Tuesday, September 10, 2013

DAL: Ambiguous chart, bad odds

Delta Air Lines Inc. (DAL) has been in a major uptrend from $6.41 in August 2011 and on Monday broke above its 20-day price channel. The bull signal was confirmed in trading today as DAL moved to a new high today of $23.13 (so far).
DAL 2 years daily bars

I'll say up front that the Elliott wave count is messy. The stock appears to be in a long-running third wave up beginning in September 2012, but the price quickly veers above any reasonable price channel  based, as doctrine requires, on the start of waves one and three for the lower boundary and the end of wave one for the upper.

This tells me that either my count is wrong, or that the chart is uncountable. Elliott waves are like crystals. In theory, each is a tetrahedron. In practice, most are distorted by the pressures of the surrounding rock.

DAL has fairly poor odds of success, despite the bullish chart. Since the first wave began in August 2011, the stock has completed seven bull signals, only two of which were profitable, for an average yield of 11.5% over 44 days. The five unsuccessful trades lost 4.3% on average over 13 days.

Since the present wave, which I've counted as the third wave, began in September 2012, DAL has completed five bull signals. One was successful, yielding 7.2% over 49 days. The four unsuccessful trades lost 5% over 12 days.

Both time frames produced positive yield spreads -- 7.2% for the longer period and 2.2% over the shorter -- but still, these are not the sorts of odds that I like to play.

DAL was among 38 symbols that survived my initial screening last night. (See "Tuesday's Prospects".)

Because of the high number of symbols, I limited my analysis today to the 10 highest volume issues, all of which broke out to the upside.

All 10 confirmed their bull signals.

YHOO, MS and ISIS broke above their 20-day price channels but remain below resistance.

SRC, LYG and SPWR are in bearish trends.

SPN has a bearish rating from Zacks. It's not a strict rules, but when I have a choice, I always feel more comfortable when Zacks' fundamentals analysis is on the side of my technical analysis.

CELG remains above its price channel but has fallen intraday.

That leaves NUS as my other potential trade.

Back to DAL. I don't like the odds, and I'm really uncertain about how much more upside remains for the stock.

I'm breaking off my analysis now and turning to another avenue of investigation, NUS, which may or may not produce a trade.

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.

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