Wednesday, July 31, 2013

Thursday's (Friday's) Prospects

I'm trading from East Asia this week, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Wednesday, July 31:

Of 2,334 stocks and exchange-traded funds in this week's analytical universe, 59 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 25 to the upside and 34 to the downside.

Four symbols traded over the counter broke out, one to the upside and three to the downside.

The five highest-volume symbols to break out are JCP, V, MO, X and PSX.

Within my analytical universe, 2.7% of symbols gave bull or bear signals, up from 2% the prior trading day.

The ratio of bull to bear signals is 1:1.4, compared with 1:2.6 the prior trading day, a move back into neutral territory.

One symbol traded on the major exchanges, AN, survived my initial screening, having broken out to the upside.

No over-the-counter symbols survived my initial screening.

Eight symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. They are ACHC, GMCR, IEP, MNKD, OWW, SNCR, TSO and WX.

I shall do further analysis of the surviving symbol on Thursday, Aug. 1, for a potential trade on Friday, Aug. 2.

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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

EFX: Three-alarm-fire curry

Update 8/15/2013: EFX broke below its 10-day price channel, signalling closure of the position, which was constructed of long shares.

The stock lost 2% over the 14-day life of the position.

It's a sad day when three-alarm fire curry turns out to be soggy oatmeal.

Equifax Inc. (EFX) broke above its 20-day price channel on Monday and confirmed the bull signal with a further rise on Tuesday. The movement is part of a larger uptrend that began in October 2011.

It is the 10th bull signal for EFX during the uptrend. Of the completed signals, four have been successful, with an average yield of 9.3% over 56 days. Five have been unsuccessful, with an average loss of 3.6% over 13 days.

EFX 90 days 2-hour bars
Although the resulting win/lose yield spread of 5.7% is perfectly acceptable for trading in my book, the fact remains that the longer-term historical odds stand against me if I trade this breakout.

A more current way to count the trend is from the peak of $63.91 on May 10. From there the price declined in three Elliott waves down and then recovered nearly all of the loss in three, or perhaps five, waves up.

This is the first breakout to the upside since early May. There has been one downside breakout, and that bear signal lost money, to the tune of 0.7%.

I also find the Elliott wave count to be uncertain. 

My primary count sees the present rise from July 25 to be a third wave that must exceed $64.10. In other words, it has 24 cents to go before it meets the minimum criteria of Elliott wave counting.

I've penciled in an alternate count that shows EFX to be in a fifth wave up, but it has already broken the rules by trading higher than $63.10, making the alt-count fifth wave longer than the third.

I favor the third-wave count, with a bit more to go to the upside, and perhaps a lot more. It has 24 cents to go before meeting the minimum requirements, but it could well have much higher to go. There's no law that says the minimum is the is the end of the third wave.

The chart leaves me on the horns of a dilemma. The odds are unpromising, but the wave count promises future profit. If ambiguity is the spice of trading, then EFX is a three-alarm-fire curry.

Equifax is one of the three big consumer credit reporting companies in the United States. Based in Atlanta, Georgia, Equifax runs a global business with 7,000 employees in 15 countries in the Americas and Europe.

Analysts are somewhat negative in their collective assessment of the company, with opinions coming in as a minus 22% enthusiasm rating.

Equifax has been posting solid results, with return on equity of 20% and debt running at 67% of equity. That's higher debt than I like but not totally awful.

The company has been profitable during the 12 quarters I'm tracking, with steadily rising earnings since the 2nd quarter of 2011 and upside earnings surprises in all but one quarter. The downside surprise was long ago, in the 1st quarter of 2011.

Institutions own 85% of shares and the price has been bid up to a high multiple of sales. It takes $3.41 in shares to control a dollar in sales.

EFX on average trades 566,000 shares a day, sufficient to support a moderate selection of option strike prices but with no open interest to speak of. I don't trade options that lack at least three-figure open interest, so any position I open in EFX will be structured as long shares.

Options, however, do have their uses in assessing likely trading ranges. Implied volatility on EFX stands at 17%, near the bottom of the six-month range. It dropped sharply beginning July 25.

Options traders are pricing in confidence that 68.2% of trades will fall between $60.39 and $66.61 over the next month, for a potential gain or loss of 4.9%, and between $62.01 and $64.99 over the next week.

Trading in options on Tuesday was heavily weighted toward the bull side, with calls running at 175% above the five-day average volume. Puts were running at 83% of the average volume.

Tuesday's fair-price zone on the 30-minute chart ran from $63.35 to $63.39, encompassing 68.2% of trades surrounding the most-traded price, $63.49. The price opened at the low end of the range and traded in the upper portion for most of the day.

Equifax next publishes earnings on Oct. 21. The stock goes ex-dividend in August for a quarterly payout yielding 1.39% annualized at today's prices.

Decision for my account: It is an ambiguous chart, as I noted above. Given the unpromising odds, I'll rely on the Elliott wave count. 

A move above $64.10 would strengthen the case that EFX is in a third wave up, with a decline and then a further rise to be expected. I'll take a second look at it if the price exceeds $64.10, but I won't open a bull position now.

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.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

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, July 30, 2013

Wednesday's (Thursday's) Prospects

I'm trading from East Asia this week, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Tuesday, July 30:

Of 2,334 stocks and exchange-traded funds in this week's analytical universe, 46 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 13 to the upside and 33 to the downside.

One symbol that is traded over the counter broke out, to the downside.

The five highest-volume symbols to break out are HMA, PBI, IPI, WU and ORCL.

Within my analytical universe, 2% of symbols gave bull or bear signals, down from 2.3% the prior trading day.

The ratio of bull to bear signals is 1:2.6, compared with 1:4.9 the prior trading day, showing a weakening bearish bias in the markets.

No symbol traded on the major exchanges or over-the-counter survived my initial screening.

Four symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. They are CGNX, GVA, MPEL and WU.

I shall do further analysis of the surviving symbol on Tuesday, July 30 for a potential trade on Wednesday, July 31.

No survivors, so no further analysis of Tuesday's bull and bear signals.

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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

CLF closed

I've been hoping to roll my former  bear position in CLF into a new bear position for August or September. However, the stock moved into bull phase a week ago and that roll is no longer tenable. Details and results on the initial entry post.

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.

PBYI closed

I've closed my bull position in PBYI and updated the initial entry posting with 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
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, July 29, 2013

Tuesday's (Wednesday's) Prospects

I'm trading from East Asia this week, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Monday, July 29:

Of 2,334 stocks and exchange-traded funds in this week's analytical universe, 48 that are traded on the major American stock exchanges broke beyond their 20-day price channels, eight to the upside and 40 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 EWJ, GLW, UNG, DDD and WY.

Within my analytical universe, 2.3% of symbols gave bull or bear signals, up from 2.1% the prior trading day.

The ratio of bull to bear signals is 1:4.9, compared with 1:1.5 the prior trading day, showing that the markets moved to a bearish bias.

One of the major-exchange symbols, EFX, survived my initial screening, having broken out to the upside.

None of the over-the-counter symbols survived my initial screening.

Three symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. They are DDD, GIB and NKTR.

I shall do further analysis of the surviving symbol on Tuesday, July 30 for a potential trade on Wednesday, July 31.

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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

Sunday, July 28, 2013

FB: No trade

Big excitement on the Facebook Inc. (FB) chart on Wednesday after the close, as the company announced earnings that came in more than double analysts expectations. The stock responded with a 27% opening gap on Thursday.

So why am I not betting the farm on FB? Or even my virtual FarmVille holdings?

1. Back in October 2012 I wrote about the FB chart's structure: Two zones that contained the price except on those few occasions when it broke free and moved from one to another. See "FB: A gap, but not a quantum leap".

FB from 5/18/2012, 2-day bars
Thursday's upside gap carried the price to a level just slightly above the top of the upper zone, within which it has been trading since November 2012, with the exception of a non-quantum sag into the lower zone from May into July 2013.

2. Friday's post-gap trading failed to set a new high, which means it failed confirmation under my rules for post-earnings bull signals. If a stock breaks above its 20-day price channel the first trading day following an earnings announcement, I need on a subsequent day to see the price break above that immediate post-earnings high before I consider the bull signal to be valid.

In the case of FB, that confirmation level is $34.88. Still waiting.

3. FB is still far below its all-time high set the day it went public: $45 on May 18, 2012. I sort of, kind of want to see that level pierced before I get excited about this stock.

4. This is FB's seventh bull signal since it started trading publicly. Of the completed signals, one was profitable, earning 8% over 24 days. Five were unprofitable, on average losing 9.8% over 15 days. These are not the sort of historical odds that I play.

Decision for my account: I'm not trading FB yet, even if this breakout is confirmed. I want to see a new all-time high, above $45, before I'll consider it, and also a marked uptrend with better than even odds of success.

I look at it this way. If FB is another Google, then I'll have plenty of room above $45 to make my fortune. And if it's not, I'll avoid a heavy dose of disappointment. Win-win. Definitely.

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.

SBUX: Bull signal on earnings

Update 8/15/2013: SBUX crossed below its 10-day price channel, signalling that its position should be closed. The position was structured as short vertical spreads expiring in September, and often in such cases I've kept positions open in the expectation of a reversal. 

However, given the generally bearish bias of the markets and the fact that SBUX gapped down this morning and then continued to fall, I've decided to take my loss early rather than seeking to mitigate.

The stock fell by 4.2% during the 13 days the position was open. The options produced a negative yield on risk of 18%.

Update 8/2/2013: SBUX finally broke above its post-earnings 20-day price channel, allowing me to open a position. I structured it as vertical options spreads sold for credit and expiring in
September, short the $72.50 puts and long the $70 puts. 


The position has at expiration a 3% cushion of profitability below the entry price and a 22.8% maximum profit at expiration.

Starbucks Corp. (SBUX) broke above its 20-day price channel on Friday, the first trading day after the company announced earnings that beat expectations by 3%.

SBUX 2 years 2-day bars
Under my rules for breakouts following earnings announcements, SBUX will need to trade above Friday's high to confirm the breakout. The confirmation level is above $73.52.

I held SBUX for several options periods through July. The combination of no momentum combined with the 30-day earnings announcement exclusion required by my rules made it impossible to roll my position into the August options.

The stock price dropped below its 10-day price channel on July 24, giving a signal to abandon my efforts to roll the position and to instead calculate my profits, which I did here.

I assess the present uptrend as running from the beginning of August 2012. The Elliott wave count can be seen on the weekly chart as three waves, with the earnings breakout a continuation of the upward momentum, or as four waves, with the breakout constituting a fifth wave up.

I favor the three-wave interpretation because the decline before the earnings announcement is relatively shallow. It just doesn't have the look of a fourth wave at this magnitude of charting.

Friday's  breakout was the fifth to the upside since the start of August 2012. Three of the five completed trades was profitable, for an average yield of 5.4% over 55 days. The two unprofitable trades lost 1.6% over 12 days. The win/lose yield spread is 3.8%.

Starbucks next publishes earnings on Oct. 31. The stock goes ex-dividend in August for a quarterly payout yielding 1.l5% annualized at current prices.

Decision for my account: I intend to open a bull position in SBUX if it trades persistently above $73.52 on Monday. I'll structure it as short vertical options spreads.

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.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

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, July 26, 2013

RYCEY: No trade

Rolls-Royce Holding PLC (RYCEY) was the sole symbol to survive initial screening of Thursday's bull and bear signals. It confirmed a bull signal by trading above the breakout level on Friday. However, the breakout was a large gap to the upside, and the next day's trading was significantly lower.

In other words, a classic whipsaw.

Decision for my account: As a trend follower, I'm always reluctant to trade into the headwinds of a downside gap. So I won't be opening a new bull position in RYCEY.

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's (Tuesday's) Prospects

I'm trading from East Asia for the next few weeks, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Friday, July 26:

Of 2,334 stocks and exchange-traded funds in this week's analytical universe, 40 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 17 to the upside and 23 to the downside.

Ten symbols that are traded over the counter broke out, three to the upside and seven to the downside.

The five highest-volume symbols to break out are EXPE, SBUX, SNDK, MDLZ and SWI.

Within my analytical universe, 2.1% of symbols gave bull or bear signals, barely changed from 2.2% the prior trading day.

The ratio of bull to bear signals is 1:1.5, compared to 1.1:1 the prior trading day, continuing a neutral bias in the markets.

None of the major-exchange symbols nor the over-the-counter symbols survived my initial screening.

Three symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. They are DLR, SOHU and YOKU.

I shall do further analysis of the surviving symbol on Monday, July 27 for a potential trade on Tuesday, July 28.

No symbols survived initial screening, so I'll be doing no further analysis on Monday or opening of new positions Tuesday.

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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

The Week Ahead: GDP + JOBS = FOMC

Two of the big guns of economic reporting roll out this week: The first report of gross domestic product for the 2nd quarter at 8:30 a.m. New York Time on Wednesday, and the employment report at 8:30 a.m. on Friday.

This is the first of three 2nd quarter GDP reports. It, and the monthly jobs numbers, play into the discussion over when to ease up on monetary stimulus, and that decision in turn will do much to determine the sort of market traders will face in the remaining months of the year.

And speaking of the monetary policy, the Federal Open Market Committee concludes a two-day meeting on Wednesday and will issue a statement at 2 p.m.

The jobs figures will get a sneak preview when the ADP employment report is released by the leading U.S. payroll company, at 8:15 a.m. Wednesday.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

The average hourly work week in manufacturing from the employment report, at 8:30 a.m. Friday.

Manufacturers new order for consumer goods and materials from the factory orders report, at 10 a.m. Friday.

Vendor performance (the delivery times index) from the Institute of Supply Management manufacturing survey, at 10 a.m. Thursday.

The S&P 500 index, reported continually during market hours.

Average weekly initial jobless claims, at 8:30 a.m. Thursday.

Manufacturers new orders for non-defense capital goods from the factor orders report, at 10 a.m. Friday.

Other reports of interest:

Monday: Pending homes sales at 10 a.m. and the Dallas Fed manufacturing survey of conditions in Texas at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price index in 20 metro areas at 9 a.m. and the consumer confidence report at 10 a.m.

Wednesday: The employment cost index, which includes benefits as well as wages and salaries, at 8:30 a.m., the Chicago purchasing managers index at 9:45 a.m. and  petroleum inventories at 10:30 a.m.

Thursday: Motor vehicle sales announced thorughout the day, the purchasing managers index just before 9 a.m. and construction spending at 10 a.m.

Friday: Personal income and outlays at 8:30 a.m.

Analytical universe

This week I'll be analyzing new bull and bear signals among 2,334 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 September options for the short legs of vertical spreads and November options for single calls and puts. Of course, shares are good at any time.

Posting schedule

I am traveling in East Asia this, and during that period I'll adjust my posting schedule to conform to local time. Analyses of individual stocks and my daily prospects list will be posted after the markets close in New York and sometimes deep in the night U.S. time. I won't post on travel days.

Good trading!

Friday's (Monday's) Prospects

I'm trading from East Asia for the next few weeks, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Thursday, July 25:

Of 2,327 stocks and exchange-traded funds in this week's analytical universe, 40 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 19 to the upside and 21 to the downside.

Eleven symbols that are traded over the counter broke out, eight to the upside and three to the downside.

The five highest-volume symbols to break out are PHM, QCOM, DHI, POT and OKE.

Within my analytical universe, 2.2% of symbols gave bull or bear signals, barely changed from 2.1% the prior trading day.

The ratio of bull to bear signals is 1.1:1, about the same as 1.0:1 the prior trading day, showing a neutral bias in the markets.

None of the major-exchange symbols survived my initial screening.

One of the over-the-counter symbols survived my initial screening. It is RYCEY, to the upside.

Eleven symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. The five with the highest volume are TRIP, FIO, MLNX, BYD and MDSO.

I shall do further analysis of the surviving symbol on Friday, July 26 for a potential trade on Monday, July 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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

Thursday, July 25, 2013

CRB closed

I've closed CRB for a loss and updated my initial entry post with details.

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's (Friday's) Prospects

I'm trading from East Asia for the next few weeks, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Wednesday, July 24:

Of 2,327 stocks and exchange-traded funds in this week's analytical universe, 40 that are traded on the major American stock exchanges broke beyond their 20-day price channels, nine to the upside and 31 to the downside.

Eight symbols that are traded over the counter broke out, seven to the upside and one to the downside.

The five highest-volume symbols to break out are AAPL, PLCM, RFMD, STX and LLY.

Within my analytical universe, 2.1% of symbols gave bull or bear signals, down from 3.6% the prior trading day.

The ratio of bull to bear signals is 1:2, compared to 3:1 the prior trading day, a switch from a bullish to a bearish bias in the markets and the first bearish bias since June 24, when the ratio was 1:26.

None of the major-exchange symbols survived my initial screening.

One of the over-the-counter symbols survived my initial screening. It is WEICY, to the upside.

Two symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. They are MCO and WYNN.

I shall do further analysis of the surviving symbol on Thursday, July 25 for a potential trade on Friday, July 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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

Wednesday, July 24, 2013

SCSS: Bearish on beds

Update 8/26: SCSS broke above its stop/loss on Friday and confirmed the breakout today. I've closed the position for a loss.

SCSS was rolled once. The first position was profitable, and the second one was not.

Combined stats for the two positions: The stock rose by 3.7% over the 11 days I held the positions, which were structured as vertical options spreads sold for credit.

The options produced a negative 13.8% yield on risk, or negative 477.1% annualized.

Under my trading plan, I require a fresh breakout beyond the 20-day price channel before rolling a position. SCSS broke below the channel on Aug. 19. However, it reversed sharply the next day and triggered the stop/loss three days later.

Oddly, Jim Cramer in his Aug. 19 "Lightning Round" was bearish on SCSS. Cramer said, "There's nothing strong there. I'm not going to get behind this one. I just don't see a lot there to like."

The next day, the stock bumped up 4.5%, close to close. There must be a lot of Cramer Contrarians out there.

Update 7/25/2013: I've opened this position, as described in the "Decisions" section below. A slight change in the deltas put the leverage at 4.6% rather than 4.5%.

Select Comfort Corp. (SCSS) fell below its 20-day price channel on Wednesday. It was incorrectly listed as a Tuesday breakout because of a bad bar in my data.

The bear signal came in the form of an impressive 5% intra-day decline, to a low of $22.53. Further downside momentum on Thursday would count as confirmation, making SCSS eligible for a trade.

SCSS 2 years 2-day bar
The decline carried SCSS below its previous swing low of $22.78, set on June 24. That June swing low was followed by a rise to $27.84 on July 12 and a three day slide that turned into a rout following a 22% earnings estimate miss reported after the market close on July 17.

SCSS hit an all-time high of $35.60 in April 2012 and has since moved into a shallow downtrend. It could be counted as a not very impressive correction, or as the first whisps of cloud heralding the advent of a major hurricane.

The Elliott wave count fits nicely as five-wave downtrend move. The current 5th wave would need to carry the price below the end of the third wave, $16.74 on April 17, to validate the count. That's a clean shot at a decline of more than 25.8%, something I'll welcome from a bear position any day.

If the move were a correction within an uptrend, then according to Elliott wave doctrine the count would need to be three waves down instead of five.

The the 5th SCSS breakout to the downside since the April 2012 peak. Three of the completed trades were profitable, for an average yield of 16.5% over 40 days. The one unsuccessful trade lost 6.9% in nine days.

The win/lose yield spread is 9.6%, a nice set of odds indeed.

SCSS was among three symbols listed as breakouts on Tuesday. The other symbols, both bull signals, failed confirmation on Wednesday. They are CEA and PT.

Select Comfort, headquartered in Minneapolis, Minnesota, makes and sells beds with adjustable firmness under the name Sleep Number.

Analysts seem as though they're yawning a bit over Select Comfort, coming down with a collective 10% enthusiasm rating.

Clearly, they haven't been looking at the balance sheet -- a 36% return on equity with no long-term debt, an extremely impressive set of numbers.

Yet, earnings peaked in 2012, in the 1st and 3rd quarters, and have been lower that those peaks in the three quarters that followed, with a string of downside earnings surprises. Clearly, a company that fails to make right whatever has injured earnings will typically see return on equity taper off, and perhaps even start adding debt.

Institutions own 95% of shares, and the price of the stock is above parity. It takes $1.41 in shares to control a dollar in sales.

SCSS on average trades 1.8 million shares a day, sufficient to support a moderate selection of option strike price with open interest running to three and four figures.

The bid/ask spread on front-month at-the-money puts is 6%, not bad for a stock trading below 3 million shares daily.

Implied volatility is running at 41%^, a bit below the six-month mid-point. It has been falling since mid-July, leveling out the past few days.

Options are pricing in confidence that 68.2% of trades will fall between $19.91 and $25.19 over the next month, for a potential gain or loss of 11.7%, and between $21.28 and $23.82 over the next week.

Options trading was quite slow on Wednesday, amounting to just 8% of five-day average volume for calls and 16% for puts.

The fair-price zone on Wednesday's 30-minute chart ran from $22.68 to $23.33, encompassing 68.2% of transactions surrounding the most-traded price, $23.10. SCSS opened above the zone and fell sharply in mid-day trading to end below the zone.

Select Comfort next publishes earnings on Oct. 14.

Decision for my account: I'll open a bear position in SCSS on Thursday if the signal is confirmed by trades below the breakout level, $23.32. 

At this point I intend to structure the position by selling vertical credit spreads, short the $22.50 calls and long the $25 calls. The position provides 4.5x leverage with a 2.7% cushion of profitability at expiration above Wednesday's close. The maximum potential yield is 35.1%.

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.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

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.

SBUX closed

SBUX has given a close signal, ending any opportunity I might have to roll the position. The stock declined slightly during the holding period, but the options that I used in the trade produced a profit.

I've updated the initial entry posting with details.

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.

GS: Waiting for Goldman

Goldman Sachs Group Inc. (GS) broke above the 20-day price channel on Monday and confirmed the bull signal on Tuesday, but with go-nowhere day that removed much of the momentum from the chart.

The signal was part of a rise that began on July 3 from $149.28 and continued straight through the July 16 earnings announcement, which prompted a two-day decline that remained above the low set four days prior. The price then resumed its upward course, hitting a swing high today of $167.41, a level below the near-term high of $168.20 set on June 10.

Bigger picture, GS is in a weekly chart uptrend that began in July 2012 from $91.15. This is the fourth bull signal of the uptrend.

Two of three completed signals were profitable, averaging 10.1% over 36 days, compared to a 4.4% loss over six days for the unprofitable trade. The resulting 5.7% win/lose yield spread is sufficient to meet my preferences.

GS 90 days 2-hour bars
The fact that GS has yet to break through its June 10 swing high is troubling. If the current rise is a leg up that continues the uptrend, then the $168.20 level should be broken in short order. If it is in fact a steep upward correction within a downtrend, then $168.20 will not be seen again.

The Elliott wave count suggests the more bullish interpretation. If GS were indeed in a downtrend, then I would expect the first leg down (the zig) from $168.20 to be five waves down, not three as a chart shows, and the ensuing move up (the zag) to count as a correction pattern, perhaps an A-B-C.

My count shows the opposite -- A-B-C on the zig and 1-2-3-4-5 on the zag -- and so I'm inclined to think that at this level there is still some life left in the GS uptrend. I must add some caution that assessment. Wave counts on individual stocks can be fickle, and the ambiguities of Elliott wave counting can lead to wildly differing results, and to dramatic changes in the count as it progresses. That's a long way of saying, Maybe I'm right, and maybe I'm wrong.

The way to find out which conclusion is correct, the bullish or the bearish, is of course to use the 55-day price channel boundary to trigger a bull signal. That channel boundary -- no coincidence -- lies at $168.20, a mere 1% above Tuesday's closing price.

In other words, there is little penalty for waiting and much risk for jumping in prematurely.

GS was among three symbols to survive my initial screening, all having broken out to the upside.

I rejected GDX because it had no upside breakouts during the present downtrend, which began in September 2012. To get some numbers I had to push the trend back to a turning point a year earlier, in September 2011, and the odds of a winning trade were only 1:3.

GXKEY has a win/lose yield spread of 1.9%, not to mention serious liquidity problems, with average volume running at only 3,000 shares a day.

Goldman Sachs, headquartered in New York, is a household name in finance, arguably the most influential financial company in the United States, if not the world. It alumni practically define the revolving door between the private sector and government.

Clout, however, doesn't always translate into expectations of success, especially for a company operating in a sector that is still trying to get its bearings after the shock of the housing collapse and ensuing recession. Analysts give Goldman a negative 65% enthusiasm rating.

Return on equity is respectable, at 12%. Long-term debt is running at more than double equity, far above the levels I like to see in my trades. However, high debt isn't unusual in banking and finance.

Goldman has had one losing quarter in the past dozen, back in 2011. The profitable quarters have been all over the map, but the last three have equaled or exceeded the quarters that came before during the period under analysis.

Institutions own 63% of shares. The stock has been bid up to a premium above the business Goldman is doing. It takes $1.75 in shares to control a dollar in sales.

GS on average trades 3.4 million shares a day, sufficient to support a wide selection of option strike prices with open interest running to four figures. The bid/ask spread on front-month at-the-money calls is 2.6%.

Implied volatility has been dropping steadily since late June and has reached 21%, the lowest level of the past six months.

Options are pricing in confidence that 68.2% of trades will fall between $155.97 and $176.55 over the next month, for a potential gain or loss of 6.2%, and between $161.32 and $171.20 over the next week.

Options activity was slow on Tuesday and tilted toward the bear side, with puts running at 69% of five-day average volume. Calls were at 40% of average volume.

Goldman Sachs Group next publishes earnings on Oct. 18. The stock goes ex-dividend on Aug. 28 for a quarterly payout yielding 1.2% annualized at today's prices.

Decision for my account: I find the case for waiting to open a GS position to be compelling. The risk/reward ratio certainly argues against jumping in until there's a true breakout above the June high.

I'm adding GS to my watchlist and will look at it again if it breaks above $168.20.

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.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Wednesday's (Thursday's) Prospects

I'm trading from East Asia for the next few weeks, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Tuesday, July 23:

Of 2,327 stocks and exchange-traded funds in this week's analytical universe, 72 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 51 to the upside and 21 to the downside.

Eleven symbols that are traded over the counter broke out, all to the upside.

The five highest-volume symbols to break out are AMD, EEM, BRCM, FXI and EWZ.

Within my analytical universe, 3.6% of symbols gave bull or bear signals, barely changed from 3.7% the prior trading day.

The ratio of bull to bear signals is 3:1, compared to 16:1 the prior trading day, a decline in the markets' bullish bias to the lowest level seen since July 3, when the ratio was 2.8:1.

Three of the major-exchange symbols survived my initial screening. CEA and PT broke out to the upside, and SCSS, to the downside.

One of the over-the-counter symbols survived my initial screening. It is ANFGY, to the upside.

Eleven symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. The five with highest volume are FSL, GPOR, GA, NTI and CQP.

I shall do further analysis of the surviving symbol on Wednesday, July 24 for a potential trade on Thursday, July 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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

Monday, July 22, 2013

Tuesday's (Wednesday's) Prospects

I'm trading from East Asia for the next few weeks, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Monday, July 22:

Of 2,327 stocks and exchange-traded funds in this week's analytical universe, 78 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 73 to the upside and five to the downside.

Nine symbols that are traded over the counter broke out, all to the upside.

The five highest-volume symbols to break out are GG, WIN, AUY, SLW and IAU.

Within my analytical universe, 3.7% of symbols gave bull or bear signals, up from 3.1% the prior trading day.

The ratio of bull to bear signals is 16:1, compared to 5:1 the prior trading day, a rise in the markets' bullish bias.

Two of the major-exchange symbols survived my initial screening GDX and GS, both to the upside

One of the over-the-counter symbols survived my initial screening. It is GXYEY, to the upside.

Fifteen symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. The five with highest volume are GG, ODP, RGLD, KBR and KMT.

I shall do further analysis of the surviving symbol on Tuesday, July 23 for a potential trade on Wednesday, July 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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.
s

EWI: Bullish on Italy

Update 8/28/2013: EWI fell sharply along with all the global markets, breaking below its 10-day price channel in a 2.1% opening gap, as the odds increased that Syria would be punished militarily after poison gas was used against civilians.

Because the signal to close came as part of a massive bear move generally, I delayed a day in selling in anticipation of a rebound. The rebound happened, allowing me to recover 0.9% of the decline.

I held the position, as long shares, for 36 days, an during that period it yielded a 3.9% gain, or 39.5% annualized.

iShares MSCI Italy Capped ETF (EWI) is an exchange-traded fund tracking the MSCI Italy 25/50 Index. A trader who buys EWI is bullish on the Italian markets, economy and government.

(I'll pause here so all can savor a moment of gentle incredulity at the expense of the Italians, and then a brief frisson of embarrassment as we consider the foolishness of our own markets, economies and governments. As an American, I can say with perfect honesty that my country stands second to few in the rich world when it comes to market and economic foolishness as well as misgovernance. Also, we are a leader in applying stereotypes to other nations -- we love to do that. But, onward...)

It is true that Italy has been unstable in recent years under the impact of the recession. But that's a fundamental way of looking at things. I base my trading on stats, charts and trends.

EWI broke above its 20-day price channel on Friday and confirmed the bull signal on Monday by trading higher still.

EWI 2-year weekly bars
The fund has been in an uptrend since July 2012 from $9.21. It reached a high of $14.63 on Jan. 28, and then swung into a sideways trend that has oscillated between $11.54 and $13.77 without breaking the uptrend, but without advancing it, either.

In any case, it's clear that Friday's breakout was an artifact of the fairly arbitrary 20-day rule used in Turtle trading to calculate bull and bear signals, rather than a break into a true trend.

I see a rise from the present $12.70 to $13.77 (8.4%) as being well within reach, and it certainly is  a good return even without leverage. But the cautious trader my be prepared for a reversal above the, say, $13.50 or so.

This is EWI's fifth bull signal since its present trend began on the weekly chart. Three of the completed signals were profitable, for an average yield of 6.7% over 38 days. The unsuccessful trade lost 7% over 13 days.

The loser was an upward spike and next-day reversal in October 2012 amid rising yields on Italian bonds. The scale of that loss produces a negative 0.3% win/lose yield spread. But given the 3:1 odds in favor of winning, I don't find that to be a deal-killer.

The other survivor of my initial screening over the weekend was Sharp Corp. (SHCAY). However, it failed confirmation by trading Monday below its breakout level.

Fully 20% of EWI's value is accounted for by oil and gas multinational Eni SpA. The "Capped" part of the fund title means that no single holding can constitute more than 25% of the index, so Eni is nearing the limit.

Oil and gas are subject to global forces created far beyond the Italian national economy, so in some ways the Italy fund isn't quite as Italian as it may seem at first glance. It is a heavy a fossil fuels play, especially when other major holdings like the utility Enel SpA and the automaker Fiat SpA are taken into account.

EWI on average trades 799,000 shares a day, sufficient to support a moderate selection of option strike prices with open interest running in the two- and three-figure range. The front-month at-the-money bid/ask spread on calls is huge, at 21.4%.

I won't trade anything with that large a spread, so any position I open in EWI would need to be structured as shares.

Implied volatility on EWI is running at 27%, in the bottom half of the six-month range. It has been undulating sideways since the start of July.

Options are pricing in confidence that 68.2% of trades will fall between $11.80 and $13.59 over the next month, for a potential gain or loss of 7%, and between $12.27 and $13.13 over the next week.

Calls are trading near their five-day average volume and puts, about 11% below average.

The fair-price zone on Monday's 30-minute chart runs from $12.67 to $12.70, encompassing 68.2% of trades surrounding the most-traded price, $12.68. It's a remarkably unvolatile trading day, with each half hour seeing trades at the most-traded price.

EWI goes ex-dividend in December for a semi-annual payout yielding 2.42% annualized at today's prices.

Decision for my account: I'll open a bull position in EWI on Tuesday if it trades above the breakout level, $12.52. I'll structure the position as long shares. In entering the position, I'll be mindful of the strong likelihood of a reversal above the $13.50 level and shall exit the position if it fails to show upward momentum above that price, breaking my exit rules if necessary.

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.

Analytical time-span

When a symbol gives a bull or bear signal, my initial screening begins by calculating past odds of a profitable trade in the direction of the breakout during the present long-term trend.

A nice sentiment, but it lands me square in the middle of a swamp of ambiguity: What's a trend? What's long term?

Any trader who has ever looked seriously at a chart knows that any given moment in the markets embodies a multitude of trends, ranging from the quantum leaps of the tick chart to the jitterbugging of the five-minute chart up to the slow Buddhist chant of the weekly and monthly charts.

The trend depends upon where I focus my view.

"Long term", of course, faces similar ambiguities. Long-term to me is anything longer than three months, since my positions generally last 30 to 60 days. Warren Buffett would consider three months to be short-madness. My day trader friends would find three months to be so large a span that it would be invisible to them, much as an elephant is beyond the ken of a gnat.

I need some precision, and have over the past few months implemented a more precise definition, which I've codified in my trading rules, as follows.

First, two addition to the "Definitions" section:
  • Current Primary wave: An upward correction in the S&P 500 that began Oct. 4, 2011 from 1074.77. (See the “Elliott wave system of counting” definition, below.)
And then a modification to the third graf of the "Entry" section:
For all such breakouts, I calculate the number of times each symbol has broken out in the same direction during the current trend, defined as the current Primary wave of the S&P 500 under the Elliott wave system of counting, and the number of those breakouts that produced a profit.
The full text of my Trading Rules can be found here as a Google doc.

I rely on Elliott Wave International in determining the start of the current Primary wave, or trend, and its nature. EWI is one of two outside services that I use in my trading. The other is Zacks, whose database of covered stocks provides me with the bulk of my analytical universe of symbols.

Both EWI and Zacks are tools I need for my system to function, but neither figures in my trading decisions. Those are based entirely on my version of the Turtle trading method, which is described in my Trading Rules.

And neither is irreplaceable. I had identified the Oct. 4, 2011 low as the start of the current trend long before I fit it in with Elliott waves. I've used other methods for obtaining an analytical universe, such as screening for a certain minimum volume.

However, they are beneficial tools. Using the Elliott wave count as the start of my analytical period means that there is a certain consensus that the date I use has meaning in the history of the markets, and that brings stability to the process. Zacks gives me a degree of certainty that the stocks I'm analyzing are interesting, because Zacks has taken an interest.

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.

VIPS update

VIPS hasn't exceed the chart breakout level -- the prior highest high. See my discussion in the "Decision" section of Thursday's analysis. With earnings less than a month away, I've removed VIPS from my watchlist.

Saturday, July 20, 2013

Monday's (Tuesday's) Prospects

I'm trading from East Asia for the next few weeks, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses.


On Friday, July 20:

Of 2,327 stocks and exchange-traded funds in this week's analytical universe, 58 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 53 to the upside and five to the downside.

Thirteen symbols that are traded over the counter broke out, all to the upside.

The five highest-volume symbols to break out are MSFT, GE, ALU, HAL and CYH.

Within my analytical universe, 3.1% of symbols gave bull or bear signals, down from 4.5% the prior trading day.

The ratio of bull to bear signals is 5:1, compared to 20:1 the prior trading day, a decline in the markets' bullish bias.

One of the major-exchange symbols survived my initial screening. It is EWI, to the upside.

One of the over-the-counter symbols survived my initial screening. It is SHCAY, to the upside.

Twelve symbols that survived the odds and yield analysis were excluded from consideration because they will publish earnings within 30 days of the breakout. They are ALU, AVP, CSTE, DB, DEG, EXR, GEO, GOLD, HLSS, PSE, SAVE and SCGLY.

I shall do further analysis of the surviving symbol on Monday, July 22 for a potential trade on Tuesday, July 23.

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. 
For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

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.