I did the second wave of screening this morning. It is designed to further narrow the already fairly small pack to the best candidates for detailed analysis.
Three symbols -- GEOS, GIB and KRO -- quickly fell by the wayside based on their options' low open interest. I'm not looking for unhedged trades at this point, so that means I need options with open interest in at least the three figures.
Moreover, these are all bear signals, and those can only be played on stocks with sufficient liquidity to either support liquid options or as short sales of shares with sufficient volume to allow the shares to be borrowed.
Short sales on GEOS are possible, but not on GIB and KRO.
The remaining two, TYC and BYD, have sufficient option liquidity for me to trade.
The next stop is the chart. Both TYC and BYD are in the midst of uptrends. Their current signals are to the downside.
I'm a trend follower, so this discrepancy immediately puts me on my guard.
TYC's present trend on the weekly chart began in July 2012 after a sideways correction within a larger uptrend and is experiencing a so-far mild correction.
BYD is in the midst of a reversal of a long-running downtrend, and its reversal counts as an uptrend that began in November 2012. It is experiencing a sharp reversal to the downside from a level just below the peak of an uptrend that ended in 2010.
My initial screening calculates odds within an arbitrary period based on the current trend of the S&P 500. But for the second wave analysis, I use the trend specific to the symbol I'm looking at.
The odds of success within a trend can be fairly dismal for counter-trend signals. Neither TYC nor BYD has produced a profitable bear signal since their present uptrends began.
At this point, I need look no further to make my decision. Neither symbol meets my criteria for trading, and therefore I won't be doing further analysis. I won't be opening any new positions today.
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.