Thursday, October 31, 2013

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.


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.

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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