Tuesday, August 6, 2013

FIS: Money processing bull signal

Update 8/1/2013: FIS broke below it's 10-day price channel today, signalling the position must be closed. 

The position was structured as long shares. It lost 1.5% over 15 days, or a 35.3% loss annualized.

Fidelity National Information Services (FIS) broke above its 20-day price channel on Monday and confirmed the bull signal by moving still higher on Tuesday, breaking past the 55-day price channel. The 20-day and 55-day channels are the breakout levels used by the classic Turtle Trading method.

The rise breaks free of a sideways oscillation since May 28, with a ceiling of $45.95 and a floor of $42.09.

The rise, if persistent, will continue an uptrend dating back to October 2011. The May 28 peak was an all-time high for FIS, and today's breakout returns the chart to blue-sky status.
FIS 90 days 2-hour bars

This is the eighth bull signal of the uptrend. The seven prior produced four successful trades with an average yield of 17.5% over 74 days. The three unsuccessful trades on average lost 3.9% over 14 days. The results give FIS an excellent 13.6% win/lose yield spread.

The question, of course, is whether there is still room for further rise on the FIS chart. Elliott wave analysis suggests that there is. I count the correction from the $49.95 peak as being a downside zig-zag correction followed by three waves up, with the third wave still unfolding.

The third wave that I've labelled on the chart must be longer than the first wave to comply with the rules of Elliott wave counting. The third comes in at $5.47 long, and the first at $3.34, so the count works.

The fact that today's move exceeded the prior peak suggests that the structure is indeed a five-wave uptrend rather than an extended correction.

FIS was among three symbols that survived initial screening. (See "Tuesday's Prospects".) The other two, CAG and UHS, fell back within their 20-day price channels and so failed confirmation.

Fidelity National Information Services, headquartered in Jacksonville, Florida, provides systems for payment processing and for banking. Basically, they provide infrastructure for money, the technology that manages the electronic flow of bits that constitute money in our age. (Sorry, gold bugs!)

Fidelity provides service to more than 14,000 organizations globally.

Analysts collectively give FIS a negative 21% enthusiasm rating, something less than a ringing endorsement.

The company reports return on equity of 11% with debt amounting to 69% of equity. These numbers are OK but not something to get excited about.

Earnings were somewhat volatile in 2010 and 2011 but from 2012 have stabilized, showing no trend in either direction. Of the last six quarters, five have produced upside earnings surprises and one has surprised to the downside.

Institutions own 85% of shares and the price has been bid up. It takes $2.24 in shares to control a dollar in sales.

FIS on average trades 1.6 million shares a day. The options have insufficient liquidity to meet my trading needs, so its shares or nothing with FIS according to my preferences.

Implied volatility stands at 18%, in the lower half of the six-month range. It has been falling since the end of July.

Options are pricing in confidence that 68.2% of trades will fall between $43.78 and $48.66 over the next month, for a potential gain or loss of 5.3%, and between $45.05 and $47.39 over the next week.

Options trading today is slow, with calls at 46% of five-day average volume and puts at a mere 7% of average.

Today's fair-price zone runs from $45.82 to $46.21, encompassing 68.2% of trades surrounding the most-traded price, $46.12. FIS opened the day below the zone and has since moved up to the upper boundary.

Fidelity National Information Services next publishes earnings on Oct. 30. The stock goes ex-dividend on Sept. 12 for a quarterly payout yielding 1.9% annualized at today's prices.

Decision for my account: The one thing not to like about FIS is the low volatility, but it's not so low as to be a deal killer.

I've opened a bull position in FIS, structuring it as long shares.


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