Wednesday, July 10, 2013

EXPR: A bull chart, with reservations

Express Inc. (EXPR) broke above its 20-day price channel on Tuesday and confirmed the bull signal today by trading above the breakout level, $22.18.

The stock has been stair-stair-stepping higher from $10.47 in October 2012, touching a higher high of $22.90 today. The peak since EXPR went public in May 2010 was $26.27 in March 2012.

EXPR 2-year weekly
EXPR is nearing the top, $23.09, of a 22% downside gap that occurred on May 21, 2012 after the company missed earnings estimates by 2 cents a share. At the time, that was still the third best quarter the company had recorded since going public, but even so, it prompted the sell-off.

This means that EXPR is in archaeological panic territory, like the layer of ashes found when excavating an ancient city that was set ablaze in a long-forgotten war. In archaeology, ashes are but ashes. On a stock chart, ashes can be major resistance at best and a reversal point at worst.

On the other hand, EXPR has moved into blue-sky territory in terms of the present rise. It is an extremely bullish chart within that limited time frame, and the Elliott wave count appears to leave room for at least one more leg up.

It's very much a mixed chart, depending upon which analytical methods I use.

EXPR was among nine symbols that survived my initial screening last night. (See "Wednesday's Prospects".)

An high proportion of the signals were from inverse or ultra exchange-traded funds tracking indexes. I rejected those immediately, as I don't trade inverse or ultra funds. Why complicate my life with someone else's algorithms?

The two high-volume household names on the list, WMT and HD, failed confirmation. I turned away from DISCB, HLDCY and JMPLY because of low volume.

That left three. NDSN has a strongly bearish rating from Zacks, my favorite analytical service, so I tossed it.

EXPR and IRF both have had nothing but profitable bull signals since their preset trends began. IRF, actually, has the better average yield at 10.4%, compared to 7.8% for the three EXPR signals.

However, EXPR has double the liquidity of IRF, and IRF's breakout really doesn't move past near-term resistance. EXPR's is a true breakout.

Express, headquartered in Columbus, Ohio, runs 609 clothing stores, mainly in the United States with some outliers in Canada. It's products are aimed at men and women of the younger demographics. Today's slogan headlining its website is, "A date with denim", with the inner headlines playing off of "skinny" -- not generally a sales point for the middle-aged.

The handful of analysts tracking the stock collectively give it a 67% enthusiasm score. And no wonder! The company reports return on equity of 38%, which is quite high. The debt level, however, is also a bit on the high side, at 49% of equity.

Earnings peak in the 4th quarter, as is common for retailers. This year's 4th was the highest of the past three years. Earnings in 10 of the last 12 quarters surprised to the upside, and one to the downside. One was surprise-free.

Institutions own 93% of shares, and the price is below sales parity. It takes only 90 cents in shares to control a dollar in sales.

EXPR on average trades 1 million shares a day. It supports a very narrow selection of option strike prices with open interest running to the double digits. The front-month at-the-money bid/ask spread on calls is 11.1%, very much on the high side.

The low options liquidity means I would only trade this symbol as long shares, foregoing the opportunity for leverage and hedging.

However, the options can provide some analytical insight. Implied volatility stands at 33%, near the bottom of the six-month range. Volatility has been tracking sideways since the beginning of June.

Options are pricing in confidence that 68.2% of trades will fall between $20.52 and $24.80 over the next month, for a potential gain or loss of 9.5%, and between $21.63 and $23.69 over the next week.

Options today are skewing heavily toward the bull side, at 65 times the five-day average volume, compared to only 35% of average for puts.

The fair-price zone on today's 30-minute chart runs from $22.66 to $22.81, encompassing 68.2% of transactions surrounding the most-traded price, $22.73. The price rose above the zone ceiling in the first half hour of trading but has since dropped to near the floor, with three hours left before the closing bell.

Express next publishes earnings on Aug. 19.

Decision for my account: The major resistance point on the chart, discussed above, gives me pause. So does the intra-day decline in trading today. And frankly, so does the outsized volume in call options. Who knows what's really going on there?

Also, my preference always is for hedging and leverage, which the lack of tradeable options denies me in the case of EXPR.

So rather than trade EXPR today, I'm adding it to my watchlist and will see what it looks like over the next day or two. At that point I'll make a final decision.

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.

No comments:

Post a Comment