U.S. markets will be closed on Thursday for the American Independence Day. London, inexplicably declining to join in the celebration, will trade as usual, as will Tokyo and Sydney. The U.S. markets will close early on Wednesday, at 1 p.m. New York Time.
Like Thursday's fireworks displays, the econ week will end with a grand finale: The employment report, including the politically important unemployment rate. It will be published at 8:30 a.m.
The ADP employment report, from the leading U.S. payroll company, will provide a sneak preview of the jobs numbers on Wednesday at 8:30 a.m. Friday.
The week opens with another major report, the Institute of Supply Management manufacturing index, on Monday at 10 a.m. The survey provides insight into how robustly the manufacturing sector is recovering, which in turn helps inform the Federal Reserve's decision-making on money policy.
International trade statistics showing the balance between imports and exports will be published Wednesday at 8:30 a.m.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
Average hourly workweek in manufacturing from the employment report, 8:30 a.m. Friday.
Manufacturers new orders for consumer goods and materials from the factory orders report, at 10 a.m. Tuesday.
Vendor performance, or the delivery times index, from the Institute of Supply Management manufacturing survey, 10 a.m. Monday.
The S&P 500 index, reported continually during market hours.
Average weekly initial jobless claims, at 8:30 a.m. Friday, a day later than usual because of the holiday.
Manufacturers new orders for nondefense capital goods from the factory orders report, at 10 a.m. Tuesday.
Other reports of interest:
Monday: Purchasing Managers manufacturing index, just before 9 a.m., and construction spending at 10 a.m.
Tuesday: Motor vehicle sales throughout the day and factory orders at 10 a.m.
Wednesday: Institute of Supply Management non-manufacturing index at 10 a.m. and petroleum inventories at 10:30 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Two Federal Open Market Committee members will make public appearances on Tuesday, New York Fed Pres. William Dudley and Fed Gov. Jerome Powell
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,284 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm trading August options for short vertical spreads as well as October options for single calls and puts. Of course, shares are good at any time.
Good trading! And have a Glorious Fourth!
Saturday, June 29, 2013
Monday's Prospects
On Friday, June 28:
Of 2,284 stocks and exchange-traded funds in this week's analytical universe, 33 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 29 to the upside and four to the downside.
Five symbols that are traded over the counter broke out, three to the upside and two to the downside.
The five highest-volume symbols to break out are CMCSA, NKE, PPL, PPC and RHP.
Within my analytical universe, 1.7% of symbols gave bull or bear signals, down from 2% the prior trading day.
The ratio of bull to bear signals is 5:1, compared to 14:1 the prior trading day, a decline in the market's bullish bias.
Two of the major-exchange symbols survived my initial screening, both having broken out to the upside. They are MGA and RHP.
None of the over-the-counter symbols survived my initial screening.
Four symbols were excluded from consideration because they will publish earnings within the next 30 days. They are CNO, PPC, RYAAY and TRW.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-day exclusion rule.
I'll do further analysis of the surviving symbols on Monday, July 1.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Of 2,284 stocks and exchange-traded funds in this week's analytical universe, 33 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 29 to the upside and four to the downside.
Five symbols that are traded over the counter broke out, three to the upside and two to the downside.
The five highest-volume symbols to break out are CMCSA, NKE, PPL, PPC and RHP.
Within my analytical universe, 1.7% of symbols gave bull or bear signals, down from 2% the prior trading day.
The ratio of bull to bear signals is 5:1, compared to 14:1 the prior trading day, a decline in the market's bullish bias.
Two of the major-exchange symbols survived my initial screening, both having broken out to the upside. They are MGA and RHP.
None of the over-the-counter symbols survived my initial screening.
Four symbols were excluded from consideration because they will publish earnings within the next 30 days. They are CNO, PPC, RYAAY and TRW.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-day exclusion rule.
I'll do further analysis of the surviving symbols on Monday, July 1.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read 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.
Friday, June 28, 2013
EPD and ETE: Band of brothers
Enterprise Products Partners L.P. (EPD) broke above its 20-day price and confirmed the bull signal by trading above the breakout level the next day.
Energy Transfer Equity L.P. (ETE) did the same.
Those two natural gas companies were the only symbols to survive my second-wave analysis. And in the end, I have chart problems with both.
The companies met my criteria for nearer-term odds, with EPD showing 16 completed breakouts to the upside with a 56% success rate and ETE having completed one breakout, which was successful.
ETE has a better yield on the winning trades and win/lose yield spread that EPD, but the latter's numbers are quite acceptable.
EPD has far higher return on equity and slightly lower debt than ETE, but neither is a deal breaker.
No, it comes down solely to the charts, and in that area the two are marching in lockstep like a band of brothers.
EPD began a rise from the lower boundary of the 20-day price channel on June 24 and on the fourth trading day broke above the upper boundary at $61.26.
ETE began a rise from the lower boundary on June 21 and on the fifth day cleared the price channel at $59.33.
But in neither case was it a true breakout. EPD's most recent swing high is $63.56, just a bit more than a day's true range away from the current price, $61.93. ETE's is $61.99, also less than two days' trading range away from the present price, $59.76.
This illustrates a shortcoming of the Turtle Trading method's reliance on price-channel breakouts. They are excellent tools for screening, but in the end, the trading decision must come down to the individual chart.
The other survivors of the initial screening, reported in last night's post, "Friday's Prospects", fell by the wayside in the second wave of analysis.
EXLP and TGH failed confirmation. CEB has been traded publicly for less than a year and so is too young for me to trade. GRFS is an American depository receipt for a Spanish pharmaceutical company and suffers from the information scarcity that plagues most ADRs.
SBH and NGLS might have been tradeable, but their longer term odds were just even and I wasn't otherwise excited by either.
THO has low win/lose yield spreads both in the nearer term and the longer term.
That left the band brothers, EPD and ETE, which I'll add to my list of symbols that I'm monitoring and that I'll consider if they proceed on to true breakouts.
Decision for my account: I won't be opening a new bull position in EPD or ETE.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Energy Transfer Equity L.P. (ETE) did the same.
Those two natural gas companies were the only symbols to survive my second-wave analysis. And in the end, I have chart problems with both.
The companies met my criteria for nearer-term odds, with EPD showing 16 completed breakouts to the upside with a 56% success rate and ETE having completed one breakout, which was successful.
ETE has a better yield on the winning trades and win/lose yield spread that EPD, but the latter's numbers are quite acceptable.
EPD has far higher return on equity and slightly lower debt than ETE, but neither is a deal breaker.
No, it comes down solely to the charts, and in that area the two are marching in lockstep like a band of brothers.
EPD began a rise from the lower boundary of the 20-day price channel on June 24 and on the fourth trading day broke above the upper boundary at $61.26.
ETE began a rise from the lower boundary on June 21 and on the fifth day cleared the price channel at $59.33.
But in neither case was it a true breakout. EPD's most recent swing high is $63.56, just a bit more than a day's true range away from the current price, $61.93. ETE's is $61.99, also less than two days' trading range away from the present price, $59.76.
This illustrates a shortcoming of the Turtle Trading method's reliance on price-channel breakouts. They are excellent tools for screening, but in the end, the trading decision must come down to the individual chart.
The other survivors of the initial screening, reported in last night's post, "Friday's Prospects", fell by the wayside in the second wave of analysis.
EXLP and TGH failed confirmation. CEB has been traded publicly for less than a year and so is too young for me to trade. GRFS is an American depository receipt for a Spanish pharmaceutical company and suffers from the information scarcity that plagues most ADRs.
SBH and NGLS might have been tradeable, but their longer term odds were just even and I wasn't otherwise excited by either.
THO has low win/lose yield spreads both in the nearer term and the longer term.
That left the band brothers, EPD and ETE, which I'll add to my list of symbols that I'm monitoring and that I'll consider if they proceed on to true breakouts.
Decision for my account: I won't be opening a new bull position in EPD or ETE.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Thursday, June 27, 2013
Friday's Prospects
On Thursday, June 27:
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 45 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 42 to the upside and three to the downside.
One symbol that is traded over the counter broke out, to the upside.
The five highest-volume symbols to break out are AMX, CVC, CAG, UMC and INTU.
Within my analytical universe, 2% of symbols gave bull or bear signals, up from 1.3% the prior trading day.
The ratio of bull to bear signals is 14.3:1, compared to 2:1 the prior trading day, a strong increase in the market's bullish bias.
Ten of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are CEB, EPD, ETE, EXLP, GRFS, JOE, NGLS, SBH, TGH and THO.
The one over-the-counter symbol to break out, NDKAY to the upside, failed to survive my initial screening.
Two symbols were excluded from consideration because they will publish earnings within the next 30 days. They are CAG and PCP.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-day exclusion rule.
I'll do further analysis of the surviving symbols on Friday, June 28.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 45 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 42 to the upside and three to the downside.
One symbol that is traded over the counter broke out, to the upside.
The five highest-volume symbols to break out are AMX, CVC, CAG, UMC and INTU.
Within my analytical universe, 2% of symbols gave bull or bear signals, up from 1.3% the prior trading day.
The ratio of bull to bear signals is 14.3:1, compared to 2:1 the prior trading day, a strong increase in the market's bullish bias.
Ten of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are CEB, EPD, ETE, EXLP, GRFS, JOE, NGLS, SBH, TGH and THO.
The one over-the-counter symbol to break out, NDKAY to the upside, failed to survive my initial screening.
Two symbols were excluded from consideration because they will publish earnings within the next 30 days. They are CAG and PCP.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-day exclusion rule.
I'll do further analysis of the surviving symbols on Friday, June 28.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Thursday: No Trade
None of the five symbols that survived my initial screening last night has made it past the second wave of analysis. So I won't be opening any new positions today.
The details of the first-wave analysis can be found in last night's posting, "Thursday's Prospects".
The breakouts came amid a very tentative return to a bullish bias after Federal Reserve Chairman Bernanke signaled a gradual slackening of financial stimulus next year. His nuanced remarks sent the markets into a mini-panic to the downside.
With a 2:1 ratio of bull to bear signals, I wouldn't exactly say the bull has returned, but the bear is napping, exhausted after its exertions a week ago, when its rampage produced bear signals at a rate 43 times the bull signals.
Here's how today's first-wave analysis survivors, all bull signals, fared in the second wave, in descending order by volume:
P has financials that don't match a bullish outlook, with return on equity of negative 45%. Ouch! P, of course, is the innovative Pandora music streaming service. It's price is approaching its $20 opening price in its 2011 initial public offering, and a break above that level might override the financials. But for now, the chart is still ensnared in the IPO congestion, which can cause some resistance.
NOW had a July 24 earnings announcement pop up on the calendar this morning, bringing it within my exclusion period. I don't open new positions in a stock within 30 days of earnings publication.
ITC has a bearish analytical rating from Zacks. This isn't always a barrier to entry, but I'm not otherwise excited by ITC, whose lower liquidity won't let me take advantage of the leverage and hedging provided by options.
NGL fell back within its price channel and so failed to confirm the bull signal.
DNZOY, an over-the-counter stock, lacks the financial data I need to assess it, as is often the case with foreign companies trading as American depository receipts. Its average volume is under 18,000 shares a day. If it were more liquid I would be tempted, but with such low volume I don't want to chance a financially blind trade.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
The details of the first-wave analysis can be found in last night's posting, "Thursday's Prospects".
The breakouts came amid a very tentative return to a bullish bias after Federal Reserve Chairman Bernanke signaled a gradual slackening of financial stimulus next year. His nuanced remarks sent the markets into a mini-panic to the downside.
With a 2:1 ratio of bull to bear signals, I wouldn't exactly say the bull has returned, but the bear is napping, exhausted after its exertions a week ago, when its rampage produced bear signals at a rate 43 times the bull signals.
Here's how today's first-wave analysis survivors, all bull signals, fared in the second wave, in descending order by volume:
P has financials that don't match a bullish outlook, with return on equity of negative 45%. Ouch! P, of course, is the innovative Pandora music streaming service. It's price is approaching its $20 opening price in its 2011 initial public offering, and a break above that level might override the financials. But for now, the chart is still ensnared in the IPO congestion, which can cause some resistance.
NOW had a July 24 earnings announcement pop up on the calendar this morning, bringing it within my exclusion period. I don't open new positions in a stock within 30 days of earnings publication.
ITC has a bearish analytical rating from Zacks. This isn't always a barrier to entry, but I'm not otherwise excited by ITC, whose lower liquidity won't let me take advantage of the leverage and hedging provided by options.
NGL fell back within its price channel and so failed to confirm the bull signal.
DNZOY, an over-the-counter stock, lacks the financial data I need to assess it, as is often the case with foreign companies trading as American depository receipts. Its average volume is under 18,000 shares a day. If it were more liquid I would be tempted, but with such low volume I don't want to chance a financially blind trade.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Wednesday, June 26, 2013
Thursday's Prospects
On Wednesday, June 26:
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 25 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 19 to the upside and six to the downside.
Five symbols that are traded over the counter broke out, one to the upside and four to the downside.
The five highest-volume symbols to break out are GRPN, P, SNV, AET and PNC.
Within my analytical universe, 1.3% of symbols gave bull or bear signals, up from 0.8% the prior trading day.
The ratio of bull to bear signals is 2:1, on the border of a bullish bias and slight less bullish than the prior trading day's 2.2:1 ratio.
Four of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ITC, NGL, NOW and P.
One over-the-counter symbol survived my initial screening, DNZOY, having broken out to the upside.
Four symbols were excluded from consideration because they will publish earnings within the next 30 days. They are ISBC, SNV, TCP and ZION.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-day exclusion rule.
I'll do further analysis of the surviving symbols on Thursday, June 27.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 25 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 19 to the upside and six to the downside.
Five symbols that are traded over the counter broke out, one to the upside and four to the downside.
The five highest-volume symbols to break out are GRPN, P, SNV, AET and PNC.
Within my analytical universe, 1.3% of symbols gave bull or bear signals, up from 0.8% the prior trading day.
The ratio of bull to bear signals is 2:1, on the border of a bullish bias and slight less bullish than the prior trading day's 2.2:1 ratio.
Four of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ITC, NGL, NOW and P.
One over-the-counter symbol survived my initial screening, DNZOY, having broken out to the upside.
Four symbols were excluded from consideration because they will publish earnings within the next 30 days. They are ISBC, SNV, TCP and ZION.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-day exclusion rule.
I'll do further analysis of the surviving symbols on Thursday, June 27.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Wednesday: No Trade
MDCO is the one symbol to survive my initial screening (see "Wednesday's Prospects" posted last night).
However, it fails on further scrutiny. Although the bear signal was confirmed, it runs contrary to the main trend, an upward movement beginning in July 2010, with the most recent leg having begun in November 2012.
The historical odds show the strength of the upward momentum. There have been no prior breakouts to the downside -- bear signals -- during the present leg up from last year. The full uptrend, from 2010, has completed eight bear signals, only two of which produced a profit.
It would take a drop from the present level -- $31.37 -- below the prior higher low of $20.04 to break the uptrend, although a clear low-lower high-lower low zig-zag would give the downward move more credence.
But the chart isn't there yet, so for those reasons, I won't be pursuing further analysis of MDCO.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
However, it fails on further scrutiny. Although the bear signal was confirmed, it runs contrary to the main trend, an upward movement beginning in July 2010, with the most recent leg having begun in November 2012.
The historical odds show the strength of the upward momentum. There have been no prior breakouts to the downside -- bear signals -- during the present leg up from last year. The full uptrend, from 2010, has completed eight bear signals, only two of which produced a profit.
It would take a drop from the present level -- $31.37 -- below the prior higher low of $20.04 to break the uptrend, although a clear low-lower high-lower low zig-zag would give the downward move more credence.
But the chart isn't there yet, so for those reasons, I won't be pursuing further analysis of MDCO.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Tuesday, June 25, 2013
Wednesday's Prospects
On Tuesday, June 25:
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 19 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 13 to the upside and six to the downside.
No symbols that are traded over the counter broke out.
The five highest-volume symbols to break out are WAG, CCL, NYCB, HCBK and LXRX.
Tuesday was the first double-digit day after three days in the triple digits, and the fewest breakouts in at least a month. It is also the first time the markets have shown a bullish bias, although just barely, after four days on the bear side.
Within my analytical universe, 0.8% of symbols gave bull or bear signals, down from 5.9% the prior trading day.
The ratio of bull to bear signals is 2:1, compared to 1:26 the prior trading day, a switch to a weak bullish bias
One of the major-exchange symbols survived my initial screening, MDCO, having broken out to the downside.
Two stocks that broke out to the upside, ILMN and WAL, had sufficiently good odds to make the initial cut, but they have earnings announcements within the next 30 days and so were struck from the list.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-days exclusion rule.
I'll do further analysis on MDCO on Wednesday, June 26.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 19 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 13 to the upside and six to the downside.
No symbols that are traded over the counter broke out.
The five highest-volume symbols to break out are WAG, CCL, NYCB, HCBK and LXRX.
Tuesday was the first double-digit day after three days in the triple digits, and the fewest breakouts in at least a month. It is also the first time the markets have shown a bullish bias, although just barely, after four days on the bear side.
Within my analytical universe, 0.8% of symbols gave bull or bear signals, down from 5.9% the prior trading day.
The ratio of bull to bear signals is 2:1, compared to 1:26 the prior trading day, a switch to a weak bullish bias
One of the major-exchange symbols survived my initial screening, MDCO, having broken out to the downside.
Two stocks that broke out to the upside, ILMN and WAL, had sufficiently good odds to make the initial cut, but they have earnings announcements within the next 30 days and so were struck from the list.
Earnings season officially begins July 8 when AA publishes earnings, so expect increasing numbers of breakouts to run up against my 30-days exclusion rule.
I'll do further analysis on MDCO on Wednesday, June 26.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Tuesday: No Trade
All five of the bull and bear signals that survived initial screening last night have failed the next wave of analysis. (See my post "Tuesday's Prospects" for details of the initial screening.)
WRPT moved back within its 20-day price channel in trading today, thereby failing to confirm its bear signal, and SNCR has insufficient options liquidity for me to construct a bearish position that meets my trading preferences.
Two other signals that broke out to the downside have charts that don't match the direction of the bear signal.
VHC has been in a sideways correction since October 2010. A downward move (lower high, lower low) since July 2012 could well represent just another zig or zag within the correction. It's ambiguous.
YOKU has been trending generally sideways since August 2011. It has risen from a lowest low to a higher high, set a higher low and may or may not be attempting an uptrend. It is also ambiguous.
The one bull signal was given by FLTX, which has clearly been in an uptrend on the weekly chart since it went public in October 2012. However, it has only three quarters of history, which is a bit sparse for my taste. I for a company to have at least a year of data before I consider trading it.
VHC, YOKU and FLTX all have acceptable historical odds on their breakouts during their nearer term trends, although VHC and YOKU are showing negative win/lose yield spreads over the longer term and so are poorer risks.
For those reasons, I won't be adding any new positions 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.
Disclaimer
WRPT moved back within its 20-day price channel in trading today, thereby failing to confirm its bear signal, and SNCR has insufficient options liquidity for me to construct a bearish position that meets my trading preferences.
Two other signals that broke out to the downside have charts that don't match the direction of the bear signal.
VHC has been in a sideways correction since October 2010. A downward move (lower high, lower low) since July 2012 could well represent just another zig or zag within the correction. It's ambiguous.
YOKU has been trending generally sideways since August 2011. It has risen from a lowest low to a higher high, set a higher low and may or may not be attempting an uptrend. It is also ambiguous.
The one bull signal was given by FLTX, which has clearly been in an uptrend on the weekly chart since it went public in October 2012. However, it has only three quarters of history, which is a bit sparse for my taste. I for a company to have at least a year of data before I consider trading it.
VHC, YOKU and FLTX all have acceptable historical odds on their breakouts during their nearer term trends, although VHC and YOKU are showing negative win/lose yield spreads over the longer term and so are poorer risks.
For those reasons, I won't be adding any new positions 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.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Monday, June 24, 2013
Tuesday's Prospects
On Monday, June 24:
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 120 that are traded on the major American stock exchanges broke beyond their 20-day price channels, five to the upside and 115 to the downside.
In addition, 16 that are traded over the counter broke out, all to the downside.
Within my analytical universe, 5.9% of symbols gave bull or bear signals, up from 4.7% the prior trading day.
The ratio of bull to bear signals is 1:26, compared to 1:13 the prior trading day, a strengthening of the bearish bias in the markets. It is the fourth consecutive trading day with a bearish bias.
Five of the major-exchange symbols survived my initial screening, one having broken out to the upside and four to the downside. They are FLTX to the upside and SNCR, VHC, WPRT and YOKU to the downside.
None of the over-the-counter symbols survived my initial screening.
Two tech giants, BIDU and YHOO, were among the downside breakouts that had even odds of a profitable trade, but each had an adjusted yield that was below my cutoff point and so didn't make the cut.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, June 25.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Of 2,289 stocks and exchange-traded funds in this week's analytical universe, 120 that are traded on the major American stock exchanges broke beyond their 20-day price channels, five to the upside and 115 to the downside.
In addition, 16 that are traded over the counter broke out, all to the downside.
Within my analytical universe, 5.9% of symbols gave bull or bear signals, up from 4.7% the prior trading day.
The ratio of bull to bear signals is 1:26, compared to 1:13 the prior trading day, a strengthening of the bearish bias in the markets. It is the fourth consecutive trading day with a bearish bias.
Five of the major-exchange symbols survived my initial screening, one having broken out to the upside and four to the downside. They are FLTX to the upside and SNCR, VHC, WPRT and YOKU to the downside.
None of the over-the-counter symbols survived my initial screening.
Two tech giants, BIDU and YHOO, were among the downside breakouts that had even odds of a profitable trade, but each had an adjusted yield that was below my cutoff point and so didn't make the cut.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, June 25.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Status of my bull positions
In my analysis today of PBYI, I included a two-graf sidebar on my bull holdings to illustrate the bearish bias of the market.
What a fickle friend the market is when it comes to supporting an argument!
In the analysis I wrote:
The strength of the bearish bias noted in item 3 can be seen in my bullish holdings opened before the downtrend began. I have five bull positions left. MPEL gave an exit signal on Friday, and both QIHU and SBUX did so today. It is a sad and lonely time to be a bull.As the trading day draws to a close, QIHU and SBUX have retreated to the upside, pulling above their signal levels. Since my trading relies on closing prices, the interim exit signals on QIHU and SBUX are invalid and I'm no longer actively seeking a decent exit point.
(The three giving exit signals are structured as short vertical options spreads and so I'll be getting out in a tactical fashion. See my post "How I exit hedged positions". The remaining two, CLB and SEP, are long shares and haven't given an exit signal.)
MPEL remains well below is exit signals. However, according to the calculations described in "How I exit..." linked to above, the potential reward between now and expiration is more than double the potential risk; 2.01x, to be exact. So MPEL is a hold for now.
PBYI: Turbocharged
Update 7/30/2013: PBYI fell below its 10-day price channel on July29 and I closed the position the next trading day for an 18.6% gain over 36 days. The yield works out to 188.4% annualized. The position was structured as long shares and so lacked leverage.
Puma Biotechnology Inc. (PBYI) broke above its 20-day price channel on Friday and confirmed the bull signal today amid a market that seemingly sees running with the bears to be the better course.
The breakout came one day before an Puma Biotech news release announcing that the company had been added to the Russell 3000 index.
Russell Investments on Friday included PBYI on list of additions to the Russell 3000 index. Inclusion on an index acts like a turbocharger to the upside, and traders account for that when a company is added. PBYI closed on Friday 10.6% above the day's open, hitting an all-time high and today pushed up to a new one, $43.50.
PBYI is a fairly new stock. It began trading publicly in April 2012 at $10 and so has fewer than five quarters of history. The lock-up period imposed as a condition of the initial public offering expired April 17, and so the stock is now freely traded.
It has been in an uptrend since July 2012. The present breakout to the upside is the third since that trend began.
The completed bull signals had split results. The successful trade yielded 40% over 71 days in a rise from $11 punctuated by three corrections on the weekly chart. The failed trade produced a 66% loss over 12 days. The win/lose yield spread is high, at 33%.
PBYI was one of two symbols to survive my initial screening over the weekend. (See "Monday's Prospects" for details.) The other was bear signal, ODP, which has a low win/lose yield spread, and also is priced at under $4, making it difficult to construct a short position with options.
So PBYI came out on top. Yet, there are three reasons to hate the idea of playing this stock now:
1) The rise came on news. I'm averse to playing news breakouts -- like Nathan Rothschild, I want to buy on the cannons and sell on the trumpets. On the other hand, inclusion in a major index does give a continuing upside boost, so perhaps entering after the rise can be seen as jumping aboard a symbol that just acquired a turbobooster.
2) Puma Biotech is a pharmaceutical development company, which means its success and failure are largely in the hands of regulators at the U.S. Food and Drug Administration. Bureaucrats defy efforts to chart them. They have no bull or bear trends. They are, by definition, walking black swan events.
3) PBYI's upside breakout is coming amidst a market that is in a mini-panic to the downside. It may be short lived -- or not, I can't predict the future -- but my trading bias generally follows the market. If the market has a bearish bias, then I do to. Arguing for a bull play in PBYI is it's correlaton to the S&P 500, which is quite low, at .20 (where 1 is perfectly correlated, -1 is perfectly inverse and 0 is no correlation).
The strength of the bearish bias noted in item 3 can be seen in my bullish holdings opened before the downtrend began. I have five bull positions left. MPEL gave an exit signal on Friday, and both QIHU and SBUX did so today. It is a sad and lonely time to be a bull.
(The three giving exit signals are structured as short vertical options spreads and so I'll be getting out in a tactical fashion. See my post "How I exit hedged positions". The remaining two, CLB and SEP, are long shares and haven't given an exit signal.)
Puma Biotech, headquartered in Los Angeles, California, focuses its efforts on treatments for breast-cancer patients. And that's a far as any explanation I can give goes, except to say that successful treatments for breast cancer represent a particularly lucrative market for a successful developer.
The company is covered by slightly more than a handful of analysts, who combined give in a 71% enthusiasm index, which is higher than most companies I've analyzed.
Like all development-stage drug companies, Puma Biotech's stock is fueled by hopes and dreams rather than the financials. The company reports return on equity of negative 100% (!), but, to the upside, no long-term debt.
It has never earned a profit in the five quarters since it went public, but losses have been lessening for the past two quarters compared tot he all-time nadir in the 3rd quarter of 2012. The most recent quarter produced the first upside earnings surprise, following four surprises to the downside.
Institutions own 78% of shares.
PBYI on average trades 141,000 shares a day. It has no options. Any bull position must be structured as long shares, which forecloses both leverage and hedging.
The fair-price zone on today's 30-minute chart runs from $41.86 to $42.87, encompassing 68.2% of transactions surrounding the most-traded price, $42.56. The stock opened near the lower boundary of the zone, rose beyond the upper, fell back to the floor and is now trading just below the most-traded price.
Puma Biotech next publishes earnings on Aug. 15.
Decision for my account: I've opened a bull position in PBYI, structuring it as long shares. Despite the three reasons to dislike the trade, it is unleveraged, which reduces the likely loss. Also, it is a very small position under my trading rules because of its high average daily trading range, which now stands at 1.69. Finally, it is poorly correlated with the S&P 500, which suggests that it is less likely to follow the lemmings off of the cliff.
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
Puma Biotechnology Inc. (PBYI) broke above its 20-day price channel on Friday and confirmed the bull signal today amid a market that seemingly sees running with the bears to be the better course.
The breakout came one day before an Puma Biotech news release announcing that the company had been added to the Russell 3000 index.
Russell Investments on Friday included PBYI on list of additions to the Russell 3000 index. Inclusion on an index acts like a turbocharger to the upside, and traders account for that when a company is added. PBYI closed on Friday 10.6% above the day's open, hitting an all-time high and today pushed up to a new one, $43.50.
PBYI is a fairly new stock. It began trading publicly in April 2012 at $10 and so has fewer than five quarters of history. The lock-up period imposed as a condition of the initial public offering expired April 17, and so the stock is now freely traded.
It has been in an uptrend since July 2012. The present breakout to the upside is the third since that trend began.
The completed bull signals had split results. The successful trade yielded 40% over 71 days in a rise from $11 punctuated by three corrections on the weekly chart. The failed trade produced a 66% loss over 12 days. The win/lose yield spread is high, at 33%.
PBYI was one of two symbols to survive my initial screening over the weekend. (See "Monday's Prospects" for details.) The other was bear signal, ODP, which has a low win/lose yield spread, and also is priced at under $4, making it difficult to construct a short position with options.
So PBYI came out on top. Yet, there are three reasons to hate the idea of playing this stock now:
1) The rise came on news. I'm averse to playing news breakouts -- like Nathan Rothschild, I want to buy on the cannons and sell on the trumpets. On the other hand, inclusion in a major index does give a continuing upside boost, so perhaps entering after the rise can be seen as jumping aboard a symbol that just acquired a turbobooster.
2) Puma Biotech is a pharmaceutical development company, which means its success and failure are largely in the hands of regulators at the U.S. Food and Drug Administration. Bureaucrats defy efforts to chart them. They have no bull or bear trends. They are, by definition, walking black swan events.
3) PBYI's upside breakout is coming amidst a market that is in a mini-panic to the downside. It may be short lived -- or not, I can't predict the future -- but my trading bias generally follows the market. If the market has a bearish bias, then I do to. Arguing for a bull play in PBYI is it's correlaton to the S&P 500, which is quite low, at .20 (where 1 is perfectly correlated, -1 is perfectly inverse and 0 is no correlation).
The strength of the bearish bias noted in item 3 can be seen in my bullish holdings opened before the downtrend began. I have five bull positions left. MPEL gave an exit signal on Friday, and both QIHU and SBUX did so today. It is a sad and lonely time to be a bull.
(The three giving exit signals are structured as short vertical options spreads and so I'll be getting out in a tactical fashion. See my post "How I exit hedged positions". The remaining two, CLB and SEP, are long shares and haven't given an exit signal.)
Puma Biotech, headquartered in Los Angeles, California, focuses its efforts on treatments for breast-cancer patients. And that's a far as any explanation I can give goes, except to say that successful treatments for breast cancer represent a particularly lucrative market for a successful developer.
The company is covered by slightly more than a handful of analysts, who combined give in a 71% enthusiasm index, which is higher than most companies I've analyzed.
Like all development-stage drug companies, Puma Biotech's stock is fueled by hopes and dreams rather than the financials. The company reports return on equity of negative 100% (!), but, to the upside, no long-term debt.
It has never earned a profit in the five quarters since it went public, but losses have been lessening for the past two quarters compared tot he all-time nadir in the 3rd quarter of 2012. The most recent quarter produced the first upside earnings surprise, following four surprises to the downside.
Institutions own 78% of shares.
PBYI on average trades 141,000 shares a day. It has no options. Any bull position must be structured as long shares, which forecloses both leverage and hedging.
The fair-price zone on today's 30-minute chart runs from $41.86 to $42.87, encompassing 68.2% of transactions surrounding the most-traded price, $42.56. The stock opened near the lower boundary of the zone, rose beyond the upper, fell back to the floor and is now trading just below the most-traded price.
Puma Biotech next publishes earnings on Aug. 15.
Decision for my account: I've opened a bull position in PBYI, structuring it as long shares. Despite the three reasons to dislike the trade, it is unleveraged, which reduces the likely loss. Also, it is a very small position under my trading rules because of its high average daily trading range, which now stands at 1.69. Finally, it is poorly correlated with the S&P 500, which suggests that it is less likely to follow the lemmings off of the cliff.
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.
Saturday, June 22, 2013
Monday's Prospects
On Friday, June 21:
Of 2,289 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, eight to the upside and 88 to the downside.
In addition, 12 that are traded over the counter broke out, all to the downside.
Within my analytical universe, 4.7% of symbols gave bull or bear signals, down from 11.3% the prior trading day. It is the highest percentage since June 5, when 11% gave signals. (Note that the prior-day percentage has been corrected. See "Friday's Prospects".)
The ratio of bull to bear signals is 1:13, compared to 1:43 the prior trading day, a weakening of the bearish bias in the markets.
Two of the major-exchange symbols survived my initial screening, one having broken out in each direction. They are PBYI to the upside and ODP to the downside.
None of the over-the-counter symbols survived my initial screening.
All but four of the 96 major-exchange breakouts failed because their odds of a profitable trade during the present S&P 500 trend were less than even. I interpret this to mean that a lot of stocks were moving in unaccustomed directions, since it takes time within a trend to produce winning odds.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, June 24.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Of 2,289 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, eight to the upside and 88 to the downside.
In addition, 12 that are traded over the counter broke out, all to the downside.
Within my analytical universe, 4.7% of symbols gave bull or bear signals, down from 11.3% the prior trading day. It is the highest percentage since June 5, when 11% gave signals. (Note that the prior-day percentage has been corrected. See "Friday's Prospects".)
The ratio of bull to bear signals is 1:13, compared to 1:43 the prior trading day, a weakening of the bearish bias in the markets.
Two of the major-exchange symbols survived my initial screening, one having broken out in each direction. They are PBYI to the upside and ODP to the downside.
None of the over-the-counter symbols survived my initial screening.
All but four of the 96 major-exchange breakouts failed because their odds of a profitable trade during the present S&P 500 trend were less than even. I interpret this to mean that a lot of stocks were moving in unaccustomed directions, since it takes time within a trend to produce winning odds.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, June 24.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
The Week Ahead: Second-guessing Chairman Ben
Fed Chairman Ben Bernanke tossed a firecracker into the picnic last week with his statement that the Federal Open Market Committee, next year, will begin to moderate its stimulus of the economy. He added an important caveat: "If the incoming data are broadly consistent with this forecast".
Bernanke's caveat heightens the stakes implicit in economic reporting, not just this week but for the rest of the year, and traders will be trying all the harder to view the major reports through a lens ground by the Fed chairman. Second guessing the Fed has always been a favorite game in markets, but there is now far more riding on it.
There are a variety of major reports due out this week for players to kick around the field.
Durable goods orders, a measure of demand for big-ticket factory items and confidence in longer term economic growth, will be published Tuesday at 8:30 a.m. New York time, followed at 10 a.m. the same day by new home sales, which tracks a different sort of big-ticket item.
The third revision of 1st quarter gross domestic product will be released Wednesday at 8:30 a.m.
Personal income and outlays, which tracks not only what we make and spend but what we save, will come out Thursday at 8:30 a.m.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The 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, at 9:55 a.m. Friday.
Other reports of interest:
Monday: Dallas Federal Reserve manufacturing survey of activity in Texas at 10:30 a.m.
Tuesday: S&P Case-Shiller home price index of prices within 20 individual metro areas at 9 a.m., and the Conference Board consumer confidence report at 10 a.m.
Wednesday: Petroleum inventories at 10:30 a.m.
Thursday: Pending home sales index at 10 a.m.
Friday: The Chicago purchasing managers index at 8:45 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Two members of the Federal Open Market Committee are scheduled to speak: Fed Gov. Jerome Powell on Thursday and Fed Gov. Jeremy Stein on Friday.
Three FOMC alternates will be at podiums: Dallas Fed Pres. Richard Fisher on Monday, Minneapolis Fed Pres. Narayana Kocherlakota on Wednesday and Cleveland Fed Pres. Sandra Pianalto on Friday
And three other Federal Reserve notabili have speeches scheduled: Atlanta Fed Pres. Dennis Lockhart on Thursday and Richmond Fed Pres. Jeffrey Lacker and San Francisco Fed Pres. John Williams on Friday.
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,289 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm trading July options for short vertical spreads and the short legs of covered calls, iron condors, and calendar, diagonal and butterfly spreads, as well as October options for single calls and puts. Of course, shares are good at any time.
Good trading!
Bernanke's caveat heightens the stakes implicit in economic reporting, not just this week but for the rest of the year, and traders will be trying all the harder to view the major reports through a lens ground by the Fed chairman. Second guessing the Fed has always been a favorite game in markets, but there is now far more riding on it.
There are a variety of major reports due out this week for players to kick around the field.
Durable goods orders, a measure of demand for big-ticket factory items and confidence in longer term economic growth, will be published Tuesday at 8:30 a.m. New York time, followed at 10 a.m. the same day by new home sales, which tracks a different sort of big-ticket item.
The third revision of 1st quarter gross domestic product will be released Wednesday at 8:30 a.m.
Personal income and outlays, which tracks not only what we make and spend but what we save, will come out Thursday at 8:30 a.m.
Leading indicators (in descending order of importance):
The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.
The M2 money supply, at 4:30 p.m. Thursday.
The 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, at 9:55 a.m. Friday.
Other reports of interest:
Monday: Dallas Federal Reserve manufacturing survey of activity in Texas at 10:30 a.m.
Tuesday: S&P Case-Shiller home price index of prices within 20 individual metro areas at 9 a.m., and the Conference Board consumer confidence report at 10 a.m.
Wednesday: Petroleum inventories at 10:30 a.m.
Thursday: Pending home sales index at 10 a.m.
Friday: The Chicago purchasing managers index at 8:45 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Two members of the Federal Open Market Committee are scheduled to speak: Fed Gov. Jerome Powell on Thursday and Fed Gov. Jeremy Stein on Friday.
Three FOMC alternates will be at podiums: Dallas Fed Pres. Richard Fisher on Monday, Minneapolis Fed Pres. Narayana Kocherlakota on Wednesday and Cleveland Fed Pres. Sandra Pianalto on Friday
And three other Federal Reserve notabili have speeches scheduled: Atlanta Fed Pres. Dennis Lockhart on Thursday and Richmond Fed Pres. Jeffrey Lacker and San Francisco Fed Pres. John Williams on Friday.
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,289 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm trading July options for short vertical spreads and the short legs of covered calls, iron condors, and calendar, diagonal and butterfly spreads, as well as October options for single calls and puts. Of course, shares are good at any time.
Good trading!
Friday, June 21, 2013
JCP: Bearish on a retailer
Update 7/10/2013: JCP's bearish phase lasted three trading days after breakout. It reversed to the upside and triggered my stop/loss on July 1. As is my practice, I didn't close the position immediately but instead tried to pick a strategic moment to get out. That moment never happened.
I closed JCP with the stock price 7.7% above the entry price, which of course is loss-making for a bear position. My trade was structured as short vertical option spreads. They closed for a loss on risk of 39.2%.
J.C. Penney Co. Inc. (JCP) was in a downtrend long before the markets hit their present state of jittery semi-panic. Thursday's bear signal is the seventh since the stock began its present downtrend in February 2012.
The pattern on the five-year weekly chart is, frankly strange -- an uptrend without any conviction consisting of wild swings that eventually carried the price to a peak of $43.18, and this year's trading has brought the price down to where it all began, with a low of $13.55.
This week's decline marks the fourth week to set a lower low.
Four the six completed downside breakouts since the present downtrend began have been successful, with an average yield of 13.1% over an average lifespan of 37 days. The two unsuccessful trades had an average loss of 10.6% over 12 days.
The resulting yield spread, 2.5%, is far from spectacular. But JCP is a very liquid stock of the sort I badly need to round out my holdings. I'm willing to accept a lower spread, since liquidity washes away many technical blemishes.
JCP was among 12 symbols that survived my initial screening. (See last night's post "Friday's Prospects".)
In my second-wave screening this morning, two symbols, NPSP and NTGR both failed confirmation. Mesmerized as I am by JCP's fine liquidity, I have ignored the other second-wave survivors so far. If JCP fails this analysis, then I'll look further.
J.C. Penney is a household name for anyone who has ever shopped at a mall. From its Plano, Texas headquarters, it operates 1,102 department stores in 49 states and Puerto Rico.
The company is decidedly not held in high esteem by analysts, who collectively come down with a negative 56% enthusiasm rating.
And no wonder! Penney reports return on equity of negative 30% with a high level of debt equal to 103% of equity.
It has shown losses the past five quarters, and accelerating losses the four quarters of that period, redeemed only by a slightly lower loss in the 1st quarters of 2013. In the seven prior quarters the company made profits but without a trend. It has surprised to the upside seven -- the profitable quarters -- and to the downside five times -- the losing quarters.
Institutions own nearly all of Penney's shares, whose price is way low. It takes only 29 cents in shares to control a dollar in sales.
JCP on average trades 6.8 million shares a day and supports a wide selection of option strike prices with open interest running to the four- and five-figures. The bid/ask spread on front-month at-the-money puts is low, at 2.2%.
Implied volatility stands at 55% which, although high compared to the VIX, is near the bottom of JCP's six-month volatility range. It has been tracking sideways since mid-May.
Options are pricing in confidence that 68.2% of trades will fall between $13.43 and $18.47 over the next month, for a potential gain or loss of 16%, and between $14.74 and $17.16 over the next week.
Trading in contracts is very active today. Calls are trading at 2-1/2 times their five-day average volue, and puts at 1-1/2 times volume.
The fair price zone on today's 30-minute chart runs from $15.80 to $16.27, encompassing 68.2% of transactions surrounding the most-traded price, $15.92. The stock opened above the zone and dropped steadily for three hours to the zone floor, before reversing to the upside. With a bit less than three hours to go before the closing bell, JCP is trading around the most-traded price.
J.C. Penney next publishes earnings on Aug. 12.
Decision for my account: I've opened a bear position in JCP, structuring it as a vertical credit spread expiring in July, short the $28 call and long the $18 call. The leveraged position provides a maximum yield at expiration of 39.9% and is hedged so that it provides a 4.2% cushion of profit above the entry price.
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 closed JCP with the stock price 7.7% above the entry price, which of course is loss-making for a bear position. My trade was structured as short vertical option spreads. They closed for a loss on risk of 39.2%.
J.C. Penney Co. Inc. (JCP) was in a downtrend long before the markets hit their present state of jittery semi-panic. Thursday's bear signal is the seventh since the stock began its present downtrend in February 2012.
The pattern on the five-year weekly chart is, frankly strange -- an uptrend without any conviction consisting of wild swings that eventually carried the price to a peak of $43.18, and this year's trading has brought the price down to where it all began, with a low of $13.55.
This week's decline marks the fourth week to set a lower low.
Four the six completed downside breakouts since the present downtrend began have been successful, with an average yield of 13.1% over an average lifespan of 37 days. The two unsuccessful trades had an average loss of 10.6% over 12 days.
The resulting yield spread, 2.5%, is far from spectacular. But JCP is a very liquid stock of the sort I badly need to round out my holdings. I'm willing to accept a lower spread, since liquidity washes away many technical blemishes.
JCP was among 12 symbols that survived my initial screening. (See last night's post "Friday's Prospects".)
In my second-wave screening this morning, two symbols, NPSP and NTGR both failed confirmation. Mesmerized as I am by JCP's fine liquidity, I have ignored the other second-wave survivors so far. If JCP fails this analysis, then I'll look further.
J.C. Penney is a household name for anyone who has ever shopped at a mall. From its Plano, Texas headquarters, it operates 1,102 department stores in 49 states and Puerto Rico.
The company is decidedly not held in high esteem by analysts, who collectively come down with a negative 56% enthusiasm rating.
And no wonder! Penney reports return on equity of negative 30% with a high level of debt equal to 103% of equity.
It has shown losses the past five quarters, and accelerating losses the four quarters of that period, redeemed only by a slightly lower loss in the 1st quarters of 2013. In the seven prior quarters the company made profits but without a trend. It has surprised to the upside seven -- the profitable quarters -- and to the downside five times -- the losing quarters.
Institutions own nearly all of Penney's shares, whose price is way low. It takes only 29 cents in shares to control a dollar in sales.
JCP on average trades 6.8 million shares a day and supports a wide selection of option strike prices with open interest running to the four- and five-figures. The bid/ask spread on front-month at-the-money puts is low, at 2.2%.
Implied volatility stands at 55% which, although high compared to the VIX, is near the bottom of JCP's six-month volatility range. It has been tracking sideways since mid-May.
Options are pricing in confidence that 68.2% of trades will fall between $13.43 and $18.47 over the next month, for a potential gain or loss of 16%, and between $14.74 and $17.16 over the next week.
Trading in contracts is very active today. Calls are trading at 2-1/2 times their five-day average volue, and puts at 1-1/2 times volume.
The fair price zone on today's 30-minute chart runs from $15.80 to $16.27, encompassing 68.2% of transactions surrounding the most-traded price, $15.92. The stock opened above the zone and dropped steadily for three hours to the zone floor, before reversing to the upside. With a bit less than three hours to go before the closing bell, JCP is trading around the most-traded price.
J.C. Penney next publishes earnings on Aug. 12.
Decision for my account: I've opened a bear position in JCP, structuring it as a vertical credit spread expiring in July, short the $28 call and long the $18 call. The leveraged position provides a maximum yield at expiration of 39.9% and is hedged so that it provides a 4.2% cushion of profit above the entry price.
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.
June expiry: Three positions closed, one rolled
Market writers are a dramatic lot. They talk about "capitulation" and "carnage". I've even seen the phrase "blood on the trading floor" bandied about.
All of which seems intensely personal when the capitulation, carnage and blood coincide with June options expiration, taking my nicely profitable bull positions and in a brief span turning them to a loss.
I've closed three positions and updated my initial entry postings with the results:
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
All of which seems intensely personal when the capitulation, carnage and blood coincide with June options expiration, taking my nicely profitable bull positions and in a brief span turning them to a loss.
I've closed three positions and updated my initial entry postings with the results:
A fourth position expiring in June, a bear play on CLF, will see its short vertical option spreads expire worthless and unexercised -- that means I get to keep the premium -- and I am rolling the position over to July.
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Thursday, June 20, 2013
Friday's Prospects
Update 6/22/2013: CORRECTED the percentage of symbols within the analytical universe.
On Thursday, June 20:
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 227 that are traded on the major American stock exchanges broke beyond their 20-day price channels, six to the upside and 221 to the downside.
In addition, 34 that are traded over the counter broke out, all to the downside.
Within my analytical universe,7.7% 11.3% of symbols gave bull or bear signals, up from 1.8% the prior trading day. It is the highest percentage since June 5, when 11% gave signals.
The ratio of bull to bear signals is 1:43, compared to 1:6 the prior trading day, a strengthening of the bearish bias in the markets. It is the strongest bearish bias since June 5, when the ratio was 1:84.
Although the drama of Thursday's market decline makes it look like a capitulation, the numbers above tell a different story. It was a strong down day, but not the zombie bears apocalypse.
Twelve of the major-exchange symbols survived my initial screening, two having broken out to the upside and 10 to the downside. The upside symbols are GME and QID. The downside symbols are AEM, EBR, HMIN, IOC, IPXL, JCP, NGD, NPSP, NTGR and TDC.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Friday, June 21.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
On Thursday, June 20:
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 227 that are traded on the major American stock exchanges broke beyond their 20-day price channels, six to the upside and 221 to the downside.
In addition, 34 that are traded over the counter broke out, all to the downside.
Within my analytical universe,
The ratio of bull to bear signals is 1:43, compared to 1:6 the prior trading day, a strengthening of the bearish bias in the markets. It is the strongest bearish bias since June 5, when the ratio was 1:84.
Although the drama of Thursday's market decline makes it look like a capitulation, the numbers above tell a different story. It was a strong down day, but not the zombie bears apocalypse.
Twelve of the major-exchange symbols survived my initial screening, two having broken out to the upside and 10 to the downside. The upside symbols are GME and QID. The downside symbols are AEM, EBR, HMIN, IOC, IPXL, JCP, NGD, NPSP, NTGR and TDC.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Friday, June 21.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Thursday: No Trade
All that glitters is not gold. Far from glittering, gold and its companion metal silver are covered with a disgusting green scale that smells bad and attracts flies. Or so the markets suggest.
Among Wednesday's breakouts, only two survivors of my initial screening had nothing to do with the gold or silver industry, and they accounted for the two bull signals.
The remaining six symbols, the bear signals, were all in the two precious metals, an immoderate reaction to Fed Chairman Bernanke's restrained and measured comments on when monetary stimulus might be slowed.
(See last night's post, "Thursday's Prospects", for details.)
In any case, I'm not trading the metals today because they have moved in direct response to news, and, emulating Chairman Ben, I shall also show restraint and not, yet again, quote a certain London financier's dictum on canons, trumpets and trading.
The two bull signals to survive initial screening are DEG and NKTR.
DEG failed confirmation. It gapped down today from above the 20-day channel to near the lower boundary, one of the more pointed failures that I've seen. However, it trades only 42,000 shares a day, on average, and that degree of illiquidity brings with it a high degree of volatility.
NKTR has remained well above its breakout level after gapping up sharply on Wednesday. It is a development stage pharmaceutical company and moved after reporting positive test results on a new drug. The move was based on news ... cannons ... trumpets ...
That empties the list. And then there were none.
Oh, and about those cannons and trumpets...
http://www.investopedia.com/ask/answers/06/cannonsandtrumpets.asp
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Among Wednesday's breakouts, only two survivors of my initial screening had nothing to do with the gold or silver industry, and they accounted for the two bull signals.
The remaining six symbols, the bear signals, were all in the two precious metals, an immoderate reaction to Fed Chairman Bernanke's restrained and measured comments on when monetary stimulus might be slowed.
(See last night's post, "Thursday's Prospects", for details.)
In any case, I'm not trading the metals today because they have moved in direct response to news, and, emulating Chairman Ben, I shall also show restraint and not, yet again, quote a certain London financier's dictum on canons, trumpets and trading.
The two bull signals to survive initial screening are DEG and NKTR.
DEG failed confirmation. It gapped down today from above the 20-day channel to near the lower boundary, one of the more pointed failures that I've seen. However, it trades only 42,000 shares a day, on average, and that degree of illiquidity brings with it a high degree of volatility.
NKTR has remained well above its breakout level after gapping up sharply on Wednesday. It is a development stage pharmaceutical company and moved after reporting positive test results on a new drug. The move was based on news ... cannons ... trumpets ...
That empties the list. And then there were none.
Oh, and about those cannons and trumpets...
http://www.investopedia.com/ask/answers/06/cannonsandtrumpets.asp
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
Wednesday, June 19, 2013
Thursday's Prospects
On Wednesday, June 19:
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 39 that are traded on the major American stock exchanges broke beyond their 20-day price channels, five to the upside and 34 to the downside.
In addition, two that are traded over the counter broke out, one in either direction.
Within my analytical universe, 1.8% of symbols gave bull or bear signals, down from 2.5% the prior trading day.
The ratio of bull to bear signals is 1:6, compared to 17:1 the prior trading day, a switch to a bearish bias in the markets after two days tending toward the bull side.
Eight of the major-exchange symbols survived my initial screening, two having broken out to the upside and six to the downside. The upside symbols are DEG and NKTR. The downside symbols are ABX, AUY, EGO, GDX, GG and PAAS.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Thursday, June 20.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 39 that are traded on the major American stock exchanges broke beyond their 20-day price channels, five to the upside and 34 to the downside.
In addition, two that are traded over the counter broke out, one in either direction.
Within my analytical universe, 1.8% of symbols gave bull or bear signals, down from 2.5% the prior trading day.
The ratio of bull to bear signals is 1:6, compared to 17:1 the prior trading day, a switch to a bearish bias in the markets after two days tending toward the bull side.
Eight of the major-exchange symbols survived my initial screening, two having broken out to the upside and six to the downside. The upside symbols are DEG and NKTR. The downside symbols are ABX, AUY, EGO, GDX, GG and PAAS.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Thursday, June 20.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
MPEL updated
I've updated my post on MPEL from earlier today with my trading decision. I had put off a final decision on the trade until after the Federal Reserve's money policy announcement and Chairman Bernanke's statement.
The post may be found here.
The post may be found here.
MPEL: Bullish on Macau gaming
Update 7/10/2013: My July options in MPEL are in the money and nearing expiration. I've closed the postion for a heavy loss. MPEL gapped down into losing territory on May 23, around the time that the markets as a whole tanked in what I fondly call, "The Bernanke Debacle", when the Fed chairman made some carefully measured remarks about perhaps easing up a bit on the economic stimulus and the markets responded with their usual lack of balance and perspective. The price never again moved even close to break-even.
I sold the shares when they were down 12.5% from when I opened the bull position. I structured the position as short vertical option spreads. They closed for a loss on risk of 47.3%.
Update 6/19/2013: As noted in the the "Decision for my account" section at the end, I delayed a trading decision until after the Federal Reserve money policy announcement and Chairman Bernanke's statement. Neither had noticeable impact on MPEL, and I've opened a bull position, structuring it as vertical option spreads sold for credit. The spreads expire in July and are short $25 puts and long $23 puts. The fill was a few cents below what I had hoped. The maximum yield at expiration is 22.5%, and the hedge at expiration is 2.9% below the stock price at entry.
Melco Crown Entertainment Ltd. (MPEL) has broken above its 20-day price channel, continuing a leg up that began in July 2012 from $9.13 and has proceeded without only one interruption for a small, two-week correction.
The bull signal was confirmed today by MPEL trading above the breakout level, $24.97. The stock on Tuesday rose to a new all-time high, $25.20.
If I take the trade, it will be the second time around for me and MPEL. My prior position in the stock, last March, closed for a nice profit on my option spreads. The entry post with details on the results can be read here.
This is MPEL's fifth breakout to the upside in the current leg. Three of the four completed bull signals were profitable, for an average yield of 22.3% and a lifespan of 48 days. The one unsuccessful signal produced a 7.2% loss in 10 days.
A 75% success rate is always impressive, and a 15.1% yield spread between the winners and the loser makes it all the more so.
MPEL has been a consistent winner in upside plays. It has completed a dozen upside breakouts since the long-term uptrend began to pick up speed in 2010 for a 58% success rate and an 8.1% win/lose yield spread.
Altogether 11 symbols survived my initial screening, all having broken out to the upside. See last night's post, "Wednesday's Prospects", for details.
I focused my attention in second-wave screening today solely on the most liquid stocks, those with average volume of a million shares or more per day. There are two other symbols meeting that criteria. ERIC has failed confirmation with 3-1/2 hours to go before the closing bell. LYB was confirmed but has a far weaker yield spread.
The Federal Open Market Committee is wrapping up a two-day meeting amid much speculation about when they're moderate their aggressive easing policy. The FOMC state will be issued at 2 p.m. New York time, and Chairman Bernanke will hold a news conference at 2:30 p.m.
Those events could swing ERIC into confirmation or MPEL into non-confirmation.
Melco Crown is a gaming and resort company headquartered in Hong Kong and with operations centered on nearby Macau, a major gambling and entertainment hub in Asia. Analysts are positive toward MPEL's prospects, giving it a 54% enthusiasm rating.
The company's financials are more of the slow and steady variety, with 12% return on equity. Debt is higher than I like, at 72% of equity.
As I look at three years of history, I see that earnings peaked in the last two quarters of 2011 and the 1st of 2012. Results since have come in below their year-ago counterparts, with the exception of the 2nd quarter, typically the weakest report of the year, which was higher in the 2nd quarter of 2012 than a year previously.
Earnings in the last three quarters of 2010 and the first of 2012 were quite low, and in fact the 2nd quarter of 2010 produced the one loss of the three-year span. In the last two years, when earnings picked up to current levels, MPEL has surprised to the upside five times and to the downside, twice.
Institutions own only 27% of shares and the price has rocketed up to stratospheric heights. It takes $39.90 in shares to control a dollar in sales.
MPEL on average trades 3.6 million shares a day and supports an excellent selection of options strike prices with four-figure open interest. The the bid/ask spread on front-month at-the-money calls is relatively narrow at 5%.
Implied volatility, at 36%, is running well below the six-month range. There was a spike in February that carried volatility up to 80%. Eliminating that still leaves current volatility below the adjusted range. It has been trending gently downward this month.
Options are pricing in confidence that 68.2% of trades will fall between $22.55 and $27.73 over the next month, for a potential gain or loss of 10.3%, and between $23.89 and $26.39 over the next week.
Option trading today is on the slow side, with calls at 20% of average volume for the past five days, and puts at 33% of average.
The fair-price zone on today's 30-minute chart runs from $25.07 to $25.16, encompassing 68.2% of transactions surrounding the most-traded price, $25.09. The price opened below the range and quickly rose to the top, where it remains, with three hours to go before the closing bell.
MPEL next publishes earnings on Aug. 19.
Decision for my account: I'm not making a final decision until after the FOMC announcement at 2 p.m. New York time.
If MPEL's chart remains unchanged, then I shall enter a bull position, structuring it as vertical option spreads sold for credit, short the $25 put and long the $23 put. The maximium potential yield at expiration is 23.1%. The spreads provide a hedge of 3.1% at expiration between the share price at entry and the break-even level on the options.
I'll update this post after the FOMC announcement with my final decision.
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 sold the shares when they were down 12.5% from when I opened the bull position. I structured the position as short vertical option spreads. They closed for a loss on risk of 47.3%.
Update 6/19/2013: As noted in the the "Decision for my account" section at the end, I delayed a trading decision until after the Federal Reserve money policy announcement and Chairman Bernanke's statement. Neither had noticeable impact on MPEL, and I've opened a bull position, structuring it as vertical option spreads sold for credit. The spreads expire in July and are short $25 puts and long $23 puts. The fill was a few cents below what I had hoped. The maximum yield at expiration is 22.5%, and the hedge at expiration is 2.9% below the stock price at entry.
Melco Crown Entertainment Ltd. (MPEL) has broken above its 20-day price channel, continuing a leg up that began in July 2012 from $9.13 and has proceeded without only one interruption for a small, two-week correction.
The bull signal was confirmed today by MPEL trading above the breakout level, $24.97. The stock on Tuesday rose to a new all-time high, $25.20.
If I take the trade, it will be the second time around for me and MPEL. My prior position in the stock, last March, closed for a nice profit on my option spreads. The entry post with details on the results can be read here.
This is MPEL's fifth breakout to the upside in the current leg. Three of the four completed bull signals were profitable, for an average yield of 22.3% and a lifespan of 48 days. The one unsuccessful signal produced a 7.2% loss in 10 days.
A 75% success rate is always impressive, and a 15.1% yield spread between the winners and the loser makes it all the more so.
MPEL has been a consistent winner in upside plays. It has completed a dozen upside breakouts since the long-term uptrend began to pick up speed in 2010 for a 58% success rate and an 8.1% win/lose yield spread.
Altogether 11 symbols survived my initial screening, all having broken out to the upside. See last night's post, "Wednesday's Prospects", for details.
I focused my attention in second-wave screening today solely on the most liquid stocks, those with average volume of a million shares or more per day. There are two other symbols meeting that criteria. ERIC has failed confirmation with 3-1/2 hours to go before the closing bell. LYB was confirmed but has a far weaker yield spread.
The Federal Open Market Committee is wrapping up a two-day meeting amid much speculation about when they're moderate their aggressive easing policy. The FOMC state will be issued at 2 p.m. New York time, and Chairman Bernanke will hold a news conference at 2:30 p.m.
Those events could swing ERIC into confirmation or MPEL into non-confirmation.
Melco Crown is a gaming and resort company headquartered in Hong Kong and with operations centered on nearby Macau, a major gambling and entertainment hub in Asia. Analysts are positive toward MPEL's prospects, giving it a 54% enthusiasm rating.
The company's financials are more of the slow and steady variety, with 12% return on equity. Debt is higher than I like, at 72% of equity.
As I look at three years of history, I see that earnings peaked in the last two quarters of 2011 and the 1st of 2012. Results since have come in below their year-ago counterparts, with the exception of the 2nd quarter, typically the weakest report of the year, which was higher in the 2nd quarter of 2012 than a year previously.
Earnings in the last three quarters of 2010 and the first of 2012 were quite low, and in fact the 2nd quarter of 2010 produced the one loss of the three-year span. In the last two years, when earnings picked up to current levels, MPEL has surprised to the upside five times and to the downside, twice.
Institutions own only 27% of shares and the price has rocketed up to stratospheric heights. It takes $39.90 in shares to control a dollar in sales.
MPEL on average trades 3.6 million shares a day and supports an excellent selection of options strike prices with four-figure open interest. The the bid/ask spread on front-month at-the-money calls is relatively narrow at 5%.
Implied volatility, at 36%, is running well below the six-month range. There was a spike in February that carried volatility up to 80%. Eliminating that still leaves current volatility below the adjusted range. It has been trending gently downward this month.
Options are pricing in confidence that 68.2% of trades will fall between $22.55 and $27.73 over the next month, for a potential gain or loss of 10.3%, and between $23.89 and $26.39 over the next week.
Option trading today is on the slow side, with calls at 20% of average volume for the past five days, and puts at 33% of average.
The fair-price zone on today's 30-minute chart runs from $25.07 to $25.16, encompassing 68.2% of transactions surrounding the most-traded price, $25.09. The price opened below the range and quickly rose to the top, where it remains, with three hours to go before the closing bell.
MPEL next publishes earnings on Aug. 19.
Decision for my account: I'm not making a final decision until after the FOMC announcement at 2 p.m. New York time.
If MPEL's chart remains unchanged, then I shall enter a bull position, structuring it as vertical option spreads sold for credit, short the $25 put and long the $23 put. The maximium potential yield at expiration is 23.1%. The spreads provide a hedge of 3.1% at expiration between the share price at entry and the break-even level on the options.
I'll update this post after the FOMC announcement with my final decision.
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, June 18, 2013
Wednesday's Prospects
On Tuesday, June 18:
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 53 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 50 to the upside and three to the downside.
In addition, four that are traded over the counter broke out, all to the upside.
Within my analytical universe, 2.5% of symbols gave bull or bear signals, up from 1.3% the prior trading day.
The ratio of bull to bear signals is 17:1, compared to 4:1 the prior trading day, a strengthening of the market's bullish bias to its highest level since May 17, when it was also l7:1. Note also that Tuesday's date is 17 + 1. (I have no clue about all the 17s. Numerology, anyone?)
Eleven of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ACHC, ACOR, ANSS, ERIC, JKHY, LYB, MPEL, MRH, PRXL, PTP and WES.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Wednesday, June 19.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 53 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 50 to the upside and three to the downside.
In addition, four that are traded over the counter broke out, all to the upside.
Within my analytical universe, 2.5% of symbols gave bull or bear signals, up from 1.3% the prior trading day.
The ratio of bull to bear signals is 17:1, compared to 4:1 the prior trading day, a strengthening of the market's bullish bias to its highest level since May 17, when it was also l7:1. Note also that Tuesday's date is 17 + 1. (I have no clue about all the 17s. Numerology, anyone?)
Eleven of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ACHC, ACOR, ANSS, ERIC, JKHY, LYB, MPEL, MRH, PRXL, PTP and WES.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Wednesday, June 19.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Trading Rules Change: Additions
I've made a change to my trading rules.
Up to now, the rules have required me to enter positions piecemeal, beginning with one unit and then adding as the stock moved in the direction of the trade according to a system of additional levels.
I've noticed that more often than not, it is the added units that turn a winning trade into a loser. So I'm making piecemeal entry optional rather than required.
Two sections are changed. Here is the new language for each:
The full text of the rules, as a Google Doc, can be found here.
Up to now, the rules have required me to enter positions piecemeal, beginning with one unit and then adding as the stock moved in the direction of the trade according to a system of additional levels.
I've noticed that more often than not, it is the added units that turn a winning trade into a loser. So I'm making piecemeal entry optional rather than required.
Two sections are changed. Here is the new language for each:
SizingA position consists of no more than four units. Each unit is valued at one-hundredth (1%) of capital designated for this strategy divided by the 20-day Wilder average true range, with all values rounded down if needed. The initial position consists of from one to four units. If the initial position is less than four units, the position may be added to using the method described in Additions below until the size reaches four units.
AdditionsTrades entered piecemeal rather than at one time must use the following method for additions: ... [and then add method, which is unchanged.]
The full text of the rules, as a Google Doc, can be found here.
CLB: Bullish on oil field services
Update 7/25/2013: CLB moved below its 10-day price channel, signalling that my bull position should be closed.
The price has previously moved below the channel once but quickly rose again above the signal level. In such instances, I keep the position alive but freeze the signal level at the higher price. In other words, for a bull position, I never move the level of a close signal any direction other than up.
CLB peaked on the third day after entry and immediately followed with a powerful intra-day decline. An earnings announcement produced a two-day upward bump before the decline resumed.
The position was structured as long shares. I closed for a loss of 3.6% on a position held for 37 days, or -35% annualized.
Core Laboratories N.V. (CLB), in breaking above its 55-day price channel, confirms that it has resumed a daily chart uptrend, having traced a low, a higher high, a higher low and, upon the breakout, a still higher high.
Classic.
The move comes amid a weekly chart uptrend unbroken since the 2009 start of the post-recession recovery.
This is the third bull signal since CLB began its present leg up last November. The two completed signals split, one a success with a 24.6% profit over an 80-day lifespan, and the other a failure with a 1.1% loss over 23 days. The even odds are well compensated for by the huge yield spread.
Moving back a cycle on the chart, to the leg up that began in October 2011: The six completed bull signals also split, with a 10.2% profit on the successes and a 1.4% loss on the failures.
In selecting CLB, I was faced with a larger than usual field of possibilities. As noted in last night's post "Tuesday's Prospects", 13 symbols survived my initial screening, and this morning all confirmed their signals by trading beyond their price channels.
As always, when doing triage, I looked at the more liquid plays first. Four symbols have average volume of more than a million shares. FIO had poor follow through in trading this morning. It lacked "conviction", as the more poetic of the chart analysts say.
ABC's signal really wasn't a true breakout from a correction, and neither was SBGI's. Both might turn out to be good trades, but I would want to wait for a break above the daily-chart pre-correction high before trading.
MDVN had poor odds of success -- actually, it had no profitable breakouts in its current downtrend.
That left nine less liquid possibilities, all bull signals. To speed things along, I took a short cut: All but two symbols were rated neutral by Zacks, so I tossed them aside in favor of two that had bullish ratings: CLB and CPA. Of the two, CLB is the less liquid but has a 23.5% yield spread. CPA, although more liquid, has a yield spread of only 3.1%.
With that in mind, I chose to spend my time looking at CLB -- Core Laboratories.
Core Labs, headquartered in Amsterdam, Netherlands, provides core analysis and reservoir services to oil and natural gas drillers globally.
Oil field services are the hot spot in the energy business these days, as the majors outsource more of their operation to specialists. That backstory, while not important to my analysis, adds interest.
Analysts as a group aren't really on board with Zacks in assessling CLB's prospects. They come down to a 25% negative enthusiasm rating of the stock.
They must be closing their eyes when they read the financial reports. Core Labs reports return on equity of 105% (!) with debt on the high side, amounting to 128% of equity. With returns so high, of course, the company can stand higher debt than most.
Earnings have steadily increased, quarter by quarter, over the last eight quarters. Of the last q11 quarters, Core Labs has surprised to the upside 11 times and to the downside, once.
Institutions own 97% of shares, and the price has been bid up to a high level. It takes $6.82 to shares to control a dollar in sales.
Core on average trades 221,000 shares a day. It has an adquate selection of option strike prices, but double-digit open interest is too low for me to trade. Also, the bid/ask spread on up-front at-the-money calls is outrageous, at 27%.
If I play CLB, it will be as long shares, which removes the chance to leverage and hedge the position. That's not necessarily a bad thing. I like to mix up my holdings with both options and shares, such to increase the diversity of my trading ecosystem.
Open interest stands at 31%, near the middle of the six-month range. It has been swinging widely this month for a net sideways move.
Options are pricing in confidence that 68.2% of trades will fall between $139.56 and $166.54 over the next month, for a potential gain or loss of 8.8%, or between $146.57 and $159.53 over the next week.
Options are trading very actively today, with calls running 8.6 times their five-day average volume, and puts at 4.5% average volume.
The fair price zone on today's 30-day chart runs from $150.88 to $153.43, encompassing 68.2% of transactions surrounding the most-traded price, $152.80. The price began below the zone and has risen steadily ever since. It is trading just below the zone's upper boundary with 2-1/2 hours to go before the closing bell.
Core Labs next publishes earnings on July 16. The stock goes ex-dividend in July for a quarterly payout yielding 0.84% annualized at today's prices.
Decision for my account: I've opened a bull position in CLB, structuring it as long shares.
Note that the average range for CLB is high, at 3.78. This is a bit extreme for the Turtle Trading position size adjusting for volatility. If a trader's base position is, for example, $1,000, then the adjusted size for CLB is $265, or less than two shares. (I calculate the base position size as 1% of total trading funds, so my example implies a not unsubstantial $100,000 account.)
See my essay "Position Sizing: The Big and the Small" for more on the subject.
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 price has previously moved below the channel once but quickly rose again above the signal level. In such instances, I keep the position alive but freeze the signal level at the higher price. In other words, for a bull position, I never move the level of a close signal any direction other than up.
CLB peaked on the third day after entry and immediately followed with a powerful intra-day decline. An earnings announcement produced a two-day upward bump before the decline resumed.
The position was structured as long shares. I closed for a loss of 3.6% on a position held for 37 days, or -35% annualized.
Core Laboratories N.V. (CLB), in breaking above its 55-day price channel, confirms that it has resumed a daily chart uptrend, having traced a low, a higher high, a higher low and, upon the breakout, a still higher high.
Classic.
The move comes amid a weekly chart uptrend unbroken since the 2009 start of the post-recession recovery.
This is the third bull signal since CLB began its present leg up last November. The two completed signals split, one a success with a 24.6% profit over an 80-day lifespan, and the other a failure with a 1.1% loss over 23 days. The even odds are well compensated for by the huge yield spread.
Moving back a cycle on the chart, to the leg up that began in October 2011: The six completed bull signals also split, with a 10.2% profit on the successes and a 1.4% loss on the failures.
In selecting CLB, I was faced with a larger than usual field of possibilities. As noted in last night's post "Tuesday's Prospects", 13 symbols survived my initial screening, and this morning all confirmed their signals by trading beyond their price channels.
As always, when doing triage, I looked at the more liquid plays first. Four symbols have average volume of more than a million shares. FIO had poor follow through in trading this morning. It lacked "conviction", as the more poetic of the chart analysts say.
ABC's signal really wasn't a true breakout from a correction, and neither was SBGI's. Both might turn out to be good trades, but I would want to wait for a break above the daily-chart pre-correction high before trading.
MDVN had poor odds of success -- actually, it had no profitable breakouts in its current downtrend.
That left nine less liquid possibilities, all bull signals. To speed things along, I took a short cut: All but two symbols were rated neutral by Zacks, so I tossed them aside in favor of two that had bullish ratings: CLB and CPA. Of the two, CLB is the less liquid but has a 23.5% yield spread. CPA, although more liquid, has a yield spread of only 3.1%.
With that in mind, I chose to spend my time looking at CLB -- Core Laboratories.
Core Labs, headquartered in Amsterdam, Netherlands, provides core analysis and reservoir services to oil and natural gas drillers globally.
Oil field services are the hot spot in the energy business these days, as the majors outsource more of their operation to specialists. That backstory, while not important to my analysis, adds interest.
Analysts as a group aren't really on board with Zacks in assessling CLB's prospects. They come down to a 25% negative enthusiasm rating of the stock.
They must be closing their eyes when they read the financial reports. Core Labs reports return on equity of 105% (!) with debt on the high side, amounting to 128% of equity. With returns so high, of course, the company can stand higher debt than most.
Earnings have steadily increased, quarter by quarter, over the last eight quarters. Of the last q11 quarters, Core Labs has surprised to the upside 11 times and to the downside, once.
Institutions own 97% of shares, and the price has been bid up to a high level. It takes $6.82 to shares to control a dollar in sales.
Core on average trades 221,000 shares a day. It has an adquate selection of option strike prices, but double-digit open interest is too low for me to trade. Also, the bid/ask spread on up-front at-the-money calls is outrageous, at 27%.
If I play CLB, it will be as long shares, which removes the chance to leverage and hedge the position. That's not necessarily a bad thing. I like to mix up my holdings with both options and shares, such to increase the diversity of my trading ecosystem.
Open interest stands at 31%, near the middle of the six-month range. It has been swinging widely this month for a net sideways move.
Options are pricing in confidence that 68.2% of trades will fall between $139.56 and $166.54 over the next month, for a potential gain or loss of 8.8%, or between $146.57 and $159.53 over the next week.
Options are trading very actively today, with calls running 8.6 times their five-day average volume, and puts at 4.5% average volume.
The fair price zone on today's 30-day chart runs from $150.88 to $153.43, encompassing 68.2% of transactions surrounding the most-traded price, $152.80. The price began below the zone and has risen steadily ever since. It is trading just below the zone's upper boundary with 2-1/2 hours to go before the closing bell.
Core Labs next publishes earnings on July 16. The stock goes ex-dividend in July for a quarterly payout yielding 0.84% annualized at today's prices.
Decision for my account: I've opened a bull position in CLB, structuring it as long shares.
Note that the average range for CLB is high, at 3.78. This is a bit extreme for the Turtle Trading position size adjusting for volatility. If a trader's base position is, for example, $1,000, then the adjusted size for CLB is $265, or less than two shares. (I calculate the base position size as 1% of total trading funds, so my example implies a not unsubstantial $100,000 account.)
See my essay "Position Sizing: The Big and the Small" for more on the subject.
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.
Monday, June 17, 2013
Tuesday's Prospects
On Monday, June 17:
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 27 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 21 to the upside and six to the downside.
In addition, three that are traded over the counter broke out, all to the upside.
Within my analytical universe, 1.3% of symbols gave bull or bear signals, down from 1.4% the prior trading day.
The ratio of bull to bear signals is 4:1, compared to 1:2 the prior trading day, a switch from the edge of bearish bias to the bullish bias, the third bias switch in three days.
Thirteen of the major-exchange symbols survived my initial screening, 11 having broken out to the upside and two to the downside. The upside symbols are ABC, AIZ, CLB, CPA, CVD, DNKN, G, HSIC, PRLB, SBGI and XXIA. The downside are FIO and MDVN.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, June 18.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
Of 2,304 stocks and exchange-traded funds in this week's analytical universe, 27 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 21 to the upside and six to the downside.
In addition, three that are traded over the counter broke out, all to the upside.
Within my analytical universe, 1.3% of symbols gave bull or bear signals, down from 1.4% the prior trading day.
The ratio of bull to bear signals is 4:1, compared to 1:2 the prior trading day, a switch from the edge of bearish bias to the bullish bias, the third bias switch in three days.
Thirteen of the major-exchange symbols survived my initial screening, 11 having broken out to the upside and two to the downside. The upside symbols are ABC, AIZ, CLB, CPA, CVD, DNKN, G, HSIC, PRLB, SBGI and XXIA. The downside are FIO and MDVN.
None of the over-the-counter symbols survived my initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, June 18.
The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...
- the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
- a yield adjusted by those odds of 5% or greater,
- and absence of an earnings announcement within the next 30 days.
My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.
RKT: Bullish on packaging
Update 6/21/2013: RKT broke below its stop/loss, set below the initial entry price at twice the average daily trading range. The position was in the form of long shares, and so I sold upon the signal rather than doing a tactical exit as I might do with option spreads. The position produced a loss of 5.9%.
Rock-Tenn Co. (RKT) broke above its 20- and 55-day price channels, sending a bull signal amid a long-running uptrend that whose most recent leg up, following a major correction, began in November 2012 from $61.26. It has since risen 76% to an all-time high (so far) today of $108.
The immediate question to be asked about such a trend is whether the stock has risen too far to trade. Did the train leave the station long ago, leaving the poor trader stranded on an empty platform?
The problem with such perfect hindsight is that the question could have been posed almost any day since the post-recession rise began in March 2009, and in only four periods would the answer have been yes. In perfect hindsight, of course.
So in my analysis, as a good trader must, I shall focus mainly on the now, with only enough of the then to bring context and understanding.
This is RKT's third bull signal since the present leg up began. The two completed signals averaged a profit of 19.5% over a lifespan of 54 days. Annualized, the return was 132%.
RKT was one of five symbols, all breaking out to the upside, that survived my initial screening. (See "Monday's Prospects" posted over the weekend.)
In my second-wave screening, I rejected TWC and AFSI because they had no profitable bull signals within their present trend. RES had 10 bull signals, but nine of them failed. AIRM is trying to claw its way up after revised earnings estimates prompted a downside gap. It's not a promising chart for an bull trade.
That left RKT as the sole survivor.
Rock-Tenn Co., headquartered in Norcross, Ga., is a paper and packaging maker with more than 245 facilities in North and South America and in China. Its products including folding cartons, corrugating packaging, automated packaging systems, merchandising displays and a thick kind of paper called "paperboard".
If the economy is picking up, then more things will need to be shipped, and that requires packaging. So Rock-Tenn is poised to benefit from a recovery in a wide range of manufacturing and retail sectors.
Analysts have a favorable view of RKT's prospects, collectively coming down with a 50% enthusiasm rating.
The company's financials have an element of the slow and steady. Return on equity is 10%, and long-term debt is somewhat higher than I like, standing at 82% of equity.
Looking at the last 11 quarters, I find the company has been profitable in each, with earnings tending to peak in the 4th quarter, which shows no trend. Earnings surprised eight times to the upside and thrice to the downside.
Institutions own 87% of common stock, which are priced below sales parity. It takes 82 cents in shares to control a dollar in sales.
RKT on average trades 695,000 shares a day and has an adequate selection of option strike prices. However, open interest tends to the double digits at the strikes I would use to constructed a hedged and leveraged position, too illiquid for my taste. So any trade I make in RKT will be in the form of long shares.
The front-month at-the-money calls have a bid/ask spread of 4.4%.
Options are pricing in confidence that 68.2% of trades will fall between $98.48 and $115.68 over the next month, for a potential gain or loss of 8%, and between $102.95 and $111.21 over the next week.
Options of both sorts are trading at an extrading pace, especially calls, whose volume is running at nearly nine times the five-day average. Puts are running at a bit more than double the average volume.
The fair-price zone runs from $106.59 to $107.49, encompassing 68.2% of transactions surrounding the most-traded price, $107.14. RKT began the day above the zone and then fell for two hours to the bottom of the range. It has since recovered but with three hours before the closing bell remains below the most-traded price.
Rock-Tenn next publishes earnings on July 22. It goes ex-dividend in August for a quarterly payout yielding 1.12% annualized at current prices.
Decision for my account: I've opened a bull position in RKT, 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
Rock-Tenn Co. (RKT) broke above its 20- and 55-day price channels, sending a bull signal amid a long-running uptrend that whose most recent leg up, following a major correction, began in November 2012 from $61.26. It has since risen 76% to an all-time high (so far) today of $108.
The immediate question to be asked about such a trend is whether the stock has risen too far to trade. Did the train leave the station long ago, leaving the poor trader stranded on an empty platform?
The problem with such perfect hindsight is that the question could have been posed almost any day since the post-recession rise began in March 2009, and in only four periods would the answer have been yes. In perfect hindsight, of course.
So in my analysis, as a good trader must, I shall focus mainly on the now, with only enough of the then to bring context and understanding.
This is RKT's third bull signal since the present leg up began. The two completed signals averaged a profit of 19.5% over a lifespan of 54 days. Annualized, the return was 132%.
RKT was one of five symbols, all breaking out to the upside, that survived my initial screening. (See "Monday's Prospects" posted over the weekend.)
In my second-wave screening, I rejected TWC and AFSI because they had no profitable bull signals within their present trend. RES had 10 bull signals, but nine of them failed. AIRM is trying to claw its way up after revised earnings estimates prompted a downside gap. It's not a promising chart for an bull trade.
That left RKT as the sole survivor.
Rock-Tenn Co., headquartered in Norcross, Ga., is a paper and packaging maker with more than 245 facilities in North and South America and in China. Its products including folding cartons, corrugating packaging, automated packaging systems, merchandising displays and a thick kind of paper called "paperboard".
If the economy is picking up, then more things will need to be shipped, and that requires packaging. So Rock-Tenn is poised to benefit from a recovery in a wide range of manufacturing and retail sectors.
Analysts have a favorable view of RKT's prospects, collectively coming down with a 50% enthusiasm rating.
The company's financials have an element of the slow and steady. Return on equity is 10%, and long-term debt is somewhat higher than I like, standing at 82% of equity.
Looking at the last 11 quarters, I find the company has been profitable in each, with earnings tending to peak in the 4th quarter, which shows no trend. Earnings surprised eight times to the upside and thrice to the downside.
Institutions own 87% of common stock, which are priced below sales parity. It takes 82 cents in shares to control a dollar in sales.
RKT on average trades 695,000 shares a day and has an adequate selection of option strike prices. However, open interest tends to the double digits at the strikes I would use to constructed a hedged and leveraged position, too illiquid for my taste. So any trade I make in RKT will be in the form of long shares.
The front-month at-the-money calls have a bid/ask spread of 4.4%.
Options are pricing in confidence that 68.2% of trades will fall between $98.48 and $115.68 over the next month, for a potential gain or loss of 8%, and between $102.95 and $111.21 over the next week.
Options of both sorts are trading at an extrading pace, especially calls, whose volume is running at nearly nine times the five-day average. Puts are running at a bit more than double the average volume.
The fair-price zone runs from $106.59 to $107.49, encompassing 68.2% of transactions surrounding the most-traded price, $107.14. RKT began the day above the zone and then fell for two hours to the bottom of the range. It has since recovered but with three hours before the closing bell remains below the most-traded price.
Rock-Tenn next publishes earnings on July 22. It goes ex-dividend in August for a quarterly payout yielding 1.12% annualized at current prices.
Decision for my account: I've opened a bull position in RKT, 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.
Sunday, June 16, 2013
Anatomy of a failed trade
Weyerhaeuser Co. (WY) was without a doubt the worst failed trade I've had this year, producing a 64% loss on the amount risked in a leveraged position.
A failure of that magnitude requires an autopsy.
The backstory -- my initial decision to enter and details of the results -- can be read here.
WY broke above its 20-day price channel at $32.40 on May 20 and confirmed the bull signal in trading the next day.
I opened a position on May 21 at $32.52, structuring it as bull put spreads, a vertical options spread that I sell in the hope that it will be without value at expiration and so I won't have to buy it back. Instead, in the ideal case, I get to keep all of the premium I've received. The spread were to expire on June 15, with June 14 being the last day they could be traded.
The next day, the price rose past a trigger point and I added to it, as my trading rules dictate.
Thereafter, WY went bad quickly. The initial stop loss was set at $31.22. On May 29 the lower boundary of the 10-day price channel crossed above the stop loss to $31.28, the level that would have become the new exit point on May 30.
However, that same day -- May 29 -- the price dropped 5.2%, among the worst performances that day in the S&P 500. News reports attributed the decline to reports that mortgage applications had fallen and market interest rates had risen.
The decline pierced both the initial stop loss and the lower 10-day channel boundary, triggering an exit signal. The stock closed that day at $31.28.
The next day, May 30, the price fell below the 20-day price channel at $30.06 and closed at $29.66, producing a bear signal that was confirmed in trading on May 31.
From there, the price continued to drift lower, closing Friday, June 14 -- the day I closed the position -- at $28.29.
What to make of all of this?
What jumps out at me is how rapid the decline was. The close on exit-signal day was already down 3.8% from my entry price, and the day after, when the exit was confirmed, the price closed down 8.8% from entry.
Essentially, by the day after the exit signal, most of my losses were locked in.
If I were a day-trader, eyeballs glued to the screen from the opening bell to the close, then I might have had rules that would have allowed me to avoid the loss. But that's not how I trade.
Option spreads differ from shares in that they have a defined maximum gain and loss, and often do better when held to expiration then when sold off in the intervening days. It all depends upon where the price stands in relation to the break-even point.
But the key point is this: The reward/risk ratio on any day for an options spread can be calculated with a great deal of precision.
Because of that property of spreads, rather than exiting them willy-nilly upon a signal, I've adopted a tactical approach. I get out when the I have more to lose than to win. I calculate where I stand in relationship to gain and loss at boundaries that, the volatility implies, can be expected to encompass 68.2% of trades between the current day and expiration. That percentage is, in statistics, one standard deviation.
A detailed discussion of how I do this, with a sample spreadsheet, can be found here.
The next day, May 30, the reward/risk ratio had moved to 3:1, and the day I exited, June 14, the ratio stood at 4:1. In other words, the lower the price went, the greater my incentive to stay in the position.
This may seem like a perverse incentive, but I would argue that it is not. On May 29, I had even odds of improving my position by $1,576 and gaining a $190 profit by waiting 24 days, compared to a certainty of losing $1,386 immediately, or losing an additional $737 by waiting.
If I weren't a gambler, I wouldn't be a trader. The two vocations go hand in hand. I'll take 2:1 odds any day of the week.
As it is, I gambled at lost. Specifically, the exit cost was $2,183.
How could my rules be improved?
I have no problem with holding the position after the May 29 exit signal -- the cross below the 10-day price channel -- because the odds described above.
However, the break below the 20-day price channel on May 30 arguably ought to have prompted me to exit, whatever the odds.
Under my rules, the May 30 break below the 20-day price channel was a bear signal. If I hadn't already been in the position, I would have been considered going short.
To continue to hold a bull position, based on the reward/risk ratio, while simultaneously getting a bear signal is a logical inconsistency.
My new practice, then, will be to continue to hold a spread after an exit signal if the reward/risk spread shows greater rewards from holding than selling, unless a break below the 20-day price channel, confirmed the next day, produces a bear signal. In that latter case, I'll close immediately.
In this instance, following that course would have reduced my losses by $510, getting me out at $1,673 rather than $2,183.
And that answers my initial question: The failure was about 75% inevitable, and 25% amenable to a fix.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Disclaimer
A failure of that magnitude requires an autopsy.
The backstory -- my initial decision to enter and details of the results -- can be read here.
WY broke above its 20-day price channel at $32.40 on May 20 and confirmed the bull signal in trading the next day.
I opened a position on May 21 at $32.52, structuring it as bull put spreads, a vertical options spread that I sell in the hope that it will be without value at expiration and so I won't have to buy it back. Instead, in the ideal case, I get to keep all of the premium I've received. The spread were to expire on June 15, with June 14 being the last day they could be traded.
The next day, the price rose past a trigger point and I added to it, as my trading rules dictate.
Thereafter, WY went bad quickly. The initial stop loss was set at $31.22. On May 29 the lower boundary of the 10-day price channel crossed above the stop loss to $31.28, the level that would have become the new exit point on May 30.
However, that same day -- May 29 -- the price dropped 5.2%, among the worst performances that day in the S&P 500. News reports attributed the decline to reports that mortgage applications had fallen and market interest rates had risen.
The decline pierced both the initial stop loss and the lower 10-day channel boundary, triggering an exit signal. The stock closed that day at $31.28.
The next day, May 30, the price fell below the 20-day price channel at $30.06 and closed at $29.66, producing a bear signal that was confirmed in trading on May 31.
From there, the price continued to drift lower, closing Friday, June 14 -- the day I closed the position -- at $28.29.
What to make of all of this?
What jumps out at me is how rapid the decline was. The close on exit-signal day was already down 3.8% from my entry price, and the day after, when the exit was confirmed, the price closed down 8.8% from entry.
Essentially, by the day after the exit signal, most of my losses were locked in.
If I were a day-trader, eyeballs glued to the screen from the opening bell to the close, then I might have had rules that would have allowed me to avoid the loss. But that's not how I trade.
Option spreads differ from shares in that they have a defined maximum gain and loss, and often do better when held to expiration then when sold off in the intervening days. It all depends upon where the price stands in relation to the break-even point.
But the key point is this: The reward/risk ratio on any day for an options spread can be calculated with a great deal of precision.
Because of that property of spreads, rather than exiting them willy-nilly upon a signal, I've adopted a tactical approach. I get out when the I have more to lose than to win. I calculate where I stand in relationship to gain and loss at boundaries that, the volatility implies, can be expected to encompass 68.2% of trades between the current day and expiration. That percentage is, in statistics, one standard deviation.
A detailed discussion of how I do this, with a sample spreadsheet, can be found here.
In the discussion that follows, I'm using dollar figures that refer specifically to my position in WY, which consisted of two collections of bull put option spreads expiring in June, six contracts short the $32 put and long the $30 put, and seven contracts short the $33 put and long the $31 put. I had entered initially with the six contracts, and added the seven after the price rose past a trigger level.
On the day of the exit signal, at the upper boundary, I stood to gain $190, compared to a loss of $1,386 if I exited immediately and a loss of $2,123 if the stock stood on the lower boundary at expiration.
Keep in mind that the chances of the being at the upper boundary or the lower are identical.
So the distance from my current risk to the upper boundary at expiration is $1,576, and to the lower, $737. Expressed as a reward/risk ratio, it works out to 2:1. That means that, the odds of expiring in either direction being equal, I have twice to gain than to lose by waiting.
On the day of the exit signal, at the upper boundary, I stood to gain $190, compared to a loss of $1,386 if I exited immediately and a loss of $2,123 if the stock stood on the lower boundary at expiration.
Keep in mind that the chances of the being at the upper boundary or the lower are identical.
So the distance from my current risk to the upper boundary at expiration is $1,576, and to the lower, $737. Expressed as a reward/risk ratio, it works out to 2:1. That means that, the odds of expiring in either direction being equal, I have twice to gain than to lose by waiting.
The next day, May 30, the reward/risk ratio had moved to 3:1, and the day I exited, June 14, the ratio stood at 4:1. In other words, the lower the price went, the greater my incentive to stay in the position.
This may seem like a perverse incentive, but I would argue that it is not. On May 29, I had even odds of improving my position by $1,576 and gaining a $190 profit by waiting 24 days, compared to a certainty of losing $1,386 immediately, or losing an additional $737 by waiting.
If I weren't a gambler, I wouldn't be a trader. The two vocations go hand in hand. I'll take 2:1 odds any day of the week.
As it is, I gambled at lost. Specifically, the exit cost was $2,183.
How could my rules be improved?
I have no problem with holding the position after the May 29 exit signal -- the cross below the 10-day price channel -- because the odds described above.
However, the break below the 20-day price channel on May 30 arguably ought to have prompted me to exit, whatever the odds.
Under my rules, the May 30 break below the 20-day price channel was a bear signal. If I hadn't already been in the position, I would have been considered going short.
To continue to hold a bull position, based on the reward/risk ratio, while simultaneously getting a bear signal is a logical inconsistency.
My new practice, then, will be to continue to hold a spread after an exit signal if the reward/risk spread shows greater rewards from holding than selling, unless a break below the 20-day price channel, confirmed the next day, produces a bear signal. In that latter case, I'll close immediately.
In this instance, following that course would have reduced my losses by $510, getting me out at $1,673 rather than $2,183.
And that answers my initial question: The failure was about 75% inevitable, and 25% amenable to a fix.
References
My trading rules can be read 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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