Thursday, October 31, 2013

Thursday's Outcomes: JBL

JBL had lost its downward momentum by the third hour of trading and began a mini-uptrend in the next half hour. It is a net rise intra-day and I'll add the symbol to my Watchlist rather than opening a bear position. See "JBL: On the chart, many best days are behind it".

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.

JBL: On the chart, many best days are behind it

Update 5/27/2014: JBL has moved above its 20-day price channel, signalling an end to this series of trades and that it must be removed from the Roll Shelf. I've done so and have calculated the results.

During the 27 days I held a bear position in JBL, it declined by 7.6%, or 104.5% annualized. 

My options positions produced a 7.8% yield on risk, or 106.6% annualized. Calculating another way, it was an 8.9% yield on debits, or 122.2% annualized.

Update 5/13/2014: JBL, a bear play, moved above its stop/loss point on May 12 and confirmed it the next day. I've sold my position and moved JBL to the Roll Shelf. I'll calculate results once the roll series has ended.

Update 4/14/2014: I've taken JBL from the Roll shelf and opened a bear position, structuring it as a bear put spread, long the $19 strike and short the $15 strike, bought with debits and expiring in September.

Wave 2 {-2} to the upside, which was underway when I last considered a trade, in February, has completed its work, and wave 3 {-2} to the downside is in progress.

Note that after I entered the position, 28 minutes before the closing bell, JBL began an uptrend on the 5-minute chart that carried above the 20-day price channel boundary, $18.98, turning a confirmation into a non-confirmation. The mini-uptrend from 3:15p.m. New York time to the close carried JBL up 0.9%, not a great amount but enough to change the confirmation.

Even so, the die is cast and I shall exit based on my normal stop/loss rules.

Click on chart to enlarge.
JBL 90 days 1-hour bars

Update 2/12/2013: JBL has sat on the Roll Shelf since its options expired in December. The price broke above its 10-day price channel on Feb. 11 and confirmed the breakout the next day, signalling a need to assess JBL's status as a potential future bear play.

After reviewing the Elliott wave count, I've decided to keep JBL on the Roll Shelf. I place it as being in wave 2 {-2} to the upside within 5 {-1} to the downside. That count means a valid wave 2 {-2} must end before exceeding the beginning of wave 5 {-1}, at $18.83 on Jan. 23.

Wednesday's close is 18 cents below that level, so by my count, the reversal is near. A persistent move above that level would invalidate my count.

Click on chart to enlarge.
JBL 90 days 1-hour bars
In either case, I'll know soon enough whether or not my count is correct and can review the chart again if the Jan. 23 level is exceeded.

Update 11/1/2013: JBL has continued to trade below its breakout level and today closed below its opening price for a decline intraday and below the Oct. 31 close for a decline interday. It's not great downside momentum but sufficient for me to take the trade.

I've opened a bear position in JBL, structuring it as a bear call vertical options spread sold for credit and expiring in December. 

Leverage is 2.4:1 for a maximum yield on risk of 21%. The position provides a 4.1% hedge of profitability at expiration.

Jabil Circuit Inc. (JBL) saw its best days for the first time in 2000, when it peaked at $68. And then it saw its best days again in 2006, when it peaked at $43.70. And then again in March 2012, when it peaked at $27.40.

That's a lot of best days. Problem is, each one is lower than the last.

So when JBL broke below its 20-day price channel on Wednesday and followed through with a further decline today, it has creds as a serious bear play.

The chart, however, tells a story of greater complexity that has produced odds -- oddly -- tilted in favor of failure when JBL gives a bear signal.

JBL 10 years 1-week bars (left), 3 years 2-day bars (right)

JBL began its immediate fall below the 20-day price channel on Oct. 29. From that day's high to today's low (with 3-1/2 hours left before the closing bell), the price has fallen by 9.4%.

I'm unable to tease a reasonable Elliott wave count out of the chart at any level. I'll leave it at this: JBL is showing downside momentum and there's no telling how far it will go.

The most recent peak was in March 2012. Since then JBL has completed eight bear signals. Three were successful for an average yield of 10.6% over 40 days. The unsuccessful trades lost 8% over 15 days.

JBL 5 days 5-minute bars

The "Best Days" before that was the March 2006 peak. Of the 19 completed bear trades in that period, eight were successsful and 11 unsuccessful, both categories yielding 8.5% -- a profit in the first category and a loss in the second.

Those figures tell me that despite the net fall over time, JBL is not really a clearly trending stock. It's swings are too wide to play in that fashion.

It is only under the microscope that JBL finally shows a trend -- beginning Oct. 29 -- as shown on the chart to the right.

So at that level it can be played as a trend-following trade, but the prudent trader will treat it with jack-rabbit nervousness, ready to flee at the first sign of a reversal.

The three charts in this analysis are also fine examples of the fractal nature of the markets -- the best days of one level are a dismal failure compared to the best days of another.

In a very real sense, the $22.67 peak on Oct. 29 represents yet another "Best Days" for JBL.

JBL was one of four symbols that survived my initial screening overnight, three having sent bear signals. (See "Thursday's Prospects".)

The most liquid, FNSR, failed confirmation by rising back within its channel. The two least liquid, ORIG and the bull signal, BJINY, had breakouts that were at variance to their Zacks ratings. I prefer that Zacks and my trades agree. That left JBL on the table.

Jabil Circuit, headquartered in St. Petersburg, Florida, describes its business this way, with the liberal use of capital letters typical of sloganeering: "Global Manufacturing Solutions. Global Expertise. Intelligent Supply Chain Design."

Basically, you have a great idea and want to figure out how to build it and bring it to market, Jabil will help you do that. The company runs 60 plants in 33 countries. Among the customers it supplies is Apple Inc.

Analysts think well of Jabil's prospects, coming down collectively with a rather high 50% enthusiasm rating.

The company reports return on equity of 18%, with long-term debt running at 72% of equity.

The earnings sound a note of caution. With the exception of the most recent quarter, the last quarter to exceed its year-ago counterpart was the one reported in June 2012. Of the last 12 quarters, four have surprised to the downside, the most recent reported last March, and the remaining eight have surprised to the upside.

Institutions own 84% of shares and the price is in the cellar. It takes only 23 cents in shares to control a dollar in sales.

Jabil presents a confusing mix of bullish and not-so-bullish elements. My practice in such cases is to look at the share price compared to sales. Analysts can talk the happy talk all they want, but the truth is spoken when the money meets the trading floor. That 0.23 price/sales ratio speaks volumes.

JBL on average trades 2.5 million shares a day and supports a wide selection of option strike prices spaced a dollar apart. The front-month at-the-money bid/ask spread on puts is a bit on the wide side, at 7.1%.

Implied volatility stands at 34%, slightly above the mid-point of the six-month range. It has been trending sideways since mid-September and broke out of the trend in a rise that began Oct. 28.

Options are pricing in confidence that 68.2% of trades will fall between $18.68 and $22.70 over the next month, for a potential gain or loss of 9.7%, and between $19.72 and $21.66 over the next week.

Trading in option contracts is slow today, with puts runing at 90% of their five-day average volume and calls at 48%.

Jabil Circuit next publishes earnings on Dec. 16. The stock goes ex-dividend on Nov.13 for a quarterly payout yielding 1.55% annualized at current prices.

Decision for my account: It's an unpromising chart over the longer term, but the market is a creature of the now, not of history. I intend to open a bear position in JBL in the last half hour before the closing bell, if its downside momentum continues. If momentum fails, then I'll add it to my Watchlist.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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.

Long-term Trading Rules

Update 5/6/2014: The trading plan outlined in this post has been revised. See "Revised Long-Term Trading Plan" for details.

I recently posted an essay titled, tongue firmly planted in cheek, "The I Hate Stocks Trading Plan".

The title may have been tongue in cheek but the strategy, based on 12-month moving average crosses, was intended seriously.

I am implementing the strategy in my own accounts, beginning Friday, Nov. 1, as a vehicle for longer-term trades.

The Turtle Trading signals that I use are shorter-term vehicles. My positions last from weeks to a few months, and never long enough to qualify for the lower long-term capital gains tax rates, or for dividend income.

My hope is that my new, longer-term strategy will remedy that lack.

The new trading rules for longer-term trades can be read here.

My schedule for trading is to screen stocks on the last day of each month and make the trades on the following trading day. For this first batch, I'll be looking at today's close (Oct. 31) and opening the positions on Friday (Nov. 1).

I don't intend to do individual analyses of each symbol but shall post a monthly accounting of my longer-term trades on the first trading day of each month. The one for November, to be posted on Friday, will be titled "November Long-term Trades".

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 Prospects

On Wednesday, Oct. 30:

Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 49 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 17 to the upside and 32 to the downside.

Eight symbols traded over the counter broke out, four in each direction.

Three symbols traded on the major exchanges survived my initial screening, all having broken out to the downside. They are FNSR, JBL and ORIG.

One symbols traded over the counter survived my initial screening, BJINY, having broken out to the upside.

Earnings season began Oct. 8. The exclusion rule in my trading plan forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that many symbols are being removed from my prospective trades list during initial screening.

I shall do further analysis on Thursday, Oct. 31.

Methodology

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...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 chart, on Oct. 4, 2011, calculated as average yield multiplied by the odds,
  • 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.

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.

Wednesday, October 30, 2013

Wednesday's Outcomes: WNS, ANF

I opened a bull position in WNS. See "WNS: Nearing the finish line".

I closed my bear position in ANF for a loss. See "ANF: How far can it tumble". (The answer: Not very far.)

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.

WNS: Nearing the finish line

Update 11/5/2013: WNS broke below its 10-day price channel, signalling closure of the bull position. Since WNS is structured as long shares, my practice is to close it immediately rather than trying to a tactical exit.

WNS completed wave v of its five waves up noted in the original analysis, and having completed the move, began a downtrend. It followed the chart analysis precisely.

WNS declined by 7% over the position's 5-day lifespan, or -483.8% annualized. It was a sharp reversal.

Update 10/30/2013: I've opened bull position in WNS, structured as long shares. The price dropped after peaking in the second half hour of trading, fell 60 cents and then began working its way up, recovering a third of the loss by the last half hour. That two-hour rise at the end is sufficient momentum to support a decision to trade.

WNS (Holdings) Limited (WNS) is nearing the end of a long rise from $10.14 on Dec. 31, 2012. But today's peak of $22.60, a new high during the present uptrend, isn't yet the finish line.

That estimate is based on a fundamental rule of Elliott wave analysis, the method of reading charts that I use to gain insight into where a stock's price is in its journey.

At this point, I'm going to jump into a very arcane discussion of the Elliott wave structure of the WNS chart. I find Elliott waves to be quite useful in understanding charts and recommend that any trader unfamilar with the method do some reading. The best text in my opinion is the Elliott Wave Principle by Robert Prechter.

I'm facing two questions on this chart: 1) How near is the end of the uptrend, and 2) what level of Elliott wave am I counting.

WNS 3 years 2-day bars (left), 15 days 15-minute bars (right)

In Elliott wave counting, a trend occurs in five legs, or waves -- three in the direction of the trend and two correcting the trend.

Price movements in the markets are fractal, composed of trends within trends within trends. A five-wave uptrend can be but a single wave within a higher order trend, and in turn each of those five waves are composed of complete trends of a still lower order.

WNS is in wave 5 of its rise from Dec. 31, 2012 (left chart). Within wave 5, which began Oct. 16, WNS is in wave iii to the upside (right chart), with a wave iv correction and then a wave v uptrend still ahead before the greater wave is complete.

The movement off of today's highs could, in theory, be treated as the start of the wave iv correction, but that doesn't seem reasonable to me for the following reasons.

Another Elliott wave rule says that the third wave cannot be the shortest of the three movements in the direction of the trend. wave i was $3.27 long, and wave iii so far is $1.47 in length. So wave v must come in shorter than $1.47.

By another rule it ought to exceed the wave iii peak and so cannot begin at a price below $21.13, about a dollar below where the stock is trading three hours after the opening bell.

That seems to be quite constricting and suggests that the pullback is a correction within a yet lower order of trend.

Also, the wave i, ii and iii movements are quite constricted in time -- wave i lasted only six days. The entire lower order trend seems short compared to the four-month lifespan of the higher order wave 3. I think it's likely that the entire rise so far from the start of wave 5 is several levels below what will eventually become a higher order first wave one order below wave 5.

The momentum of the WNS uptrend is such that it had already broken above its 20-day price channel when the trend began, and it has only recently broken below the 10-day price channel to send a signal to close the bull position.

Tuesday's breakout sends a second bull signal.

WNS is one of six symbols that survived initial screening overnight. (See "Wednesday's Prospects".)

Two are showing downside momentum in intraday trading and so were tossed from consideration. The most liquid of the six, LSI, has a messy chart that defied my efforts to analyze it.

Of the three remaining, WNS had the most bullish chart at first glance, and so I focused on it rather than ACN or GY.

WNS (Holdings) -- the parentheses are part of the official name -- is an Indian holding company that provides business services and analysis to more than 200 global clients.

Headquartered in Mumbai, WNS's services include customer care, finance and accounting, research and analytics in such sectors as banking, healthcare, insurance, manufacturing, media and entertainment.

It provides its services through 32 centers in Asia, Europe, the United States and Africa. In other words, it's a big deal in the world of business service outsourcing.

Analysts collectively give WNS an 11% enthusiasm rating, showing a positive view of its future prospects.

The company reports return on equity of 20% with a low level of debt, only 11% of equity.

WNS has been profitable for the last 12 quarters. Its earnings took a bit of hit in 2012 but have recovered in 2013. The company has surprised to the upside nine times. The two downside surprises and the surprise-free quarter were all in 2012.

Institutions own 96% of shares, which have been bid up to where it takes $2.32 in shares to control a dollar in sales.

WNS, listed on the NYSE, on average trades 160,000 shares a day. It supports a small selection of option strike prices spaced $2.50 apart with no open interest. They aren't liquid enough to meet my trading needs, so any bull position I open on WNS will be as long shares.

Implied volatility stands at 38%, below the middle of the six-month range. It has been zig-zagging wildly between just below 50% down to just above 30%. It has been on the rise since Oct. 21.

Options are pricing in confidence that 68.2% of trades will fall between $20.18 and $24.54 over the next month, for a potential gain or loss of 9.7%, and between $21.31 and $23.41 over the next week.

WNS next publishes earnings on Jan. 13.

Decision for my account: I intend to open a bull position in WNS, structured as long shares. I'll make the trade in the last half hour before the closing bell today if the stock continues to show upside momentum. If momentum falters, then I'll add it to my Watchlist for later consideration.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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 Prospects

Note: I've made a change in my screening procedure, replacing the two-pass odds then net yield  screen with a single pass net yield adjusted by odds. See the "Methodology" section below for details.

On Tuesday, Oct. 29:

Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 64 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 40 to the upside and 24 to the downside.

Three symbols traded over the counter broke out, all to the downside.

Six symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are ACN, GY, LSI, PTEN, TRIP and WNS.

No symbols traded over the counter survived my initial screening.

Earnings season began Oct. 8. The exclusion rule in my trading plan forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that many symbols are being removed from my prospective trades list during initial screening.

I shall do further analysis on Wednesday, Oct. 30.

Methodology

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...
  • an average yield of 3% or greater when adjusted for the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 chart, on Oct. 4, 2011, calculated as average yield multiplied by the odds,
  • 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.

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.

Tuesday, October 29, 2013

Tuesday's Outcomes: CVI, SONC, AMGN

CVI, which has been on the shelf waiting for a roll, has instead moved above its 10-day price channel, signalling no roll is possible. I've done a reckoning and updated my analysis with the results. See "CVI: Energy bear play".

SONC regained momentum after confirming a bull signal on Monday and I've opened a position. See "SONC: Carhops deliver a bull signal".

I analyzed AMGN as a potential bull play but decided against opening a position. See "AMGN: Bull signal in a correction".

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.

AMGN: Bull signal in a correction

I'm treating Monday's bull signal from Amgen Inc. (AMGN) with a healthy dose of skepticism. Yes, the stock has been in an uptrend since Aug. 11, 2011, when the price hit a low of $47.66. Yes, the breakout beyond the 20-day price channel has carried the price to an all-time high today of $118.96.

But sometimes with a chart, it is not the destination but the journey that counts. And AMGN's journey since last April counts like a correction within a larger uptrend.

AMGN 3 years 2-day bars (left), 180 days 4-hour bars (right)


AMGN 20-years monthly bars

In an uptrend, the movements can be counted in five waves, as I've done in the left-hand chart above.

Corrections come in a variety of patterns, but often three waves A-B-C, with A having five subwaves, B three subwaves, and C five subwaves. And that's what fits the right-hand chart above.

I would call this correction a flat.

I've counted this movement as a correction in a very long uptrend that has been going on for 20-years-plus, as seen in the chart on the right. AMGN by that count has just finished wave (III), is doing a wave (IV) correction that could last for years, and then if the count is correct will see a rise to new heights.

This is AMGN's 11th bull signal since the uptrend began in 2011. Seven of the completed signals were successful, for an average gain of 5.2% over 39 days. The three unsuccessful signals on average lost 1.6% over 28 days.

Two of those breakouts have come since the April peak. One was a winner, yielding 2.8% over 19 days, and the other lost 0.4% over 37 days. The winner came first, the loser second.

The period of the peak is so short that thee's very little data to go on. The signal rate for both periods is a bull signal about every 3 months. It is the success rate that varies. Also, the period of the uptrend has a 3.6% spread between the returns from winning and losing trades. The spread since the peak is 2.4%.

Overall, however tentatively, those numbers point to a weakening of AMGN's upside momentum.

AMGN was one of six symbols that survived my initial screening overnight, all having broken out to the upside. (See "Tuesday's Prospects".)

One other survivor, EWW, had options with sufficient open interest for me to trade, but its chart was clearly in an downtrend and so I rejected it. The remaining survivors have lower liquidity and so I set them aside for now.

Amgen is a biotech company headquartered in Thousand Oak, California. It counts as one of the largest companies in the global biotech sector.

Its inventory of approved drugs includes treatments for anemia, arthritis, osteoporosis and colon cancer.

Analysts collectively come down at a negative 16% enthusiasm rating when they consider Amgen's future prospects.

Current performance is quit bullish, with a 27% return on equity with a somewhat high level of debt, equivalent to 125% of equity, taking a bit a the shine off of the returns number.

Amgen has been profitable in each of the last 12 months. Earnings faltered a bit in 2012 but returned to new heights this year. Earnings announcements have surprised to the upside 11 times, including the last seven, and to the downside once.

Institutions own 80% of shares, whose price has been bid up to speculative levels. It takes $4.93 in shares to control a dollar in sales.

AMGN on average trades 3 million shares a day and supports a wide selection of options strike prices spaced $5 apart. Open interest runs to the four figures at the strikes I would use to construct an options spread.

Implied volatility stands at 25%, in the lower third of the six-month range after falling sharply from a peak of 34 on Oct. 9.

Options are pricing in confidence that 68.2% of trades will fall between $109.53 and $126.43 over the next month, for a potential gain or loss of 7.2%, and between $113.92 and $122.04 over the next week.

Contract trading today is skewed toward puts, which are running 40% above their five-day average volume. Calls are running at 43% below average volume.

Amgen next publishes earnings on Jan. 25. The stock goes ex-dividend on Nov. 12 for a quarterly payout yielding 1.6% annualized at today's prices.

Decision for my account: I'm declining to open a bull position in AMGN. Despite the new high, the chart seems bearish to my eyes. I may well be wrong -- there's a lot of ambiguity there -- but if I'm wrong and miss the opportunity, no problem. There is no shortage of trades out there.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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's Prospects

On Monday, Oct. 28:

Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 44 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 31 to the upside and 13 to the downside.

Six symbols traded over the counter broke out, one to the upside and five to the downside.

Six symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. The upside breakouts were AMGN, EWW, GIL, GWW, GZT and OZRK.

No symbols traded over the counter survived my initial screening.

Earnings season began Oct. 8. The exclusion rule in my trading plan forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that many symbols are being removed from my prospective trades list during initial screening.

I shall do further analysis on Tuesday, Oct. 29.

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...
  • even or greater 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,
  • an average yield of 3% or greater in the direction of the breakout,
  • 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.

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, October 28, 2013

Monday's Outcomes: SONC

I analyzed SONC and decided to open a bull position if the symbol showed upside momentum near the end of the regular trading day. (See "SONC: Carhops deliver a bull signal".) It didn't, falling below the $18.93 support level it had honored through much of the day. I'll add SONC to my Watchlist for future consideration.

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.

SONC: Carhops deliver a bull signal

Update 12/31/2013: SONC took a sharp turn downward on Monday, and upon analyzing the chart, I decided to exit the position. I count SONC as having begun wave 4 on Dec. 9, and I'm exiting during wave C {-1} of that correction.

Click on chart to enlarge.
SONC 20 days 15-minute bars
The bull position was structured as long shares. During the 63-day lifespan of the position, the stock rose 5.9%, for an annualized yield of 33.9%.

SONC hasn't confirmed an exit signal by trading below the 10-day price channel, so I'll keep it on the Watchlist for now.

Update 10/29/2013: SONC regained its momentum and I've opened a bull position, structuring it as long shares. It has yet to exceed its high of $19.30 set on Oct. 28, but the intra-day momentum is sufficient to give me a degree of confidence that it will do so.

Sonic Corp. (SONC) broke above its 20-day price channel on Friday, and the bull signal was confirmed in trading today.

The breakout is part of a rise that began from $6.88 on May 9, 2012 and set a swing high today of $19.30, a level that remains below the all-time high of $26.19 attained in pre-Recession 2007.

The May 9 rise is wave III in an uptrend that began in the post-Great Recession cellar, from $57.78

Like most stocks with lower liquidity, the SONC chart's Elliott wave count is a bit raggedy. The primary ambiguity is the nature of the pull back and subsequent rise that I've labled as a possible 3rd wave extension on the left-hand chart.

SONC 2 years 2-day bars (left), 30 days 1-hour bars (right)

SONC peaked at $18.93 on Sept. 18, and then pulled back, eventually hitting a low of $16.75 on Oct. 22. My first thought was to call the pullback a wave 4 correction in November 2008, and the subsequent rise from $16.75 as wave 5.

However, the correction only lasted a month, and the prior wave 2 correction lasted four months. So there's a question of magnitude -- am I looking at the same degree of price movement in both cases, or is the shorter correction of September and October a degree smaller.

Time, as it always does on charts, will eventually tell. Whichever label is adopted, my conclusion is that SONC is in an uptrend of unpredictable duration.

This is SONC's sixth bull signal since wave 3 began in May 2012. Of the five completed signals, three were successful with an average gain of 16.5% over 65 days. The two unsuccessful trades lost 1.4% on average over 22 days.

In other words, it's a near perfect balance between the two outcomes -- the successes produce big gains and the failure small losses. The win/lose yield spread tells the story: A whopping 15.1%.

SONC was one of seven symbols that survived initial screening over the weekend, after removing stocks that broke out immediately after earnings were announced. (See "Monday's Prospects".)

I removed three from consideration because they had bearish ranks from Zacks: VNQ, LRY and GHL I generally prefer for Zacks' assessments and my trades to be aligned.

Two produced bull signals within bearish trends: MKC and ISCA. I prefer to trade with the trend.

That left SONC and PNR, and I chose SONC because its near-term chart produced a clearer Elliott wave count. The PNR chart looks like the work of an angry child with crayons.

Sonic, headquartered in Oklahoma City, Oklahoma, operates and franchises a line of more than 3,500 drive-in restaurants, owning about 13% of them and franchising out the rest. Sonic's signature practice is to have food delivered by carhops on roller skates; it even has an company-wide competition to find the best skater among its carhops.

Analysts aren't exactly hopping withenthusiasm for Sonic. Collectively, they come down at a negative 69% enthusiasm rating.

Sonic reports return on equity of 70% (not a typo), but with an extremely high level of debt amounting to six times equity (also not a typo). Despite the high returns, this is a not an attractive combination. Even with today's low interest rates, debt at six times equity would be cripping for most companies -- or households.

Earnings tend to be seasonal, peaking in the quarters that cover spring and summer. I mean, who goes to a drive-in restaurant when it's snowing in January?

Those two quarters, treated as a unit, have come in with higher earnings for two years running compared to the year before.

Those quarters, still treating them as a unit, had upside earnings surprises this year and last, and split between upside and downside surprises the year before that.

Institutions own 83% of shares, whose price has been bid up to where it takes $1.96 in shares to control a dollar in sales.

SONC on average trades 713,000 shares a day. It supports a moderate selection of option strike prices spaced $2.50 apart with some three-figure open interest near the money. However, the bid/ask spreads are way too wide for my taste, so I would structure any position I took in SONC as long shares.

But the options are a useful analytical tool. Implied volatility stands at 27% and has collapsed from 41% on Oct. 21. Volatility is just below the mid-point of the six-month range.

Options are pricing in confidence that 68.2% of trades will fall between $17.61 and $20.43 over the next month, for a potential gain or loss of 7.4%, and between $18.34 and $19.70 over the next week.

Contracts are trading at a slow pace, calls at 33% of the five-day average volume and puts at 17%.

Sonic next publishes earnings on Dec. 30.

Decision for my account: I intend to open a bull position in SONC, structured as long shares, if it shows upside momentum in the last half hour before the closing bell and shall update this analysis if I make the trade. Otherwise, I'll add SONC to my Watchlist.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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.

Sunday, October 27, 2013

Monday's Prospects Update

I've updated "Monday's Prospects" to identify the breakouts that resulted from earnings announcements. They aren't eligible for trading unless they stage a fresh breakout on Tuesday's beyond that day's 20-day price channel boundaries and so won't be included in Monday's stage-two analysis.

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.

Saturday, October 26, 2013

Monday's Prospects

On Friday, Oct. 25:

Of 2,399 stocks and exchange-traded funds in this week's analytical universe, 66 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 48 to the upside and 18 to the downside.

Three symbols traded over the counter broke out, two to the upside and one to the downside.

Fifteen symbols traded on the major exchanges survived my initial screening, 12 having broken out to the upside and three to the downside. The upside breakouts were BMS, GHL, ISCA, LRY, MEI, MKC, MTW, PNR, RTN, SONC, VNQ and WOOF. The downside breakouts were BSAC, NTGR and USTR.

Update: Five of the upside breakouts and all three downside breakouts broke out immediately following an earnings announcement and won't be eligible for trading until Tuesday, and then only if they stage a fresh breakout beyond the price channel boundaries at that time. 

The surviving major-exchange breakouts, all to the upside, are GHL, ISCALRYMKCPNRSONC and VNQ

No symbols traded over the counter survived my initial screening.

Earnings season began Oct. 8. The exclusion rule in my trading plan forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that many symbols are being removed from my prospective trades list during initial screening.

I shall do further analysis on Monday, Oct. 28.

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...
  • even or greater 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,
  • an average yield of 3% or greater in the direction of the breakout,
  • 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.

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.

The Week Ahead: FOMC meeting, three major delayed reports

The Federal Open Market Committee meets for two days and will issue a statement Wednesday at 2 p.m. New York time. The recent Tea Party-inspired closure of government for 16 days and close encounter with default on the federal debt has silenced talk that the Fed will dial back on monetary stimulus any time soon. Both events, economists say, slowed economic growth sufficiently to produce fear that economic tightening will thrown the country back into recession.

Reports delayed by the government shutdown continue to hit the econ board in the coming week, shining some light into the dark shadows that had the markets flying blind while the Congressional Republicans tried to answer the crucial question, "Who's in charge here?"

The three major delayed reports to hit the boards this week are industrial production on Monday at 9:15 a.m., the producer price index and retail sales, both on Tuesday at 8:30 a.m., and the consumer price index on Wednesday at 8:30 a.m.

One fresh report, the Institute of Supply Management manufacturing index will be out Friday at 10 a.m.

The ADP employment report is scheduled for Wednesday at 8:15 a.m. This report usually is out two days before the government's employment report, which was originally to be published on Friday, Nov. 1. However, the shutdown has delayed the government release until Friday, Nov. 8. Nothing on the ADP web site as I write this on Saturday morning indicates a change in their schedule. But the report loses much publicity value without the tie to the federal report, so I wouldn't bet against ADP deciding to delay its report. Or perhaps they'll decide to duplicate it, releasing reports spaced a week apart.

It's a small example of how intertwined activities of government and the private sector are. Shutdown one and cause problems for the other.

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.

Vendor performance, also known as the delivery times index, from the ISM manufacturing survey, at 10 a.m. Friday.

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

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

Other reports of interest:

Monday: Pending home sales at 10 a.m. and the Dallas Federal Reserve manufacturing survey of conditions in Texas, at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price index at 9 a.m., a delayed report, business inventories at 10 a.m. and consumer confidence at 10 a.m.

Wednesday: Petroleum inventories at 10:30 a.m.

Thursday: The Chicago Purchasing Managers index at 9:45 a.m.

Friday: Motor vehicle sales throughout the day and the Purchasing Managers index for manufacturing just before 9 a.m.

Fedsters

Two Fedsters have public appearances, both on Friday. They are St. Louis Fed Pres. James Bullard, a member of the FOMC, and Minnesota Fed Pres. Narayana Kocherlakota, an FOMC alternate.

Analytical universe

This week I shall be analyzing new bull and bear signals among 2,399 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 November options for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading February options for single calls and puts as well as straddles. Shares, of course, are good at any time.

Good trading!

Friday, October 25, 2013

Friday's Outcomes: GLD, IAU

I analyzed two exchange-traded funds that track gold bullion, GLD and IAU, and rejected a trade based on the chart. See "Gold glitters -- not".

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.

Gold glitters -- not

The gold exchange-traded funds -- GLD and IAU -- broke above their 20-day price channels on Thursday. The bull signals were confirmed as the funds traded above their breakout levels today.

GLD and IAU both track gold bullion. GLD has a higher fee and also higher liquidity. IAU is less liquid and has a lower fee.

Liquidity is a necessity for a relatively short-term trader like me, so I will focus on GLD in this discussion. The funds' charts are barely distinguishable. They're a pair, like Tweedledum and Tweedledee.

Everyone knows the story of GLD -- the store of value against inflation, the best place to park emergency cash to buy food when the Zombie Wars begin, the best loved vehicle of wealth both in India and the Texas home of former presidential candidate Ron Paul.

To its fans, gold is the only real money. The rest is just government trash.

Gold was cheap when the GLD fund began trading in 2004, had more than quadrupled in price when it peaked in September 2011, and since has lost a third of its value.
GLD 8 years weekly bars (left), 90 days 4-hour bars (right)

The Elliott wave count clearly shows GLD in a downward correction from its peak, with wave 4 to the downside possibly taking the form of a zig-zag or a flat..

If it is a zig-zag, then the present wave b up will fall short of the the $138.17 peak; if a flat, then it will likely return to those levels.

For a trader who makes a living by following trends, the chart makes it clear that a bull play on GLD is a counter-trend trade.

A flat construction for waves a and b might well result in a 6% gain, but a zig-zag could reverse this afternoon or Monday. The ensuing wave c will show great momentum to the downside, if Elliott wave doctrine holds true.

There's nothing in the chart to tell me which form is most likely, and so faced with the chance of an energetic wave c to the downside, an upside trade is a risk I'm unwilling to take.

IAU was one of eight symbols that survived my initial screening overnight. (See "Friday's Prospects".) GLD was not a survivor because its average net gain on bull trades was under 3%.

Two construction funds, ITB and XHB, also gave bull signals. XHB failed confirmation and ITB isn't showing upside momentum to follow through.

The other symbols are all stocks.

Of the upside breakouts, KMI has a bearish trend, DOV failed confirmation, and RH and ENL aren't showing upside momentum.

The one downside breakout, RMBS, has options, but the spread is too wide to meet my trading preferences.

GLD on average trades 7.5 million shares a day and supports an awesomely wide selection of option strike prices spaced a dollar apart, with four- and five-figure open interest near the money with a front-month at-the-money bid ask spread of only 1.1%.

IAU trades 3.7 million shares a day and has a moderate selection of strike prices with three-figure open interest near the money and a very wide bid/ask spread of 50%.

Implied volatility for GLD stands at 20% and for IAU, at 19%. Each is at the low point of  its six-month range and has been falling since mid-October.

GLD options are pricing in confidence that 68.2% of trades will fall between $122.42 and $137.50 over the next month, for a potential gain or loss of 5.8%, and between $126.34 and $133.58 over the next week.

The equivalent figures for IAU are a one month range of $12.33 to $13.81 for a potential gain or loss of 5.7%, and a one-week range of $12.71 to $13.43.

Contracts on both are trading below their five-day average volumes with a skew toward calls. GLD is running at 83% of average for calls and 64% for puts. IAU is running at 51% for calls and 21% for puts.

Decision for my account: No trade in either fund, based on the charts. By being cautious, I'll avoid the wave c collapse if it happens. Of course, I'll be doomed when the Zombie Wars begin, proving yet again that in trading, everything is a trade-off.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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's Prospects

On Thursday, Oct. 24:

Of 2,396 stocks and exchange-traded funds in this week's analytical universe, 93 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 67 to the upside and 26 to the downside.

Four symbols traded over the counter broke out, two in each direction.

Eight symbols traded on the major exchanges survived my initial screening, seven having broken out to the upside and one to the downside. The upside breakouts were DOV, ENL, IAU, ITB, KMI, RH and XHB. The downside breakout was RMBS.

No symbols traded over the counter survived my initial screening.

Earnings season began Oct. 8. The exclusion rule in my trading plan forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that many symbols are being removed from my prospective trades list during initial screening.

I shall do further analysis on Friday, Oct. 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...
  • even or greater 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,
  • an average yield of 3% or greater in the direction of the breakout,
  • 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.

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, October 24, 2013

Thursday's Outcomes

I rejected all of my trading prospects today. Read "Thursday Prospects: No Trade" for reasons why.

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 Prospects: No Trade

None of the three survivors of my overnight screening has passed further analysis, so I won't be opening any new positions today. (See "Thursday's Prospects" for the analysis results.)

In descending order of liquidity:

HLSS has been trading for less than a year, and under my rules, any position I open must be based on a symbol that has been trading for a year or more.

AIR has bearish ranking from Zacks yet has given a bull signal. My preference is for the Zacks rating and the signal to be aligned.

CEO gave a bear signal on a 3.5% downside gap after releasing operating statistics. I don't trade on headlines because the news has already been priced into the market.

Those three survived screening based on the major market trend that began Oct. 4, 2011.

Undaunted, I went to another analysis that I ran, based on the date the markets began faltering: May 21 of the present year.

But the five symbols having sufficiently good oods and returns to meet my standards also are scheduled to announce earnings within the next 30 days, removing them from consideration.

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 Prospects

On Wednesday, Oct. 23:

Of 2,396 stocks and exchange-traded funds in this week's analytical universe, 56 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 34 to the upside and 22 to the downside.

Nine symbols traded over the counter broke out, four to the upside and five to the downside.

Three symbols traded on the major exchanges survived my initial screening, two having broken out to the upside -- AIR and HLSS -- and one to the downside -- CEO.

No symbols traded over the counter survived my initial screening.

Earnings season began Oct. 8. The exclusion rule in my trading plan forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that many symbols are being removed from my prospective trades list during initial screening.

I shall do further analysis on Thursday, Oct. 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...
  • even or greater 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,
  • an average yield of 3% or greater in the direction of the breakout,
  • 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.

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.

Wednesday, October 23, 2013

Wednesday's Outcomes

I analyzed HUB.B but decided against opening a position. See "HUB.B: Clarity and confusion".

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.

HUB.B: Clarity and confusion

Hubbell Inc. Class B shares (HUB.B) pushed above their 20-day price channel on Tuesday, sending a bull signal. The last time that happened, in mid-September, it proved to be a head fake, as the price immediately dropped back and a few weeks later gave a bear signal, which also proved to be a head fake of sorts.

So even though today's trading has confirmed the bull signal, albeit with little in the way of upside momentum, the cautious trader will treat HUB.B as the boy who cried "Wolf!".

HUB.B peaked at $113.09 on Aug. 1 after a long rise from its 2009 Great Recession low of $22.05 and has moved into a period of correction.

The near term chart shows HUB.B's situation with a great deal of clarity. I can say from the outset that HUB.B isn't suitable now as a short-term bull play. The chart is correcting an uptrend, I'm a trend follower, therefore, it's not a bull play.

For the future, the question is what precisely the correction is correcting. If HUB.B completed a five way pattern from 2009 to the peak, then the entire rise will ultimately be corrected.

HUB.B 5 years 3-day bars (left), 90 days 1-hour bars (right)

But the long count is ambiguous and a source of confusion. I've put a possible count on the chart that labels the $113.09 peak as the end of wave III, which would allow for a correction that could carry as low as $50, the length of wave II, to be followed by a further rise above the peak.

The best alternate count would make the $113.09 peak the termination of wave V, which would allow for a correction that could carry as low as $22, the entire run-up from 2009.

Trend channels can often clarify a chart. The channel for my preferred count, in black, contains the trend. The alternate count channel, in red, quickly veers from the course of the price.

The other evidence for counting the $113.09 peak as the end of wave III is the Elliott wave rule forbidding wave III from being the shortest of the three waves in the direction of the trend.

That requirement would be met under my preferred count if wave V is longer than wave I, a substantial rise. The alternate count already violates the rule, since it leaves Wave II as the shortest.

The choice between wave III and wave V will become critically important if the price moves above $113.09. If that price ended wave III, then HUB.B is likely beginning a substantial uptrend; if wave V, then the rise is a head fake of the type known in the Elliott wave universe as a throwover.

HUB.B was one of seven stocks that survived initial screening overnight, all having broken out to the upside. (See "Wednesday's Prospects".)

I eliminated BBT, CAG and OMC because of bearish ratings by Zacks; I prefer in my trades that the Zacks ratings match the trend.

The most liquid symbol, SLV, is in a marked correction; I don't do counter-trend trades.

That left HUB.B plus two illiquid over-the-counter symbols, PUBGY and LRLCY. I chose to follow the liquidity for my analysis.

Hubbell, headquartered in Shelton, Connecticut, makes the infrastructure that holds together the electrics and the electronics that fill modern houses and commercial buildings, the small and not-so-small knick-knacks that tie everything together into a working whole. It has been in that business since 1888.

Companies like Hubbell aren't flashy. They work behind the scenes, and that I think is a source of strength. They can earn money across a broad segment of business, rather than restricting themselves to a narrower niche as retail manufacturers must do.

Analysts are less than excited about Hubbell's prospects, giving it a negative 14% enthusiasm rating.

The company reports a solid return on equity at 18%, but with debt a bit higher than I like, at 33% of equity.

Profits tend to peak in the 3rd quarter, which covers the summer building season, and the last three 3rd quarters have shown increasing profits over the year before. Earnings have surprised to the upside in 11 of the last 12 quarters. The one downside surprise came in the 1st quarter of the present year.

Institutions own 88% of shares, and the price has been bid up to where it takes $2.03 in shares to control a dollar in sales.

HUB.B on average trades 159,000 shares a day. Its options lack sufficient open interest for me to trade, so any position I open would be structured as shares.

Implied volatility stands at 25%, near the middle of the six-month range. It has zig-zagged widely without a trend during that period.

Options are pricing in confidence that 68.25 of trades will fall between $100.68 and $116.14 over the next month, for a potential gain or loss of 7.1%, and between $104.70 and $112.12 over the next week.

Options today are skewed toward calls, which are running at 72% of their five-day average volume. Puts are running at only 36% of average volume.

Hubbell Inc. next publishes earnings on Jan. 20. The stock goes ex-dividend on Nov. 26 for a quarterly payout yielding 1.84% annualized at today's prices.

Decision for my account: I'm passing on HUB.B for the reasons noted in my chart discussion above: It's not in an uptrend, and so by my rules I can't trade a bull breakout.

The low liquidity means that it's impossible for me to do bear trades in HUB.B, so any position will need to await the working out of the longer-term trend that I discussed.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I use the number 68.2% in using applied volatility to calculate the expected trading range. 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

By preference I place my trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

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.