings, and the more consumers save, the slower the recovery will be.
(Am I alone in remembering those happy days in the '90s when people in authority would emerge periodically to scold Americans for saving too little? Bet they wish they could take those words back now.)
The Federal Open Market Committee meets to set monetary policy on Wednesday and will announce their decision, or lack of, at 2 p.m. Arguably, the awful GDP report is a strong reason to think that the Fed won't come close to ending its loose-money policy anytime soon.
The Institute of Supply Management's manufacturing index is also out on Wednesday, at 10 a.m. and look for international trade on Thursday.
On Friday the employment report, including the politically important unemployment rate, at 8:30 a.m. caps the week. It also has a strong link to the sequester, since less government spending means fewer jobs. Anything below six digits will prompt scare stories. The usual sneak preview, the ADP employment report released by the payroll services company, will be out at 8:15 a.m. Wednesday.
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, Friday at 10 a.m.
Vendor performance (the deliveries times index) from the ISM manufacturing survey, at 10 a.m. Wednesday.
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 nondefense capital goods from the factory orders report, at 10 a.m. Friday.
Other reports of interest:
Monday: Pending home sales at 10 a.m., and the Dallas Federal Reserve Bank manufacturing survey of conditions in Texas, at 10:30 a.m.
Tuesday: The employment cost index at 8:30 a.m., the SYP Case-Shiller home price index, which gives stats for individual metro areas, at 9 a.m., the Chicago purchasing managers index at 9:45 a.m., and the Conference Board's consumer confidence survey at 10 a.m.
Wednesday: Motor vehicle sales throughout the day, the Purchasing Managers manufacturing index shortly before 9 a.m., construction spending at 10 a.m. and petroleum inventories at 10:30 a.m.
Thursday: Productivity and costs at 8:30 a.m.
Friday: Factory orders and the Institute of Supply Management non-manufacturing index, both at 10 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.
Analytical universe
This week I'll be analyzing new bull and bear signals among 4,136 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter.
Trading calendar
By my rules, we're entering that period when option spreads having short legs are disallowed. So, by the book, I'm trading August options for single calls and puts and for straddles. Of course, shares are good at any time.
Practically speaking, since I've had little chance to add new spreads in the past few weeks because of earnings season, I may well bend the rules and enter short vertical spreads, as opportunity allows.
My rules allow trading in June short spreads beginning May 3.
Good trading!
Friday, April 26, 2013
XHB: A homebuilders bull play
Update 6/7/2013: XHB gave an exit signal on May 31 and I closed the position on June 7. From initial entry to final exit, the share price gain 0.3%. The position rolled once and added to several times. Shares earned 0.4% overall on my basis. The vertical credit option spreads that I used to construct the position produced a yield on risk of 2.6%.
The SPDR S&P Homebuilders exchange-traded fund (XHB) broke above its 20-day price channel on Thursday and confirmed the bull signal the next day by trading above the breakout level, $30.25.
The break comes amid a sideways correction at the tip of an uptrend that began in October 2011 from $12.21. The correction is in its fifth week, and it will take a break above $30.66 to renew the uptrend. The correction high so far, set both Thursday and Friday, is $30.52.
The sidewinder floor is $27.97, and a break below that level would suggest that the correction is developing into a decline.
This is XHB's fourth bull signal since the current leg up began in June 2012 from $18.93. Two of the three prior breakouts in that period produced profits, averaging 10.8% in positions lasting on average 69 days. The failed trade lasted nine days and lost 6.6%.
Adjusting the winning yield by the success rate produces a score of 7.2%, above my 5% minimum. The win/lose yield spread is only 4.2%.
Since the broad markets began recovering in January 2009 from the post-recession crash, XHB has completed 18 bull signals, only eight of them winners. That produces a success rate of only 44.4%. I'm happier if both the longer recovery period and shorter current trend stats show even odds or better of winning. XHB partially fails to meet that preference.
The average yield of the winning trades, 11.2%, produces a score of 5% when adjusted by the success rate, a minimally acceptable level. The win/lose yield spread is 6.2%, which is OK.
So why would XHB be interesting, even with its mixed odds of success?
Diversity. It's an exchange-traded fund with a wide range of holdings, that that diversification helps make up for the other failings.
The XHB fund's mandate takes the term "homebuilders" further than the way we use it in everyday speech. Its holdings include not only the bricks and mortar gang like Ryland Group (RYL) and Toll Brothers (TOL), but also the kitchenware company Williams-Sonoma (WSM) and the towels and sheets folks at Bed Bath 7 Beyond (BBBY).
My screening methods tend to produce trades that are risky, tightly focused on a niche with a chance of high profits, but also big losses.
So in a respect, XHB is a defensive play because it covers such a wide swathe, and that's a comforting addition to my tightly-focused holdings.
XHB on average trades 7.2 million shares a day and supports an excellent selection of option strike prices. Open interest runs to the four figures for the strikes I would be trading.
Implied volatility is running at 25% and has been declining since mid-April. Options are pricing in confidence that 68.2% of trades will fall between $28.28 and $32.68 over the next month, for a potential gain or loss of 7.2%, and between $29.42 and $31.54 over the next week.
Put options are trading at five times their five-day average volume, and calls are 11% above the average.
The fair-price zone runs from $30.37 to $30.48, encompassing 68.2% of transactions surrounding the most-traded price, $30.43. With 4-1/2 hours left before the closing bell, XHB has traded almost entirely within the zone and is presently above the most-traded price.
XHB goes ex-dividend in June for a quarterly payout yielding 0.8% annualized at current prices.
Decision for my account: I've opened a bull position in XHB, structuring it as a vertical credit spread expiring May 18, short the $30 put and long the $28 put. The spread gives me a 2.9% cushion below the entry level before it becomes unprofitable at expiration. The maximum potential yield is 16.3%.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
The SPDR S&P Homebuilders exchange-traded fund (XHB) broke above its 20-day price channel on Thursday and confirmed the bull signal the next day by trading above the breakout level, $30.25.
The break comes amid a sideways correction at the tip of an uptrend that began in October 2011 from $12.21. The correction is in its fifth week, and it will take a break above $30.66 to renew the uptrend. The correction high so far, set both Thursday and Friday, is $30.52.
The sidewinder floor is $27.97, and a break below that level would suggest that the correction is developing into a decline.
This is XHB's fourth bull signal since the current leg up began in June 2012 from $18.93. Two of the three prior breakouts in that period produced profits, averaging 10.8% in positions lasting on average 69 days. The failed trade lasted nine days and lost 6.6%.
Adjusting the winning yield by the success rate produces a score of 7.2%, above my 5% minimum. The win/lose yield spread is only 4.2%.
Since the broad markets began recovering in January 2009 from the post-recession crash, XHB has completed 18 bull signals, only eight of them winners. That produces a success rate of only 44.4%. I'm happier if both the longer recovery period and shorter current trend stats show even odds or better of winning. XHB partially fails to meet that preference.
The average yield of the winning trades, 11.2%, produces a score of 5% when adjusted by the success rate, a minimally acceptable level. The win/lose yield spread is 6.2%, which is OK.
So why would XHB be interesting, even with its mixed odds of success?
Diversity. It's an exchange-traded fund with a wide range of holdings, that that diversification helps make up for the other failings.
The XHB fund's mandate takes the term "homebuilders" further than the way we use it in everyday speech. Its holdings include not only the bricks and mortar gang like Ryland Group (RYL) and Toll Brothers (TOL), but also the kitchenware company Williams-Sonoma (WSM) and the towels and sheets folks at Bed Bath 7 Beyond (BBBY).
My screening methods tend to produce trades that are risky, tightly focused on a niche with a chance of high profits, but also big losses.
So in a respect, XHB is a defensive play because it covers such a wide swathe, and that's a comforting addition to my tightly-focused holdings.
XHB on average trades 7.2 million shares a day and supports an excellent selection of option strike prices. Open interest runs to the four figures for the strikes I would be trading.
Implied volatility is running at 25% and has been declining since mid-April. Options are pricing in confidence that 68.2% of trades will fall between $28.28 and $32.68 over the next month, for a potential gain or loss of 7.2%, and between $29.42 and $31.54 over the next week.
Put options are trading at five times their five-day average volume, and calls are 11% above the average.
The fair-price zone runs from $30.37 to $30.48, encompassing 68.2% of transactions surrounding the most-traded price, $30.43. With 4-1/2 hours left before the closing bell, XHB has traded almost entirely within the zone and is presently above the most-traded price.
XHB goes ex-dividend in June for a quarterly payout yielding 0.8% annualized at current prices.
Decision for my account: I've opened a bull position in XHB, structuring it as a vertical credit spread expiring May 18, short the $30 put and long the $28 put. The spread gives me a 2.9% cushion below the entry level before it becomes unprofitable at expiration. The maximum potential yield is 16.3%.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Friday's Prospects
On Thursday, April 25:
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 162 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 141 to the upside and 21 to the downside.
In addition, 11 that are traded over the counter broke out, 10 to the upside and one to the downside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Seven of the major-exchange symbols survived my initial screening, all having broken out to the upside. The potential bull plays are CPRT, MOS, OMC, RBS, SCSS, XHB and ZQK.
Three of the over-the-counter symbols survived initial screening, each with an upside breakout. They are GXYEY, SCHYY and VLEEY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Friday, April 26.
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 162 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 141 to the upside and 21 to the downside.
In addition, 11 that are traded over the counter broke out, 10 to the upside and one to the downside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Seven of the major-exchange symbols survived my initial screening, all having broken out to the upside. The potential bull plays are CPRT, MOS, OMC, RBS, SCSS, XHB and ZQK.
Three of the over-the-counter symbols survived initial screening, each with an upside breakout. They are GXYEY, SCHYY and VLEEY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Friday, April 26.
Thursday, April 25, 2013
MEI: Auto components bull play
Update 5/1/2013: MEI triggered its stop/loss on May 1 and I've closed the position at $13.55 for a 6.8% loss. The position was structured as long shares. There was no announcement or news to explain the sudden decline, which covered 7% intraday from the high to low. There had been some chat in mid-April that hedge funds were losing interest in MEI. The price hit a higher high on April 30, the day before the stop/loss was hit, meaning that the symbol remains, technically, in an uptrend.
Under my rules, the initial stop/loss is set at double the average daily trading range from the entry price. Later, the closing signal is changed to the 10-day price channel boundary opposite the direction of trade. It's the initial, trading-range based stop/loss that MEI triggered.
Methode Electronics Inc. (MEI) broke above its 20-day price channel on Wednesday and confirmed the bull signal the next day by trading beyond the breakout level, $13.94.
MEI has been in an uptrend from May 2012, beginning from $6.94 and continuing, with two corrections, up to Thursday's high of $14.95.
This is the stock's fourth break above its 20-day price channel. Of the three completed trades, two produced a profit, averaging 21.6%, and one was unsuccessful, for a loss of 4%. Adjusting the winning yield by the ssuccess rate produces a score of 14.4%, well above my 5% minimum. The spread between the loss and the average gain is 17.6%, which is quite wide.
MEI has completed 14 bull signals since January 2009, when the broad markets began recovering from the post-recession crash. Eight of those were successful, for an average yield of 18.4%, and six were failures, for an average loss of 8%. The winning yield adjusted for the success rate is 10.5%, and the win/fail yield spread is 10.3%.
The most recent leg up began Feb. 4 from $9.63. A three-day push carried the price up to $12.23. Beginning March 6 the price settled into a sideways pattern with a ceiling of $14.02 and a floor of $12.48. The current breakout is the first move beyond the ceiling.
Methode Electronics, headquartered in Chicago, Illinois, is one of those behind-the-scenes companies that makes components used by other companies to make consumer products. It's niches are radio remote controls, electronics, wireless and sensing technologies for the auto industry.
MEI is a stealth stock; it is barely followed by analysts and so lacks the price shocks brought to the table by a pack of analytical minds.
Financially, it is of the slow-and-steady variety, with return on equity of 7% and long-term debt amounting to only 14% of equity.
The spring quarter tends to be the top earner, and spring earnings in 2011 were far below 2010 (no surprise, given the recession), and 2012 was way below 2011 (more surprising, given the recovery).
One of the last 12 quarters produced a loss, and that was back in 2011. Seven of the 12 quarters produced earnings surprises to the upside, and four to the downside.
Institutions own 92% of shares, and the price is at sales parity; it takes $1.04 in shares to control a dollar in sales.
MEI on average trades 214,000 shares a day. It supports a moderately OK options grid, but the spotty double- and single-digit open interest is too sparse for my taste.
The fair-price zone on today's 30-minute chart ranges from $14.04 to $14.64, encompassing 68.2% of transactions surrounding the most-traded price, $14.44. The price quickly moved up into the zone in the first half-hour of trading, and except for one brief essay to the upside, it has remained zone-bound in the first two hours of trading.
Methode Electronics next publishes earnings on June 24. It goes ex-dividend in July for a quarterly payout yielding 1.92% annualized at today's prices.
Decision for my account: I've opened a bull position in MEI, structuring it as long shares.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
Under my rules, the initial stop/loss is set at double the average daily trading range from the entry price. Later, the closing signal is changed to the 10-day price channel boundary opposite the direction of trade. It's the initial, trading-range based stop/loss that MEI triggered.
Methode Electronics Inc. (MEI) broke above its 20-day price channel on Wednesday and confirmed the bull signal the next day by trading beyond the breakout level, $13.94.
MEI has been in an uptrend from May 2012, beginning from $6.94 and continuing, with two corrections, up to Thursday's high of $14.95.
This is the stock's fourth break above its 20-day price channel. Of the three completed trades, two produced a profit, averaging 21.6%, and one was unsuccessful, for a loss of 4%. Adjusting the winning yield by the ssuccess rate produces a score of 14.4%, well above my 5% minimum. The spread between the loss and the average gain is 17.6%, which is quite wide.
MEI has completed 14 bull signals since January 2009, when the broad markets began recovering from the post-recession crash. Eight of those were successful, for an average yield of 18.4%, and six were failures, for an average loss of 8%. The winning yield adjusted for the success rate is 10.5%, and the win/fail yield spread is 10.3%.
The most recent leg up began Feb. 4 from $9.63. A three-day push carried the price up to $12.23. Beginning March 6 the price settled into a sideways pattern with a ceiling of $14.02 and a floor of $12.48. The current breakout is the first move beyond the ceiling.
Methode Electronics, headquartered in Chicago, Illinois, is one of those behind-the-scenes companies that makes components used by other companies to make consumer products. It's niches are radio remote controls, electronics, wireless and sensing technologies for the auto industry.
MEI is a stealth stock; it is barely followed by analysts and so lacks the price shocks brought to the table by a pack of analytical minds.
Financially, it is of the slow-and-steady variety, with return on equity of 7% and long-term debt amounting to only 14% of equity.
The spring quarter tends to be the top earner, and spring earnings in 2011 were far below 2010 (no surprise, given the recession), and 2012 was way below 2011 (more surprising, given the recovery).
One of the last 12 quarters produced a loss, and that was back in 2011. Seven of the 12 quarters produced earnings surprises to the upside, and four to the downside.
Institutions own 92% of shares, and the price is at sales parity; it takes $1.04 in shares to control a dollar in sales.
MEI on average trades 214,000 shares a day. It supports a moderately OK options grid, but the spotty double- and single-digit open interest is too sparse for my taste.
The fair-price zone on today's 30-minute chart ranges from $14.04 to $14.64, encompassing 68.2% of transactions surrounding the most-traded price, $14.44. The price quickly moved up into the zone in the first half-hour of trading, and except for one brief essay to the upside, it has remained zone-bound in the first two hours of trading.
Methode Electronics next publishes earnings on June 24. It goes ex-dividend in July for a quarterly payout yielding 1.92% annualized at today's prices.
Decision for my account: I've opened a bull position in MEI, structuring it as long shares.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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's Prospects
On Wednesday, April 24:
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 93 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 74 to the upside and 19 to the downside.
In addition, 17 that are traded over the counter broke out, 15 to the upside and two to the downside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Five of the major-exchange symbols survived my initial screening, all having broken out to the upside. The potential bull plays are ASML, CZZ, JKS, MEI and PTP.
One of the over-the-counter symbols survived initial screening, with an upside breakout. It is CMXHY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Thursday, April 25.
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 93 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 74 to the upside and 19 to the downside.
In addition, 17 that are traded over the counter broke out, 15 to the upside and two to the downside.
The symbols I'm analyzing are among those that have drawn attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Five of the major-exchange symbols survived my initial screening, all having broken out to the upside. The potential bull plays are ASML, CZZ, JKS, MEI and PTP.
One of the over-the-counter symbols survived initial screening, with an upside breakout. It is CMXHY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Thursday, April 25.
Wednesday, April 24, 2013
WAL: Regional banking bull play
Update 5/22/2013: WAL on May 22 dropped below its 10-day price channel, signalling that the position should be closed. And close it I did, within half an hour of the signal, because I had structured the position as shares rather than option spreads. My general preference is to act quickly I shares, but to try for a more strategic exit on hedged positions like spreads.
I exited for a 0.5% loss from the initial entry point. I added to the position twice during its lifetime, exiting for a 1.8% loss from the basis for the total position.
Western Alliance Bancorporation (WAL) broke above its 20-day price channel on Tuesday and confirmed the bull signal the next day by trading above the breakout level, $14.39.
The signal came within an uptrend that has carried the price from $4.44 in September 2011 up to Wednesday's high, $14.69. The most recent leg up began Nov. 16, 2012 from $9.28.
This is WAL's 5th bull signal since the present uptrend began in 2011. The four prior trades were all profitable, with an average gain of 16.5% and duration of 71 days.
Since the recovery from the post-recession crash began in early 2009, WAL has produced 12 completed bull signals, with an average yield of 16.5% and duration of 62 days. The unsuccessful trades each lost 12.7% on average and endured for 19 days.
The yield spread in the post-recession stats is fairly unimpressive, frankly at 3.8%. However, among the six symbols that survived my initial analysis (see "Wednesday's Prospects"), WAL has the best success rate both for the current trend and the total recovery.
Western Alliance, headquartered in Phoeix, Arizona, is a bank holding company with three banking subsidiaries: Bank of Nevada operating in southern Nevada (that means Las Vegas), Western Alliance Bank in Arizona and northern Nevada (that means Reno), and Torrey Pines Bank operating in California.
It also runs two non-bank subsidiaries: Shine Investment Advisory Services and Western Alliance Equipment Finance.
Analysts collectively come down on the unenthusiastic side when it comes to WAL. The company is followed by a double handful of analysts, so their opinion deserves some weight.
Western Alliance reports return on equity of 12%, not growth stock territory but respectable. Long-term debt comes in at 46% of equity, a bit higher than I like but banking companies tend to be on the high side.
The company's quarterly earnings have been accelerating since the 2nd quarter of 2011, with only one failure to come in higher that the prior quarter, and that by only a penny per share.
Of the past 12 quarters, nine have been profitable and three showed losses, one of them -- 2011Q4 -- of fairly devastating proportions. The company has surprised to the upside in eight quarters, and to the downside in three.
Institutions own 70% of shares, which is high for a company this size, and the price has been bid up to an high level; it takes $3.77 in shares to control a dollar in sales.
WAL on average trades 505,906 shares a day. That supports a very small selection of option strike prices with open interest, in the two places it exists in the single digits. These options aren't acceptable as a trading vehicle under my rules, so any WAL position in my account will be structured as long shares.
I'm going to skip the volatility analysis, which is based on options. The open interest is just too low for them to be worth anything as an analytical tool.
In the very near term WAL has been trading sideways with a ceiling of $14.39 and a floor of $13.37. The breakout in subsequent trading pulled back from its high but remained above the breakout level. It's not showing a lot of momentum.
The price was near the lower boundary of the 20-day price channel when earnings were published after the close on April 18. The announcement prompted a four-day climb of two up days, each followed by a down day.
The fair-trade zone on today's half-hour chart runs from $14.46 to $14.58, encompassing 68.2% of transactions surrounding the most-traded price, $14.55. The price began the day above the zone, collapsed to the bottom of the zone and is now near the most-traded price. There's not much upward momentum today, but not a lot of downward momentum, either.
Western Alliance next publishes earnings on July 20.
Decision for my account: I've opened a bull position in WAL, structured as long shares. The one point in my analysis that gives me pause is the narrow yield spread between winning and losing trades, but much of that was prior to the present uptrend and so should be discounted. Also, the breakout above the present sideways trend is ambiguous, but getting in now will allow me to catch any strong breakout, and the price of being wrong on an unleveraged position will be fairly small.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
I exited for a 0.5% loss from the initial entry point. I added to the position twice during its lifetime, exiting for a 1.8% loss from the basis for the total position.
Western Alliance Bancorporation (WAL) broke above its 20-day price channel on Tuesday and confirmed the bull signal the next day by trading above the breakout level, $14.39.
The signal came within an uptrend that has carried the price from $4.44 in September 2011 up to Wednesday's high, $14.69. The most recent leg up began Nov. 16, 2012 from $9.28.
This is WAL's 5th bull signal since the present uptrend began in 2011. The four prior trades were all profitable, with an average gain of 16.5% and duration of 71 days.
Since the recovery from the post-recession crash began in early 2009, WAL has produced 12 completed bull signals, with an average yield of 16.5% and duration of 62 days. The unsuccessful trades each lost 12.7% on average and endured for 19 days.
The yield spread in the post-recession stats is fairly unimpressive, frankly at 3.8%. However, among the six symbols that survived my initial analysis (see "Wednesday's Prospects"), WAL has the best success rate both for the current trend and the total recovery.
Western Alliance, headquartered in Phoeix, Arizona, is a bank holding company with three banking subsidiaries: Bank of Nevada operating in southern Nevada (that means Las Vegas), Western Alliance Bank in Arizona and northern Nevada (that means Reno), and Torrey Pines Bank operating in California.
It also runs two non-bank subsidiaries: Shine Investment Advisory Services and Western Alliance Equipment Finance.
Analysts collectively come down on the unenthusiastic side when it comes to WAL. The company is followed by a double handful of analysts, so their opinion deserves some weight.
Western Alliance reports return on equity of 12%, not growth stock territory but respectable. Long-term debt comes in at 46% of equity, a bit higher than I like but banking companies tend to be on the high side.
The company's quarterly earnings have been accelerating since the 2nd quarter of 2011, with only one failure to come in higher that the prior quarter, and that by only a penny per share.
Of the past 12 quarters, nine have been profitable and three showed losses, one of them -- 2011Q4 -- of fairly devastating proportions. The company has surprised to the upside in eight quarters, and to the downside in three.
Institutions own 70% of shares, which is high for a company this size, and the price has been bid up to an high level; it takes $3.77 in shares to control a dollar in sales.
WAL on average trades 505,906 shares a day. That supports a very small selection of option strike prices with open interest, in the two places it exists in the single digits. These options aren't acceptable as a trading vehicle under my rules, so any WAL position in my account will be structured as long shares.
I'm going to skip the volatility analysis, which is based on options. The open interest is just too low for them to be worth anything as an analytical tool.
In the very near term WAL has been trading sideways with a ceiling of $14.39 and a floor of $13.37. The breakout in subsequent trading pulled back from its high but remained above the breakout level. It's not showing a lot of momentum.
The price was near the lower boundary of the 20-day price channel when earnings were published after the close on April 18. The announcement prompted a four-day climb of two up days, each followed by a down day.
Western Alliance next publishes earnings on July 20.
Decision for my account: I've opened a bull position in WAL, structured as long shares. The one point in my analysis that gives me pause is the narrow yield spread between winning and losing trades, but much of that was prior to the present uptrend and so should be discounted. Also, the breakout above the present sideways trend is ambiguous, but getting in now will allow me to catch any strong breakout, and the price of being wrong on an unleveraged position will be fairly small.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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's Prospects
On Tuesday, April 23:
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 85 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 72 to the upside and 13 to the downside.
In addition, 13 that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are among those that have drawn some attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Six of the major-exchange symbols survived my initial screening, all having broken out to the upside. The potential bull plays are BGS, CBK, LYG, MDCI, TRNO and WAL.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their bull signals by trading above their breakout levels on Wednesday, April 24.
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 85 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 72 to the upside and 13 to the downside.
In addition, 13 that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are among those that have drawn some attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Six of the major-exchange symbols survived my initial screening, all having broken out to the upside. The potential bull plays are BGS, CBK, LYG, MDCI, TRNO and WAL.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their bull signals by trading above their breakout levels on Wednesday, April 24.
Tuesday, April 23, 2013
False White House explosion report
The Associated Press Twitter account was hijacked today by "Anonymous", who sent a fake report:
"Breaking: Two Explosions in the White House and Barack Obama is injured via @AP"
It was accompanied by a black-and-white avatar showing the Guy Fawkes mask over crossed swords. Not a great deal of subtlety there.
The posting caused a two minute decline followed by a three-minute recovery in the S&P 500. Here's the chart:
Bottom line: The best trading strategies in the world count for nought when battered by the wings of a black swan, even if it's a phony swan.
"Breaking: Two Explosions in the White House and Barack Obama is injured via @AP"
It was accompanied by a black-and-white avatar showing the Guy Fawkes mask over crossed swords. Not a great deal of subtlety there.
The posting caused a two minute decline followed by a three-minute recovery in the S&P 500. Here's the chart:
Bottom line: The best trading strategies in the world count for nought when battered by the wings of a black swan, even if it's a phony swan.
Tuesday: No Trade
Two symbols came close to surviving today's advanced screening, and in the end, both were found wanting.
My initial screening of bull and bear signals from Monday's trading (see "Tuesday's Prospects") had left five symbols standing: Potential bull plays HNZ, CLB, PHI, LZAGY and TTNP, and potential bear play SBLK.
HNZ, the most liquid of the group, is involved in a take-over bid and so was excluded. The bear signal, SBLK, has average volume of 6,997, lacks enough open interest on its options to meet my standards, and is too thinly traded for a short sale.
Looking at the over-the-counter symbols: LZAGY, has an earnings announcement in a few days, and TTNP dropped back within its price channel and so failed confirmation.
That left two bull plays, CLB and PHI.
Both signals came within the context of uptrends on the weekly chart, both coincidentally beginning the week of Nov. 5, 2012.
Each has completed one breakout to the upside during the current trend, CLB for 24.6% yield and PHI for a 9.6% yield. Monday's breakouts are the second for each.
Since the start of 2009, around the beginning of the broad markets' recovery from the recession crash, CLB has completed 18 breakouts, and 11 were successful, for an average yield of 7.1%. PHI has completed 16 breakouts, nine of the successful, for an average yield of 5.9%.
Now comes the gotcha.
Adjusting the CLB average yield by its 61.1% success rate gives a score of 4.3%, and the same process applied to PHI's 56.3% success rate gives a score of 3.3%. My minimum acceptable score is 5%. Therefore, these two symbols get voted off the island and lose their chance at fame and glory.
A pity, really. But a rational decision. The yields on each of these are fairly low, and the spread between the yields on successful and unsuccessful signals is unimpressive, 4.3% for CLB and 1.5% for PHI.
Like any trader with limited funds -- and that describes all traders, since we all want more -- I want to put my money where the potential returns are bigger. That's not these two symbols.
I'll add that emotionally, I wanted to do one of these trades. I like the charts, and I like the rating on PHI from a service I subscribe to. That's the value of rules, like the scoring rule I used above. They keep the emotions at bay, and that can only be a benefit for trading.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I sometimes use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
My initial screening of bull and bear signals from Monday's trading (see "Tuesday's Prospects") had left five symbols standing: Potential bull plays HNZ, CLB, PHI, LZAGY and TTNP, and potential bear play SBLK.
HNZ, the most liquid of the group, is involved in a take-over bid and so was excluded. The bear signal, SBLK, has average volume of 6,997, lacks enough open interest on its options to meet my standards, and is too thinly traded for a short sale.
Looking at the over-the-counter symbols: LZAGY, has an earnings announcement in a few days, and TTNP dropped back within its price channel and so failed confirmation.
That left two bull plays, CLB and PHI.
Both signals came within the context of uptrends on the weekly chart, both coincidentally beginning the week of Nov. 5, 2012.
Each has completed one breakout to the upside during the current trend, CLB for 24.6% yield and PHI for a 9.6% yield. Monday's breakouts are the second for each.
Since the start of 2009, around the beginning of the broad markets' recovery from the recession crash, CLB has completed 18 breakouts, and 11 were successful, for an average yield of 7.1%. PHI has completed 16 breakouts, nine of the successful, for an average yield of 5.9%.
Now comes the gotcha.
Adjusting the CLB average yield by its 61.1% success rate gives a score of 4.3%, and the same process applied to PHI's 56.3% success rate gives a score of 3.3%. My minimum acceptable score is 5%. Therefore, these two symbols get voted off the island and lose their chance at fame and glory.
A pity, really. But a rational decision. The yields on each of these are fairly low, and the spread between the yields on successful and unsuccessful signals is unimpressive, 4.3% for CLB and 1.5% for PHI.
Like any trader with limited funds -- and that describes all traders, since we all want more -- I want to put my money where the potential returns are bigger. That's not these two symbols.
I'll add that emotionally, I wanted to do one of these trades. I like the charts, and I like the rating on PHI from a service I subscribe to. That's the value of rules, like the scoring rule I used above. They keep the emotions at bay, and that can only be a benefit for trading.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I sometimes use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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.
APRI closed
APRI moved below its 10-day price channel at the open, signalling an exit from my bull position. The result was a moderately painful loss.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
I've updated my initial entry posting with details and a post-mortem discussion.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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's Prospects
On Monday, April 22:
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 47 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 31 to the upside and 16 to the downside.
In addition, five that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are among those that have drawn some attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Four of the major-exchange symbols survived my initial screening, three having broken out to the upside. The potential bull plays, in descending order, are HNZ, CLB and PHI. The potential bear play is SBLK.
One of the over-the-counter symbols survived initial screening, with a bull signal: TTNP.
I'll do further analysis on the survivors that confirm their bull signals by trading above their breakout levels on Tuesday, April 23.
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 47 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 31 to the upside and 16 to the downside.
In addition, five that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are among those that have drawn some attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Four of the major-exchange symbols survived my initial screening, three having broken out to the upside. The potential bull plays, in descending order, are HNZ, CLB and PHI. The potential bear play is SBLK.
One of the over-the-counter symbols survived initial screening, with a bull signal: TTNP.
I'll do further analysis on the survivors that confirm their bull signals by trading above their breakout levels on Tuesday, April 23.
Monday, April 22, 2013
BIG: Bull breakout, with topping
Big Lots Inc. (BIG) broke above its 20-day price channel on Monday and confirmed the bull signal the next trading day (Monday) through transactions above the breakout level, $36.44.
The signal comes amid a recovery during a downtrend that began March 27, 2012 from $47.22 and stair-stepped down to $26.69 on Nov. 16, 2012 before beginning the present leg up.
A move above $42.26 would set a higher high, defining a possibility that the downtrend was over.
BIG has been moving in a sideways trend for the past seven weeks, which is consistent with the prior correction top in the present downtrend.
Moreover, the previous correction reversed at the 61.8% Fibonacci level, which is also level reached by the current correction. (Investopedia's explanation of Fibonacci retracement can be read here.)
A bull play at this point is a bet that the correction will will press on to higher levels. Using the classic support and resistance analysis, I think it's a fairly risky bet.
This is BIG's 4th bull signal since the present downtrend began. Two of the three completed trades were successful, with an average yield of 8% on positions enduring for 49 days. The unsuccessful trade lost 13% in eight days.
The yield spread between the winners and the loser stands at negative 5%, a vote in favor of the bearish case.
BIG has produced 18 bull signals since the post-recession crash ended. The 10 successful signals yielded 14.9% on average and lasted 41 days. The seven failures lost 5.5% and lasted an average of 19 days.
The other symbols to survive my screening -- MANU and AGPYY -- both broke out to the upside and confirmed the bull signals on Monday. However, they are both far less liquid than BIG is, and they are relatively recent issues and so lack the history on which to base a decent odds analysis. (Read my "Monday's Prospects posting here.)
Big Lots, based in Columbus, Ohio, is a closeout retailer with a wide range of product categories, including food, healthy and beauty, plastics, paper, chemical and pet food as well as upholstery, mattresses and other furniture.
It operates 1,533 stores in the United States and Canada.
Analysts have no problem curbing their excitement about BIG, collectively coming down with a negative 43% enthusiasm rating.
This is despite a return on equity of 25% and fairly low debt amounting to 23% of equity. If the debt were at 10% or lower BIG would qualify as a growth stock by my definition.
Like most retailers Big Lots peaks in the 4th quarter holiday shopping season. Looking at the past 11 quarters, Q4 of 2012 was higher than the corresponding quarter of 2011, which was higher than Q4 2010. The company as reported a loss in one quarter, the 3rd quarter of 2012, and has surprised to the downside four times, compared to seven upside surprises
Institutions own nearly all of the shares, and the price is quite cheap; it takes 39 cents in shares to control a dollar in sales.
BIG on average trades 587,000 shares a day, enough support a fairly small selection of option strike prices. Open interest, however, runs to three figures, and the bid/ask spread on front-month at-the-money call spreads is 7.1%, fairly narrow for a stock of that level of liquidity.
Implied volatility stands at 35% and has been moving sideways since mid-March.
Options are pricing in confidence that 68.2% of trades will fall between $33.03 and $40.35 over the next month, for a potential gain or loss of 10%, and between $34.93 and $38.45 over the next week.
Trading in options is lackadaisical, with calls running at 62% of their five-day average volume, and puts at 49% of average.
The fair-price zone runs from $36.36 to $36.62, encompassing 68.2% of transactions surrounding the most-traded price, $36.46. With three hours to go before the closing bell, BIG is trading near the top of the zone, having broken above it in a two-hour run up and then subsequently having pulled back.
Big Lots next publishes earnings on May 20.
Decision for my account: There's nothing to hate about BIG based on the odds or the financials. However, seven weeks of topping at a Fibonacci retracement level identical to the previous retracement's reversal level is too sketchy for my taste.
Bull signals, unlike ice cream, don't really benefit from topping.
True, the price has broken slightly above the ceiling of the topping period for the first time since it began. But it's not a strong break. So I'm passing on the trade. I won't be opening a bull position in BIG today.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
The signal comes amid a recovery during a downtrend that began March 27, 2012 from $47.22 and stair-stepped down to $26.69 on Nov. 16, 2012 before beginning the present leg up.
A move above $42.26 would set a higher high, defining a possibility that the downtrend was over.
BIG has been moving in a sideways trend for the past seven weeks, which is consistent with the prior correction top in the present downtrend.
Moreover, the previous correction reversed at the 61.8% Fibonacci level, which is also level reached by the current correction. (Investopedia's explanation of Fibonacci retracement can be read here.)
A bull play at this point is a bet that the correction will will press on to higher levels. Using the classic support and resistance analysis, I think it's a fairly risky bet.
This is BIG's 4th bull signal since the present downtrend began. Two of the three completed trades were successful, with an average yield of 8% on positions enduring for 49 days. The unsuccessful trade lost 13% in eight days.
The yield spread between the winners and the loser stands at negative 5%, a vote in favor of the bearish case.
BIG has produced 18 bull signals since the post-recession crash ended. The 10 successful signals yielded 14.9% on average and lasted 41 days. The seven failures lost 5.5% and lasted an average of 19 days.
The other symbols to survive my screening -- MANU and AGPYY -- both broke out to the upside and confirmed the bull signals on Monday. However, they are both far less liquid than BIG is, and they are relatively recent issues and so lack the history on which to base a decent odds analysis. (Read my "Monday's Prospects posting here.)
It operates 1,533 stores in the United States and Canada.
Analysts have no problem curbing their excitement about BIG, collectively coming down with a negative 43% enthusiasm rating.
This is despite a return on equity of 25% and fairly low debt amounting to 23% of equity. If the debt were at 10% or lower BIG would qualify as a growth stock by my definition.
Like most retailers Big Lots peaks in the 4th quarter holiday shopping season. Looking at the past 11 quarters, Q4 of 2012 was higher than the corresponding quarter of 2011, which was higher than Q4 2010. The company as reported a loss in one quarter, the 3rd quarter of 2012, and has surprised to the downside four times, compared to seven upside surprises
Institutions own nearly all of the shares, and the price is quite cheap; it takes 39 cents in shares to control a dollar in sales.
BIG on average trades 587,000 shares a day, enough support a fairly small selection of option strike prices. Open interest, however, runs to three figures, and the bid/ask spread on front-month at-the-money call spreads is 7.1%, fairly narrow for a stock of that level of liquidity.
Implied volatility stands at 35% and has been moving sideways since mid-March.
Options are pricing in confidence that 68.2% of trades will fall between $33.03 and $40.35 over the next month, for a potential gain or loss of 10%, and between $34.93 and $38.45 over the next week.
Trading in options is lackadaisical, with calls running at 62% of their five-day average volume, and puts at 49% of average.
The fair-price zone runs from $36.36 to $36.62, encompassing 68.2% of transactions surrounding the most-traded price, $36.46. With three hours to go before the closing bell, BIG is trading near the top of the zone, having broken above it in a two-hour run up and then subsequently having pulled back.
Big Lots next publishes earnings on May 20.
Decision for my account: There's nothing to hate about BIG based on the odds or the financials. However, seven weeks of topping at a Fibonacci retracement level identical to the previous retracement's reversal level is too sketchy for my taste.
Bull signals, unlike ice cream, don't really benefit from topping.
True, the price has broken slightly above the ceiling of the topping period for the first time since it began. But it's not a strong break. So I'm passing on the trade. I won't be opening a bull position in BIG today.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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, April 21, 2013
GPS, VRX April options expire
The Week Ahead: GDP, housing, durables
Traders get a first look at the 1st quarter's gross domestic product at 8:30 a.m. Friday. Far from being a leading indicator, the GDP is the trailingest of them all. It does, however, set the climate within which deploy our machinations in order to make a buck.
Existing home sales, out Monday at 10 a.m., track the larger part of the housing market, and new home sales published Tuesday at 10 a.m. track the smaller part. Both are important measures of the recovery.
Durable goods orders, out Thursday at 8:30 a.m., is a confidence measure of sorts. It tracks sales of big-ticket items of the sort bought by both individuals and major corporations. The idea is that people won't commit money for large capital goods unless they're confident they'll have the cash flow to pay for it.
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 index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, Friday at 9:55 a.m.
Other reports of interest:
Tuesday: The purchasing managers index flash release, Tuesday just before 9 a.m.
Wednesday: 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.
Analytical universe
This week I'll be analyzing new bull and bear signals among 4,144 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter.
Trading calendar
By my rules, I'm trading May options for short vertical and butterfly spreads, iron condors and the short legs of covered calls and diagonals as well as August options for single calls and puts. Of course, shares are good at any time.
Good trading!
Existing home sales, out Monday at 10 a.m., track the larger part of the housing market, and new home sales published Tuesday at 10 a.m. track the smaller part. Both are important measures of the recovery.
Durable goods orders, out Thursday at 8:30 a.m., is a confidence measure of sorts. It tracks sales of big-ticket items of the sort bought by both individuals and major corporations. The idea is that people won't commit money for large capital goods unless they're confident they'll have the cash flow to pay for it.
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 index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, Friday at 9:55 a.m.
Other reports of interest:
Tuesday: The purchasing managers index flash release, Tuesday just before 9 a.m.
Wednesday: 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.
Analytical universe
This week I'll be analyzing new bull and bear signals among 4,144 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter.
Trading calendar
By my rules, I'm trading May options for short vertical and butterfly spreads, iron condors and the short legs of covered calls and diagonals as well as August options for single calls and puts. Of course, shares are good at any time.
Good trading!
Saturday, April 20, 2013
Monday's Prospects
On Friday, April 19:
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 55 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 34 to the upside and 21 to the downside.
In addition, 11 that are traded over the counter broke out, seven to the upside and four to the downside.
The symbols I'm analyzing are among those that have drawn some attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Two of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are, in descending volume order, BIG and MANU.
One of the over-the-counter symbols survived initial screening with a bull signal: AGPYY.
I'll do further analysis on the survivors that confirm their bull signals by trading above their breakout levels on Monday, April 22.
Of 4,144 stocks and exchange-traded funds in this week's analytical universe, 55 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 34 to the upside and 21 to the downside.
In addition, 11 that are traded over the counter broke out, seven to the upside and four to the downside.
The symbols I'm analyzing are among those that have drawn some attention from analysts. They range from penny stocks to blue chips with liquidity running from barely existing to the max.
Two of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are, in descending volume order, BIG and MANU.
One of the over-the-counter symbols survived initial screening with a bull signal: AGPYY.
I'll do further analysis on the survivors that confirm their bull signals by trading above their breakout levels on Monday, April 22.
Friday, April 19, 2013
Expanded Universe
A note on the stocks and exchange-traded funds I analyze.
Beginning Monday, I'll be working with an expanded analytical universe, about double what it has been. I've accomplished this by removing the minimum price and volume restrictions, which retaining the requirement that the symbols have some following among analysts.
Next week's universe will have 4,144 symbols.
Beginning Monday, I'll be working with an expanded analytical universe, about double what it has been. I've accomplished this by removing the minimum price and volume restrictions, which retaining the requirement that the symbols have some following among analysts.
Next week's universe will have 4,144 symbols.
MW: Bear in a bottle
Update 5/20/2013: My MW options that expired May 18 were exercised, teleporting short shares of the stock in my account Monday morning, May 20. The formula for calculating the result is capital gain or loss from the mandatory short sale of the stock at the strike price of the short leg of my spread, plus gain from selling the vertical credit spread. Overall, it works out to a 1.8% net profit for the position. Not great but certainly not awful for a position that moved counter to my trade.
Update 5/6/2013: MW broke above it's above its 10-day price channel, $33.67, signalling that I should exit my bear position for a 3.1% loss from the entry price.
I haven't closed the position yet for strategic reasons; the position is constructed of vertical credit spreads expiring May 18, and I want to give the price time to pull down a bit in response to Friday's 2.5% rise.
The price rise on Friday set a new upper boundary for the 10-day channel, $34.11, and I have adopted that as a new stop/loss while I see what happens. A closing price above that level will prompt me to exit the position. Otherwise, I intend to hold on to it and see what happens.
The Men's Wearhouse Inc. (MW) fell below its 20-day price channel on Thursday, confirming the bull signal the next day by continuing to trade below the lower channel boundary, $32.64.
The breakout to the downside comes within a symmetrical triangle pattern: A series of lower highs and higher low that have been constricting the extremes of MW trading since early March 2012.
In trading lore a symmetrical triangle is agnostic as to direction but at the apex it is anticipated that the price will make a large move equal to the width of the base. The base for this formation runs from $40.97 in early March 2012 to $25.97 four months later, for base that is $15 wide.
The present trendlines point to an apex at about $31.50 reached in early 2014, and from that point, the lore goes, the price will either run up to $46.50 or down to $16.50.
Maybe so. Maybe not. The key point for us as short-term traders is the timing of the apex. It suggests that for the next nine months, MW will have a narrowing range of trade that in turn will increasingly restrict potential profits.
It may be in a bear trend, but it is a bear in a bottle.
But restrict by how much? The lower boundary of the triangle today stands at about $27.75. That gives 15% of profit from the present price if that level is indeed the bounce point.
MW has broken out to the downside five times since the triangle pattern began in March 2012. Three of the four completed trades produced a profit, averaging 9.1% apiece. The one unsuccessful trade lost 4.5%.
The 75% success rate applied to the yield on winning trades produces a 6.8% score, well above my preferred 5% minimum. The spread between the winning and losing yields is 4.6%, which adds to the edge for bearish trades.
Since the post-recession recovery began in the broad markets, MW has completed 17 bear breakouts. The six winners on average yielded 9.4%, and the 11 losers took an 11.8% hit. The success rate is only 35.3% and the spread between winning and losing yields is negative. So over the long term a bet against MW has been a way to lose money.
The near term and longer terms odds show that MW has undergone a trend change. For more than a year betting on a stock decline has been increasingly the more profitable trade.
Men's Wearhouse, headquartered in Houston, Texas, is a familiar fixture of the American retail landscape. It sells suits for men from 1,049 stores in the U.S. and 117 in Canada, and also rents tuxedos. The business model seeks to distinguish their stores from the competition by making it easy to put together a decent look formal wardrobe at a reasonable price.
The handful of analysts following the company are mainly bullish on its prospects, collectively producing a 60% enthusiasm rating.
Men's Wearhouse reports return on equity of 12% -- respectable but not particularly impressive -- and no long-term debt -- very impressive.
The company has had three losing quarters out of the last 12, and it has always been the 4th quarter, the season when most retailers are making a bundle. The peak for Men's Wearhouse comes in the 2nd quarter -- spring -- when a young man's fancy turns to, obviously, to clothing, and each 2nd quarter has bettered the one year ago in 2012 and 2013.
Earnings have surprised to the upside nine out of the last 12 quarters, and to the downside in three quarters.
Institutional ownership is high, at 93% of shares, and the price is quite low: It takes 66 cents in shares to control a dollar in sales.
MW on average trades 599,000 shares a day and supports a wide selection of option strike prices with open interest mainly running to three figures. The front-month at-the-money bid/ask spread on puts is 8.3%.
Implied volatility stands at 27%, near the bottom of the six-month range. It has been rising gently since April 15.
Options are pricing in confidence that 68.2% of trades will fall between $30.03 and $35.05 over the next month, for a potential gain or loss of 7.7%, and between $31.33 and $33.75 over the next week.
Today's trading in options is quite active to the upside, with call volume running at nearly triple its five-day average. Puts are running at 92% of average.
With 160 minutes remaining before the closing bell, the fair-price zone runs from $32.25 to $32.70, encompassing 68.2% of transactions surrounding the most-traded price, $32.46.
Men's Wearhouse next publishes earnings on June 3. The stock goes ex-dividend on June 14 for a quarterly payout yielding 2.22% annualized at today's prices.
Decision for my account: I've opened a bear position in MW, structuring it as a vertical credit spread expiring May 18, short the $33 call and long the $35 call.
I like the options selection, the odds and the financials. Also, the 15% potential yield down to the lower triangle boundary is quite convincing.
The position has a potential maximum yield of 39.9%. The vertical is profitable at expiration up to $33.57, providing a 2.9% cushion.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
Update 5/6/2013: MW broke above it's above its 10-day price channel, $33.67, signalling that I should exit my bear position for a 3.1% loss from the entry price.
I haven't closed the position yet for strategic reasons; the position is constructed of vertical credit spreads expiring May 18, and I want to give the price time to pull down a bit in response to Friday's 2.5% rise.
The price rise on Friday set a new upper boundary for the 10-day channel, $34.11, and I have adopted that as a new stop/loss while I see what happens. A closing price above that level will prompt me to exit the position. Otherwise, I intend to hold on to it and see what happens.
The Men's Wearhouse Inc. (MW) fell below its 20-day price channel on Thursday, confirming the bull signal the next day by continuing to trade below the lower channel boundary, $32.64.
The breakout to the downside comes within a symmetrical triangle pattern: A series of lower highs and higher low that have been constricting the extremes of MW trading since early March 2012.
In trading lore a symmetrical triangle is agnostic as to direction but at the apex it is anticipated that the price will make a large move equal to the width of the base. The base for this formation runs from $40.97 in early March 2012 to $25.97 four months later, for base that is $15 wide.
The present trendlines point to an apex at about $31.50 reached in early 2014, and from that point, the lore goes, the price will either run up to $46.50 or down to $16.50.
Maybe so. Maybe not. The key point for us as short-term traders is the timing of the apex. It suggests that for the next nine months, MW will have a narrowing range of trade that in turn will increasingly restrict potential profits.
It may be in a bear trend, but it is a bear in a bottle.
But restrict by how much? The lower boundary of the triangle today stands at about $27.75. That gives 15% of profit from the present price if that level is indeed the bounce point.
MW has broken out to the downside five times since the triangle pattern began in March 2012. Three of the four completed trades produced a profit, averaging 9.1% apiece. The one unsuccessful trade lost 4.5%.
The 75% success rate applied to the yield on winning trades produces a 6.8% score, well above my preferred 5% minimum. The spread between the winning and losing yields is 4.6%, which adds to the edge for bearish trades.
Since the post-recession recovery began in the broad markets, MW has completed 17 bear breakouts. The six winners on average yielded 9.4%, and the 11 losers took an 11.8% hit. The success rate is only 35.3% and the spread between winning and losing yields is negative. So over the long term a bet against MW has been a way to lose money.
The near term and longer terms odds show that MW has undergone a trend change. For more than a year betting on a stock decline has been increasingly the more profitable trade.
Men's Wearhouse, headquartered in Houston, Texas, is a familiar fixture of the American retail landscape. It sells suits for men from 1,049 stores in the U.S. and 117 in Canada, and also rents tuxedos. The business model seeks to distinguish their stores from the competition by making it easy to put together a decent look formal wardrobe at a reasonable price.
The handful of analysts following the company are mainly bullish on its prospects, collectively producing a 60% enthusiasm rating.
Men's Wearhouse reports return on equity of 12% -- respectable but not particularly impressive -- and no long-term debt -- very impressive.
The company has had three losing quarters out of the last 12, and it has always been the 4th quarter, the season when most retailers are making a bundle. The peak for Men's Wearhouse comes in the 2nd quarter -- spring -- when a young man's fancy turns to, obviously, to clothing, and each 2nd quarter has bettered the one year ago in 2012 and 2013.
Earnings have surprised to the upside nine out of the last 12 quarters, and to the downside in three quarters.
Institutional ownership is high, at 93% of shares, and the price is quite low: It takes 66 cents in shares to control a dollar in sales.
MW on average trades 599,000 shares a day and supports a wide selection of option strike prices with open interest mainly running to three figures. The front-month at-the-money bid/ask spread on puts is 8.3%.
Implied volatility stands at 27%, near the bottom of the six-month range. It has been rising gently since April 15.
Options are pricing in confidence that 68.2% of trades will fall between $30.03 and $35.05 over the next month, for a potential gain or loss of 7.7%, and between $31.33 and $33.75 over the next week.
Today's trading in options is quite active to the upside, with call volume running at nearly triple its five-day average. Puts are running at 92% of average.
With 160 minutes remaining before the closing bell, the fair-price zone runs from $32.25 to $32.70, encompassing 68.2% of transactions surrounding the most-traded price, $32.46.
Men's Wearhouse next publishes earnings on June 3. The stock goes ex-dividend on June 14 for a quarterly payout yielding 2.22% annualized at today's prices.
Decision for my account: I've opened a bear position in MW, structuring it as a vertical credit spread expiring May 18, short the $33 call and long the $35 call.
I like the options selection, the odds and the financials. Also, the 15% potential yield down to the lower triangle boundary is quite convincing.
The position has a potential maximum yield of 39.9%. The vertical is profitable at expiration up to $33.57, providing a 2.9% cushion.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
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, April 18, 2013
Thursday's Breakouts
Thursday, April 17:
Of 2,315 stocks and exchange-traded funds in this week's analytical universe, 82 that are traded on the major American stock exchanges broke beyond their 20-day price channels, one to the upside and 81 to the downside. In addition, three that are traded over the counter broke out, all to the downside.
The symbols I'm analyzing are among those that have drawn some attention from brokerage analysts. The range from penny stocks to blue chips with liquidity running from barely existing to the max.
Three of the major-exchange symbols survived my initial screening, all having broken out to the downside. They are, in descending volume order, MW, TFM and THO. All have options available. MW and THO are also eligible for short sales of shares.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on MW, TFM and THO if they trade below their breakout levels on Friday, confirming the bear signals.
Of 2,315 stocks and exchange-traded funds in this week's analytical universe, 82 that are traded on the major American stock exchanges broke beyond their 20-day price channels, one to the upside and 81 to the downside. In addition, three that are traded over the counter broke out, all to the downside.
The symbols I'm analyzing are among those that have drawn some attention from brokerage analysts. The range from penny stocks to blue chips with liquidity running from barely existing to the max.
Three of the major-exchange symbols survived my initial screening, all having broken out to the downside. They are, in descending volume order, MW, TFM and THO. All have options available. MW and THO are also eligible for short sales of shares.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on MW, TFM and THO if they trade below their breakout levels on Friday, confirming the bear signals.
Updated Trading Rules!
I've finally (finally!!) updated my trading rules to match what I've been doing since the start of the year. I've written about my current methods piecemeal in my daily posts.
The biggest change is that I'm now using data analysis on a daily schedule to calculate odds of a successful trade. Also, I've gotten rid of the extraneous tools I was using in my analysis. It's all price channels and odds these days.
This Google Docs text file brings it together.
Read it....
The biggest change is that I'm now using data analysis on a daily schedule to calculate odds of a successful trade. Also, I've gotten rid of the extraneous tools I was using in my analysis. It's all price channels and odds these days.
This Google Docs text file brings it together.
Read it....
QIHU: A Chinese dot-com play
Update 8/15/2013: QIHU's long run has finally come to an end. The stock crossed below its 10-day price channel today, signalling an exit. At the time the stock was on the shelf, waiting for an opportunity to roll into a new position following expiration of the August options. Altogether, QIHU was rolled three times.
QIHU shares gained a 17% during the 27 days the position was populated. The position was structured as short option spreads, and they produced a 22.7% yield on risk.
Qihoo 360 Technology Co. Ltd. (QIHU) broke above its 20-day price channel on Wednesday, and confirmed the bull signal today (Thursday) by trading above the breakout level, $30.89.
QIHU is a relatively new stock. It began trading on the New York Stock Exchange on March 30, 2011, when it opened at $27.
Since then, has fallen to $13.71 in January 2012, risen again to $26.35 in late March 2012, fallen to $13.80 in July 2012, and then risen to its most recent high, $34.90, on March 5.
It's a classic double bottom pattern, with a slightly lopsided neck (so far) stretching from $36.21 to $34.90. By that analysis, a break above $36.21 would signal a major upward move of more than 50%. If you believe in that sort of analysis. Which I don't.
Instead, I see the breakout as an attempt to recover from a correction in an uptrend that began from $13.80 in late July. There is major resistance between $34 and $35, and a move above $34.90 would set a higher high, re-establishing the uptrend.
That gives me about 9% worth of rise before the prior peak is reached, which is certainly sufficient for my purposes.
This is QIHU's fourth bull signal since the present trend began in July 2012. Of the prior three, two produced profits, averaging 31.7%. One was a failure, with a 15.1% loss. That's a 16.6% yield spread between the winners and losers, which quite mpressive.
Since the company started trading in New York, it has produced eight bull signals, including the current one. Of the seven that have been completed, three were profitable, and four were not. The winners on average yielded 21.8%, compared to a loss of 10.9% for the unprofitable trades. The yield spread between winners and losers is 10.9%.
On the chart and given the odds, QIHU is quite an attractive trade. Let's look deeper.
Qihoo 360 Technology is a Chinese computer security software company that is branching out into a broader array of Internet services, including search, which pits it against China's Internet giant Baidu (BIDU). Qihoo is headquartered in Beijing. The company's name is pronounced "CHEE-HOO".
Although Qihoo is a Chinese company, it is principally traded in New York. It is followed by slightly more than a handful of analysts, who collectively give it a 43% enthusiasm rating.
The company's financials are OK but not indicators of run-away growth. Return on equity is 11%, and it has no long-term debt.
It has been profitable for the eight quarters of its history and from 2012 onward profits have tended to be fairly stable. The 4th quarter of 2012 was the highest profit ever reported, but only beat out the previous high by a penny.
Institutions own 35% of shares, and the price has been bid up to levels reminiscent of the dot-com bubble of the late 1990s. It takes $81.32 in shares to control a dollar in sales. Now, if I were a long-term trader, that fact alone would be a total deal killer. Warren Buffett I have no doubt would have stern words to say about such a foolish assessment of value.
But, I speculate across the shorter term, with positions lasting a month or so, so it's a risk that I'm willing to consider.
QIHU on average trades 1.3 million shares a day and supports a good selection of option strike prices with open interest mainly running to three figures. The front-month at-the-money bid/ask spread is 7.5%, which is remarkably narrow for a stock with this level of liquidity.
Volatility stands at 44%, slightly below the mid-point of the six-month range. It has been trending sideways since the beginning of April.
In the analysis that follows I'll use the term "68.2%" in several places. It represents one standard deviation, which is a boundary that is expected to include 68.2% of whatever is being studied. It's a measure of confidence that also says that 38.2% of whatever is being studied will fall outside of that range.
Options are pricing in confidence that 68.2% of trades will fall between $27.93 and $36.03 over the next month, for a potential gain or loss of 12.7%, and between $30.04 and $33.92 over the next week.
There is a lot of options activity today, biased to the bull side. Calls are running at more than three times their average volume for the last five days, while puts are only at 63% of average volume.
The fair-price zone runs from $31.75 to $32.11, encompassing 68.2% of transactions surrounding the most-traded price, $31.95.
Qihoo next publishes earnings on May 20.
Decision for my account: I've opened a bull position in QIHU, structuring it as a vertical credit spread expiring in May, short the $31 call and long the $29. The position has a maximum potential yield of 19.9%. It is profitable at expiration down to 5% below the entry price, providing a cushion.
References
A somewhat out-of-date version of 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
QIHU shares gained a 17% during the 27 days the position was populated. The position was structured as short option spreads, and they produced a 22.7% yield on risk.
Qihoo 360 Technology Co. Ltd. (QIHU) broke above its 20-day price channel on Wednesday, and confirmed the bull signal today (Thursday) by trading above the breakout level, $30.89.
QIHU is a relatively new stock. It began trading on the New York Stock Exchange on March 30, 2011, when it opened at $27.
Since then, has fallen to $13.71 in January 2012, risen again to $26.35 in late March 2012, fallen to $13.80 in July 2012, and then risen to its most recent high, $34.90, on March 5.
It's a classic double bottom pattern, with a slightly lopsided neck (so far) stretching from $36.21 to $34.90. By that analysis, a break above $36.21 would signal a major upward move of more than 50%. If you believe in that sort of analysis. Which I don't.
Instead, I see the breakout as an attempt to recover from a correction in an uptrend that began from $13.80 in late July. There is major resistance between $34 and $35, and a move above $34.90 would set a higher high, re-establishing the uptrend.
That gives me about 9% worth of rise before the prior peak is reached, which is certainly sufficient for my purposes.
This is QIHU's fourth bull signal since the present trend began in July 2012. Of the prior three, two produced profits, averaging 31.7%. One was a failure, with a 15.1% loss. That's a 16.6% yield spread between the winners and losers, which quite mpressive.
Since the company started trading in New York, it has produced eight bull signals, including the current one. Of the seven that have been completed, three were profitable, and four were not. The winners on average yielded 21.8%, compared to a loss of 10.9% for the unprofitable trades. The yield spread between winners and losers is 10.9%.
On the chart and given the odds, QIHU is quite an attractive trade. Let's look deeper.
Qihoo 360 Technology is a Chinese computer security software company that is branching out into a broader array of Internet services, including search, which pits it against China's Internet giant Baidu (BIDU). Qihoo is headquartered in Beijing. The company's name is pronounced "CHEE-HOO".
Although Qihoo is a Chinese company, it is principally traded in New York. It is followed by slightly more than a handful of analysts, who collectively give it a 43% enthusiasm rating.
The company's financials are OK but not indicators of run-away growth. Return on equity is 11%, and it has no long-term debt.
It has been profitable for the eight quarters of its history and from 2012 onward profits have tended to be fairly stable. The 4th quarter of 2012 was the highest profit ever reported, but only beat out the previous high by a penny.
Institutions own 35% of shares, and the price has been bid up to levels reminiscent of the dot-com bubble of the late 1990s. It takes $81.32 in shares to control a dollar in sales. Now, if I were a long-term trader, that fact alone would be a total deal killer. Warren Buffett I have no doubt would have stern words to say about such a foolish assessment of value.
But, I speculate across the shorter term, with positions lasting a month or so, so it's a risk that I'm willing to consider.
QIHU on average trades 1.3 million shares a day and supports a good selection of option strike prices with open interest mainly running to three figures. The front-month at-the-money bid/ask spread is 7.5%, which is remarkably narrow for a stock with this level of liquidity.
Volatility stands at 44%, slightly below the mid-point of the six-month range. It has been trending sideways since the beginning of April.
In the analysis that follows I'll use the term "68.2%" in several places. It represents one standard deviation, which is a boundary that is expected to include 68.2% of whatever is being studied. It's a measure of confidence that also says that 38.2% of whatever is being studied will fall outside of that range.
Options are pricing in confidence that 68.2% of trades will fall between $27.93 and $36.03 over the next month, for a potential gain or loss of 12.7%, and between $30.04 and $33.92 over the next week.
There is a lot of options activity today, biased to the bull side. Calls are running at more than three times their average volume for the last five days, while puts are only at 63% of average volume.
The fair-price zone runs from $31.75 to $32.11, encompassing 68.2% of transactions surrounding the most-traded price, $31.95.
Qihoo next publishes earnings on May 20.
Decision for my account: I've opened a bull position in QIHU, structuring it as a vertical credit spread expiring in May, short the $31 call and long the $29. The position has a maximum potential yield of 19.9%. It is profitable at expiration down to 5% below the entry price, providing a cushion.
References
A somewhat out-of-date version of 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.
DRE closed
I've closed my long position in DRE, which I initially entered on March 4. I've updated my entry posting with details.
Wednesday, April 17, 2013
Wednesday's Breakouts
Wednesday, April 17:
Of 2,315 stocks and exchange-traded funds in this week's analytical universe, 96 that are traded on the major American stock exchanges broke beyond their 20-day price channels, three to the upside and the 93 to the downside. In addition, 15 that are traded over the counter broke out, all to the downside.
The symbols I'm analyzing are among those that have drawn some attention from brokerage analysts.
Three of the major-exchange symbols survived my initial screening. The most liquid, QIHU, broke out to the upside. ORIG and AIR broke out to the downside. The two bear symbols lack sufficient liquidity for options trades or short sales of shares.
Three over-the-counter symbols survived my initial screenings, all of them downside breakouts. They are AIQUY, ATLKY and BZLFY. None has options, nor are they sufficiently liquid for short sales.
That leaves one survivor, the potential bull play QIHU, with an average volume of 1.1 million shares. Its options at first glance seem to have sufficient liquidity to trade, but a final decision on that will await Thursday's analysis, if the bull signal is confirmed.
Of 2,315 stocks and exchange-traded funds in this week's analytical universe, 96 that are traded on the major American stock exchanges broke beyond their 20-day price channels, three to the upside and the 93 to the downside. In addition, 15 that are traded over the counter broke out, all to the downside.
The symbols I'm analyzing are among those that have drawn some attention from brokerage analysts.
Three of the major-exchange symbols survived my initial screening. The most liquid, QIHU, broke out to the upside. ORIG and AIR broke out to the downside. The two bear symbols lack sufficient liquidity for options trades or short sales of shares.
Three over-the-counter symbols survived my initial screenings, all of them downside breakouts. They are AIQUY, ATLKY and BZLFY. None has options, nor are they sufficiently liquid for short sales.
That leaves one survivor, the potential bull play QIHU, with an average volume of 1.1 million shares. Its options at first glance seem to have sufficient liquidity to trade, but a final decision on that will await Thursday's analysis, if the bull signal is confirmed.
MEAS: A low-volume bull trade
Update 5/22/2013: MEAS broke below its 10-day price channel on May 22 at $44, signalling a close to my bull position. I sold within a half hour of the signal because the position was in shares and showed little sign of reversing. Had it been hedged in option spreads, I would have played for a more strategic exit.
The exit provided a 10.8% profit from the initial entry. I added to the position three times during its lifetime, and the profit from the total basis was $8.2%.
Measurement Specialties Inc. (MEAS) broke above its 20-day price channel on Tuesday, creating a bull signal that was confirmed Wednesday (today) by the stock trading above the channel boundary, $39.58.
The upside breakout comes amid a shallow renewal of a long-running uptrend following a correction in late 2011 down to $23.55.
Of the three possibilies I looked at today, MEAS also had the strongest very near term uptrend, beginning Nov. 14, 2012 from $26.77. (The other symbols are IBN and HDB.)
MEAS has had six bull signals since the present trend began in 2011, half successful and half not. The winners had an average yield of 8.2%. The losing trades had an average loss of 6.2%, giving the winners a slight, 2% advantage.
Since early 2009, when the recovery from the post-recession crash began, MEAS has had 15 breakouts, eight of them winners, with an average yield of 31.3%. That gives it a yield advantage of 23.7% over the losing trades.
Measurement Specialties, headquartered in Hampton, Virginia, produces a wide range of sensors and measuring devices used by the military, the aerospace industry, medicine, engines and vehicles, environmental monitoring and consumer goods, among others.
It's followed by less than a handful of analysts, so I can't reasonably score their opinions. Return on equity is 13.4%, which is quite good. Debt is running at 39% of equity, higher than I like but far from crippling.
The company has been profitable for at least the last 12 quarters, but without a trend. The 4th quarter tends to be the peak, and it has held steady the past two years after a huge gain over the third year back.
Institutions own 88% of shares, and the price has been bid up somewhat. It takes $1.80 in shares to control a dollar in sales.
MEAS on average trades 33,000 shares a day. It has a small selection of options strike prices, but the open interest is mainly none. So I can trade the company only as long shares, which means I forego leverage and hedging.
But I always leave some room in my holdings for the small fry. Size doesn't always matter.
Although average volume is low, the stock bid/ask spread is reasonable, at 0.3%
Implied volatility is running at 62%, near the top of the six-month range. It took a huge leap from 20% on April 12.
In the ensuing discussion I use the term "68.2%" in a couple of places. It's from statistics and represents one standard deviation, the boundaries that are expected to contain 68.2% of whatever is being studied.
Options are pricing in confidence that 68.2% of trades over the next year will fall between $32.31 and $46.67, for a potential gain or loss of 18.2%, and between $36.04 and $42.94 over the next week.
The fair-price zone runs from $39.33 to $39.72, encompassing 68.2% of transactions surrounding the most-traded price, $39.56. The stock has mainly traded within the zone, with occasional short-lived breakouts to the upside or the downside.
MEAS next publishes earnings on June 3.
Decision for my account: The price is flirting with the breakout level, sometimes a bit below and sometimes above, in line with the broad market. It technically has met my rules for confirmation, but in a fairly slipshod fashion. But I like the chart, the odds and the financials. 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 exit provided a 10.8% profit from the initial entry. I added to the position three times during its lifetime, and the profit from the total basis was $8.2%.
Measurement Specialties Inc. (MEAS) broke above its 20-day price channel on Tuesday, creating a bull signal that was confirmed Wednesday (today) by the stock trading above the channel boundary, $39.58.
The upside breakout comes amid a shallow renewal of a long-running uptrend following a correction in late 2011 down to $23.55.
Of the three possibilies I looked at today, MEAS also had the strongest very near term uptrend, beginning Nov. 14, 2012 from $26.77. (The other symbols are IBN and HDB.)
MEAS has had six bull signals since the present trend began in 2011, half successful and half not. The winners had an average yield of 8.2%. The losing trades had an average loss of 6.2%, giving the winners a slight, 2% advantage.
Since early 2009, when the recovery from the post-recession crash began, MEAS has had 15 breakouts, eight of them winners, with an average yield of 31.3%. That gives it a yield advantage of 23.7% over the losing trades.
Measurement Specialties, headquartered in Hampton, Virginia, produces a wide range of sensors and measuring devices used by the military, the aerospace industry, medicine, engines and vehicles, environmental monitoring and consumer goods, among others.
It's followed by less than a handful of analysts, so I can't reasonably score their opinions. Return on equity is 13.4%, which is quite good. Debt is running at 39% of equity, higher than I like but far from crippling.
The company has been profitable for at least the last 12 quarters, but without a trend. The 4th quarter tends to be the peak, and it has held steady the past two years after a huge gain over the third year back.
Institutions own 88% of shares, and the price has been bid up somewhat. It takes $1.80 in shares to control a dollar in sales.
MEAS on average trades 33,000 shares a day. It has a small selection of options strike prices, but the open interest is mainly none. So I can trade the company only as long shares, which means I forego leverage and hedging.
But I always leave some room in my holdings for the small fry. Size doesn't always matter.
Although average volume is low, the stock bid/ask spread is reasonable, at 0.3%
In the ensuing discussion I use the term "68.2%" in a couple of places. It's from statistics and represents one standard deviation, the boundaries that are expected to contain 68.2% of whatever is being studied.
Options are pricing in confidence that 68.2% of trades over the next year will fall between $32.31 and $46.67, for a potential gain or loss of 18.2%, and between $36.04 and $42.94 over the next week.
The fair-price zone runs from $39.33 to $39.72, encompassing 68.2% of transactions surrounding the most-traded price, $39.56. The stock has mainly traded within the zone, with occasional short-lived breakouts to the upside or the downside.
MEAS next publishes earnings on June 3.
Decision for my account: The price is flirting with the breakout level, sometimes a bit below and sometimes above, in line with the broad market. It technically has met my rules for confirmation, but in a fairly slipshod fashion. But I like the chart, the odds and the financials. 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.
Playing the odds: Part 2
This week I'm reworking my analytical methods to make them more nimble in picking up changes in trend.
On Tuesday I posted the details of what I was doing and what I'm doing now. It's available here.
Today I continue with the shake-down cruise by dealing with a problem raised by the new, short-term method.
Change is good, but all change needs improving.
The problem arose from my pre-screening once a week of the odds on all 9,000-plus symbols traded on the major U.S. stock exchanges. I ran a rather long-running routine that picked out those that had better than even odds of a successful trade in one direction or the other.
That worked fine when I was scanning bull and bear signals dating back to January 2009. But the system broke down when I shrank the study period to a year.
The number of signals since early 2009 generally runs around 20 or 30 for each symbol. An additional completed signal doesn't change the odds much.
However, the number of signals in the past year is generally five or less. An addition to the mix can make a huge difference in the odds.
My Monday analysis ran just fine in selecting new signals from my weekly list. All of the symbols had greater than 50% success rates to the bull or bear sides.
Not so on Tuesday. Most of the symbols had odds lower than 50% in both directions.
Clearly, weekly pre-screening wasn't going to work. And the screening routine took too long to run for me to generate a new pre-selected list of high-probability symbols every day.
So I spent much of last night testing ways around the problem, and here how I've decided to handle it.
My list will be all of the stocks in the analytical universe of the stock rating house Zacks. Their list changes, but slowly enough so that a weekly update with be sufficient. I don't do anything with the Zacks ratings. I just capture the symbols.
Today the Zacks list has 2,319 symbols, and that was my analytical universe.
I could have created a list some other way, such as on the basis of average volume or market capitalization. But I want to cast a wider net, and the Zacks list runs the gamut from penny stocks to transnational giants, and from less than a hundred shares a day up to eight-figure volumes.
The Zacks list also includes some over-the-counter (OTCBB) stocks, a market that was missing from my pre-screening lists.
Also, a spot on the Zacks list ensure that the symbols are on someone's radar. Many of the 9,000 symbols traded are only on the radar of their CEO.
Monday's pre-screened analysis of the one-year data produced nothing I could trade.
The same routine run against the Zacks list produced three possibilities after I had weeded out the low probabilities and earnings exclusions. They are all bull signals: IBN, HDB and MEAS.
That leaves three symbols for further analysis. And that's the next task on my agenda.
On Tuesday I posted the details of what I was doing and what I'm doing now. It's available here.
Today I continue with the shake-down cruise by dealing with a problem raised by the new, short-term method.
Change is good, but all change needs improving.
The problem arose from my pre-screening once a week of the odds on all 9,000-plus symbols traded on the major U.S. stock exchanges. I ran a rather long-running routine that picked out those that had better than even odds of a successful trade in one direction or the other.
That worked fine when I was scanning bull and bear signals dating back to January 2009. But the system broke down when I shrank the study period to a year.
The number of signals since early 2009 generally runs around 20 or 30 for each symbol. An additional completed signal doesn't change the odds much.
However, the number of signals in the past year is generally five or less. An addition to the mix can make a huge difference in the odds.
My Monday analysis ran just fine in selecting new signals from my weekly list. All of the symbols had greater than 50% success rates to the bull or bear sides.
Not so on Tuesday. Most of the symbols had odds lower than 50% in both directions.
Clearly, weekly pre-screening wasn't going to work. And the screening routine took too long to run for me to generate a new pre-selected list of high-probability symbols every day.
So I spent much of last night testing ways around the problem, and here how I've decided to handle it.
My list will be all of the stocks in the analytical universe of the stock rating house Zacks. Their list changes, but slowly enough so that a weekly update with be sufficient. I don't do anything with the Zacks ratings. I just capture the symbols.
Today the Zacks list has 2,319 symbols, and that was my analytical universe.
I could have created a list some other way, such as on the basis of average volume or market capitalization. But I want to cast a wider net, and the Zacks list runs the gamut from penny stocks to transnational giants, and from less than a hundred shares a day up to eight-figure volumes.
The Zacks list also includes some over-the-counter (OTCBB) stocks, a market that was missing from my pre-screening lists.
Also, a spot on the Zacks list ensure that the symbols are on someone's radar. Many of the 9,000 symbols traded are only on the radar of their CEO.
Monday's pre-screened analysis of the one-year data produced nothing I could trade.
The same routine run against the Zacks list produced three possibilities after I had weeded out the low probabilities and earnings exclusions. They are all bull signals: IBN, HDB and MEAS.
That leaves three symbols for further analysis. And that's the next task on my agenda.
CORRECTION: HPQ exit signal
A few minutes ago posted an item that treated HPQ as a bull position that received an exit signal. It's bear position, and there is no signal.
I've removed the offending post from the web site, but for any who are reading via RSS or some other syndication method: Ignore the item headlined "HPQ exit signal".
I've removed the offending post from the web site, but for any who are reading via RSS or some other syndication method: Ignore the item headlined "HPQ exit signal".
Tuesday, April 16, 2013
Tuesday's Breakouts
Tuesday, April 16:
Of 1,934 stocks and exchange-traded funds in this week's analytical universe, two that are traded on the major American stock exchanges broke beyond their 20-day price channels, one to the upside and the other to the downside.
For each of the symbols I'm analyzing, more than half of the Turtle Trading signals, in one direction or the other, were profitable on average during the past 12 months.
Neither symbol survived my initial screening. The bull signal, NTS, moves into the 30-day earnings announcement exclusion period on Wednesday, and the bear signal, EUFX, had too low a yield from its winning trades to qualify.
Of 1,934 stocks and exchange-traded funds in this week's analytical universe, two that are traded on the major American stock exchanges broke beyond their 20-day price channels, one to the upside and the other to the downside.
For each of the symbols I'm analyzing, more than half of the Turtle Trading signals, in one direction or the other, were profitable on average during the past 12 months.
Neither symbol survived my initial screening. The bull signal, NTS, moves into the 30-day earnings announcement exclusion period on Wednesday, and the bear signal, EUFX, had too low a yield from its winning trades to qualify.
Playing the odds: Part 1
Regular readers will know that the odds of a successful trade figure prominently in my analysis. In fact, the very first thing I do when analyzing off the symbols that have given bull or bear signals in a day is to pick out those among them whose breakouts have better than even odds of producing a profitable trade.
The weakness of odds is that they're historical. They look backward. They tell what has been.
And there's no way it can be otherwise. I can't get data from the future. The past is all I've got.
A characteristic of odds, and indeed all statistical analysis, is that the more examples you have in your analysis, the greater the likelihood that your analysis is correct.
That presents a challenge. That characteristic means that the further back in time I go with my analysis, the more examples I have and the more precise my results are.
But markets are changeable beasts -- just ask the gold traders -- and the older the data is, the less likely it is to reflect the present market reality.
I'm stuck between rock and a hard place -- analyze a shorter period back and gain nimbleness in my trading, or analyze a longer period and gain precision.
It calls for a compromise, and here's how I'm handling it now.
My universe of symbols, drawn from all symbols traded on the major exchanges, consist of those with better than even odds of a profitable signal in one or both directions within the last year. Selecting this universe out of the 9,000-plus total symbols traded takes time, so I update the universe once a week.
My daily initial screening, to identify those signals with greater than even odds of success in the direction, also relies on the odds of success for breakouts within the past year, and it is those odds, applied to the average yield for breakouts within the past year, that I use in calculating a magnitude score that combines the odds and the yield, narrowing my list still further.
Most stocks and exchange-traded funds have only a handful of signals each year, so the analysis for each is based on a fairly small, but also timely, data.
At that point, I'll usually be in a position where I can take a look at the longer-term odds, going back to early 2009, when the present post-recession recovery began. Those will be a factor in my final selection.
The procedure is the opposite of what I was doing up to this week. Previously, I gave priority to the long-term odds and yields.
The weakness of odds is that they're historical. They look backward. They tell what has been.
And there's no way it can be otherwise. I can't get data from the future. The past is all I've got.
A characteristic of odds, and indeed all statistical analysis, is that the more examples you have in your analysis, the greater the likelihood that your analysis is correct.
That presents a challenge. That characteristic means that the further back in time I go with my analysis, the more examples I have and the more precise my results are.
But markets are changeable beasts -- just ask the gold traders -- and the older the data is, the less likely it is to reflect the present market reality.
I'm stuck between rock and a hard place -- analyze a shorter period back and gain nimbleness in my trading, or analyze a longer period and gain precision.
It calls for a compromise, and here's how I'm handling it now.
My universe of symbols, drawn from all symbols traded on the major exchanges, consist of those with better than even odds of a profitable signal in one or both directions within the last year. Selecting this universe out of the 9,000-plus total symbols traded takes time, so I update the universe once a week.
My daily initial screening, to identify those signals with greater than even odds of success in the direction, also relies on the odds of success for breakouts within the past year, and it is those odds, applied to the average yield for breakouts within the past year, that I use in calculating a magnitude score that combines the odds and the yield, narrowing my list still further.
Most stocks and exchange-traded funds have only a handful of signals each year, so the analysis for each is based on a fairly small, but also timely, data.
At that point, I'll usually be in a position where I can take a look at the longer-term odds, going back to early 2009, when the present post-recession recovery began. Those will be a factor in my final selection.
The procedure is the opposite of what I was doing up to this week. Previously, I gave priority to the long-term odds and yields.
No trade on Tuesday
No symbols survived my preliminary screening last night, so I won't be opening any new positions today. Read why in the "Monday's Breakouts" posting.
Monday, April 15, 2013
Monday's Breakouts
Monday, April 15:
Of 1,934 stocks and exchange-traded funds in this week's analytical universe, 126 that are traded on the major American stock exchanges broke beyond their 20-day price channels, two to the upside and 124 to the downside.
Yes, it was that kind of day.
The symbols that I analyzed had a better than even chance of producing a profitable trade in at least one direction during the past year using the Turtle Trading method for entry signals.
Note the difference in how I built my universe. Up to now I've used breakouts since January 2009. In today's universe, and going forard through the week, I'm using breakouts in the past year for my initial screen.
This was because of a problem discussed in my posting today about gold.
Bear plays are only possible with high volume stocks. All of the seven high-volume bear signals have earnings announcements within the next 30 days and so are excluded under my rules.
The two bull signals are lower-volume symbols, IIM and PSK. Both have sufficient success rates since January 2009 -- 52.6% for IIM and 55.6% for PSK -- but with low yields of around 3%, which puts their scores below 2%. I prefer a score of at 5%.
Looking at the last 12 months, IIM has a bullish success rate of only 20%, and none of PSK's bull signals has produced a profit.
Bottom line: All of Monday's breakouts fail my tests, and I'll be opening no new positions on Tuesday.
Of 1,934 stocks and exchange-traded funds in this week's analytical universe, 126 that are traded on the major American stock exchanges broke beyond their 20-day price channels, two to the upside and 124 to the downside.
Yes, it was that kind of day.
The symbols that I analyzed had a better than even chance of producing a profitable trade in at least one direction during the past year using the Turtle Trading method for entry signals.
Note the difference in how I built my universe. Up to now I've used breakouts since January 2009. In today's universe, and going forard through the week, I'm using breakouts in the past year for my initial screen.
This was because of a problem discussed in my posting today about gold.
Bear plays are only possible with high volume stocks. All of the seven high-volume bear signals have earnings announcements within the next 30 days and so are excluded under my rules.
The two bull signals are lower-volume symbols, IIM and PSK. Both have sufficient success rates since January 2009 -- 52.6% for IIM and 55.6% for PSK -- but with low yields of around 3%, which puts their scores below 2%. I prefer a score of at 5%.
Looking at the last 12 months, IIM has a bullish success rate of only 20%, and none of PSK's bull signals has produced a profit.
Bottom line: All of Monday's breakouts fail my tests, and I'll be opening no new positions on Tuesday.
IRBT closed
IRBT gave an exit signal earlier today, piercing the lower boundary, $24.45, of its 10-day moving average. That told me to close my bull position. I've posted details of the exit on the entry posting of March 15.
STX bull position closed
STX gave an exit signal today, and I've closed my bull position for a loss. I've updated my entry posting of March 14 with details of the exit.
The velocity of the price decline was so powerful that I didn't attempt a strategic exit but instead swallowed my medicine.
The exit was especially difficult because the position was built, in part, out of options expiring at the end of this week. There simply wasn't a lot of liquidity in that market.
The velocity of the price decline was so powerful that I didn't attempt a strategic exit but instead swallowed my medicine.
The exit was especially difficult because the position was built, in part, out of options expiring at the end of this week. There simply wasn't a lot of liquidity in that market.
IRBT exit signal
IRBT has crossed below its 10-day price channel, giving an exit signal to my bull position, which is structured as long shares. The breakout level is $24.45, and the price has retreated to a higher level since the signal occurred at about 12:30 p.m. Eastern.
Rather than exiting immediately I'll be working the position for a strategic exit sometime in the next few days. It's a small loss at present, but maybe I can turn it for profit.
IRBT publishes earnings on April 23. My entry posting of March 13 can be read here.
Rather than exiting immediately I'll be working the position for a strategic exit sometime in the next few days. It's a small loss at present, but maybe I can turn it for profit.
IRBT publishes earnings on April 23. My entry posting of March 13 can be read here.
GLD: The fiction is dying
OK, gold bugs. Your shiny holdings have crashed and you're back to where you were in early February 2011. The price of the gold exchange-trade fund, GLD, showed a 5.5% opening gap on Monday -- today.
In the present leg down, from $174.07 on Oct. 4, 2012, GLD has declined to today's low, so far, of $131.10, a decline of 24.7%.
Back in 2011, happier days for gold, I wrote "Gold: A letter to a friend" discussing what I saw as the flaws behind idea that gold is "real" money.
This year in the gold market certainly backs up my opinion. Just because a commodity has beauty and a history doesn't mean that it will hold its value, any more than the fact that the dollar is backed by a government with a big army is any guarantee that our fiat money will hold value.
All money is a fiction, whether fiat or commodity, and if we fail to meet Tinker Bell's demand that we believe, the fiction dies and Tink gets sick. That's what's happening to gold right now, as happened to real estate in 2007. The fiction is dying.
GLD broke below its 20-day price channel on April 3, moving into bear phase. It didn't show on my screening list because bear signals on GLD have had only a 37.5% success rate since the present market recovery began in early 2009.
That shows a flaw in my methodology, since it fails to pick up changes in direction immediately. Using data back to 2009 has the advantage of providing a more robust statistical base, but it's not very nimble when the tectonic plates shift.
Bear signals since the present downtrend began have been profitable two out of the three times they have occurred.
GLD's next major resistance level on the weekly chart is $127.80, a correction low in early January during the long uptrend. That's 3.8% below the present trading level.
There's no way to say how strong the resistance is. The low was accompanied by a volume spike, but a weak one.
GLD, with average volume of 16.4 million shares a day, has an excellent options grid with high open interest and a fairly narrow bid/ask spread.
Decision for my account: GLD is clearly in a downtrend and would make a decent bear play. A decline of such magnitude usually is followed by an upward correction, and I shall wait for a break above the 10-day price channel, ending the current bear phase, and then a fresh break below the 20-day price channel, signally a new bear phase, before entering.
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
In the present leg down, from $174.07 on Oct. 4, 2012, GLD has declined to today's low, so far, of $131.10, a decline of 24.7%.
Back in 2011, happier days for gold, I wrote "Gold: A letter to a friend" discussing what I saw as the flaws behind idea that gold is "real" money.
This year in the gold market certainly backs up my opinion. Just because a commodity has beauty and a history doesn't mean that it will hold its value, any more than the fact that the dollar is backed by a government with a big army is any guarantee that our fiat money will hold value.
All money is a fiction, whether fiat or commodity, and if we fail to meet Tinker Bell's demand that we believe, the fiction dies and Tink gets sick. That's what's happening to gold right now, as happened to real estate in 2007. The fiction is dying.
GLD broke below its 20-day price channel on April 3, moving into bear phase. It didn't show on my screening list because bear signals on GLD have had only a 37.5% success rate since the present market recovery began in early 2009.
That shows a flaw in my methodology, since it fails to pick up changes in direction immediately. Using data back to 2009 has the advantage of providing a more robust statistical base, but it's not very nimble when the tectonic plates shift.
Bear signals since the present downtrend began have been profitable two out of the three times they have occurred.
GLD's next major resistance level on the weekly chart is $127.80, a correction low in early January during the long uptrend. That's 3.8% below the present trading level.
There's no way to say how strong the resistance is. The low was accompanied by a volume spike, but a weak one.
GLD, with average volume of 16.4 million shares a day, has an excellent options grid with high open interest and a fairly narrow bid/ask spread.
Decision for my account: GLD is clearly in a downtrend and would make a decent bear play. A decline of such magnitude usually is followed by an upward correction, and I shall wait for a break above the 10-day price channel, ending the current bear phase, and then a fresh break below the 20-day price channel, signally a new bear phase, before entering.
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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