Halliburton Co. (HAL) pushed above its 20-day price channel on Tuesday and confirmed the bull signal by trading above the channel's above boundary, $41.98, the next day.
The signal is part of an uptrend that began in late June 2012 from $26.28. It peaked at $43.96 on Feb. 14, moved into an eight-week correction that carried the price down to $36.77 on April 18, and has since moved to a higher high within the correction, suggesting a renew of momentum to the upside.
One way of looking at it: HAL is 4.5% below the previous peak, and that span represents the easy money. The tough slog, the chart suggests, will begin at that level. And as a trader, I'm quite happy with 4.5%, especially if I can leverage it.
This is HAL's 4th bull signal since the present uptrend began. Of the three completed signals, two were profitable, with an average yield of 16.1%. The one unsuccessful trade had a loss of 5.1%, giving an excellent win/lose yield spread of 11% and an equally excellent score -- winning yield adjusted by the success rate -- of 10.7%.
The stock has completed 20 bull signals since early 2009, when the broad markets began recovering from the post-recession crash. Eleven were profitable, with an average yield of 7.3%, and nine were unprofitable, with an average loss of 7.5%.
Over the longer run HAL has a slightly negative win/lose spread, and the winning trades' average yield adjusted by the success rate is only 4%, below my 5% minimum preference.
The better performance within the current trend overcomes those negatives to an extent. It does suggest that the upside momentum is young and needs more work to prove itself.
My conclusion: The longer-term stats aren't a deal killer, but they are cause for caution.
Although, "caution" isn't really the word I would use to describe analysts' collective opinion of HAL. Altogether, they come down to a 62% enthusiasm rating, which is quite high.
That enthusiasm isn't surprising. Halliburton is an oilfield services company, which is the hot part of the energy sector. Headquartered in Houston, Texas, it operates globally in about 80 countries.
It has a return on equity of 17% and debt amounting to 31% of equity, a bit higher than I like but far from awful.
Looking at the last 12 quarters, Halliburton has been profitable in all of them. Earnigs rose from the 2nd quarter of 2010 to the 4th quarter of 2011, and from that point declined into the 4th quarter of 2012. The most recent report -- the 1st quarter of 2013 -- showed a slight increase over the prior quarter.
Halliburton has delivered upside earnings surprises every time.
Institutions own 80% of shares and the price is near parity with sales. It takes $1.39 in shares to control a dollar in sales.
HAL on average trades 15.8 million shares a day, a degree of liquidity that assures a wide selection of option strike prices with four-figure open interest. The front-month at-the-money bid/ask spread on calls is extremely low, at 1.3%.
Implied volatility is running at 30%, near the midpoint of the six-month range.
Options are pricing in confidence that 68.2% of trades will fall between $38.24 and $45.54 over the next month, for a potential gain or loss of 8.7%, and between $40.14 and $43.64 over the next week.
The options trading action today is on the put side, with volume running 28% above the five-day average. Calls are running at only 32% of average volume.
The fair-price zone on today's 30-minute chart runs from $41.86 to $43.23, encompassing 68.2% of transactions surrounding the most-traded price, $42.10. HAL is trading near the bottom of the zone with two hours left before the closing bell.
Halliburton next publishes earnings on July 22. The stock goes ex-dividend in June for a quarterly payout yielding 1.19% annualized at current prices.
Decision for my account: There has been little follow through today on the upside breakout, but HAL has met my requirements for confirmation. It has good odds, good financials and a good chart.
I've opened a bull position in HAL, structuring it as a vertical credit spread expiring in May, short the $41 put and long the $39 put. The position has a maximum potential yield at expiration of 17.7% and 3.4% cushion on the profit, meaning that its profitable at expiration down to $40.57.
In my analysis above I referred to the 4.5% gap between the current price and the $43.96 swing high as "the easy money". The maximum profit on expiration on this trade is $41.01, well in the easy money zone.
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.
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