CREE has been in an uptrend since the end of 2011. This is the ninth bull signal since the uptrend began. Half of the completed signals have produced a profit averaging 10.6% over 38 days, and half have been unprofitable with an average loss of 5.1% over 14 days. The resulting 5.5% win/lose yield spread meets my preferences for a trade.
The most recent leg up, from October 2012, has produced similar results: A 50% success rate with an ever larger spread, 8.1%.
There are, however, several things I dislike about the chart, in addition to today's intra-day decline.
The price, at today's high so far of $69.47, is nearing a major reversal level dating back to December 2010, when the price peaked at $72.85 before beginning a sickening slide down to $20.25 a year later.
That is old resistance, but I'd be willing to bet that there is some money out there that hung on through the decline and is just itching to sell into a rise and get out with whatever face-saving profit they can manage.
Looking at the chart in terms of Elliott waves, I can analyze the present long-term move as a C-wave within an zig-zag correction, a pattern that argues against a bbreak above $72.85.
The caveat, of course, is that Elliott wave analysis is best applied to a whole-market index. Most individual stocks lack the long data timeline that indexes provide, and they also tend more toward malformation of the ideal Elliott patterns.
Five symbols survived my initial screening over the weekend. (See "Monday's Prospects".)
I rejected FAZ because it is an inverse exchange-traded fund, something I don't trade because the algorithms don't always produce precisely inverse results compared to the underlying.
CCOI had a negative win/lose yield spread, TCEHY failed confirmation and TIBX had losing odds.
Cree, headquartered in Durham, N.C., is an upstream semiconductor manufacturer, concentrating on lighting products, LED components and semis for power and radio-frequency applications.
A downstream product that has the air of a consumer hit is the Cree LED light bulb for homes -- 84% more efficient than the incandescent bulbs. Plus, unlike the incandescents, it doesn't explode when it wears out.
Analysts are all over the map on CREE but in aggregate come down to a negative 6% enthusiasm rating; not loathing, but more like "Meh!"
The financials do little to inspire, with return on equity of 3.6%. On the brighter side, the company reports no long-term debt.
And brighter still, it has been profitable for at least the past 11 quarters, with a steady rise the past four quarters compared to the quarter before. It has surprised five times to the upside the past 11 quarters and five times to the downside. Analysts nailed the results the most recent quarter, for no surprise.
Institutions own 87% of shares, and the price has been bid up to a high level. It takes $6.20 in shares to control a dollar in sales.
CREE on average trades 2.2 million shares a day, enough to support a moderate selection of option strike prices with open interest running to three and four figures. The front-month at-the-money bid/ask spread on calls is quite narrow, at 1.7%.
Implied volatility stands at a very high level, 51%, at the middle of the six-month range. It has been rising gently since mid-May.
Options are pricing in confidence that 68.2% of trades will fall between $57.54 and $77.28 over the next month, for a potential gain or loss of 14.6% (!), and between $62.67 and $72.15 over the next week.
Options today are skewed toward calls, at 29% above the five-day average volume. Puts are trading at 14% above average volume.
The fair-price zone on today's 30-minute chart runs from $67.28 to $68.39, encompassing 68.2% of transactions surrounding the most-traded price, $68.08. The stock opened well above the zone and has mainly declined throughout the day. With two hours before the closing bell, it is trading near the zone floor.
Cree next publishes earnings on Aug. 13.
Decision for my account: The price has dropped out of confirmation, trading below the breakout level, so I won't be opening a new position today.
None of the other reservations I had about the chart is a deal killer, principally because of the age of the resistance and because I'm not totally confident about the Elliott wave count. But in combination the two are enough to give me pause.
I'll add CREE to my watchlist pending a break above the $72.85 resistance level and shall reconsider a trade if that break does in fact occur.
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.
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.