In terms of the Elliott wave count, TUMI has completed wave iii and is continuing upward in wave iv. It has done nothing to negate the count in my original analysis.
During TIMU's 33-day lifespan, the shares rose 13.6%, or 150.3% annualized. That, of course, represents a loss for a bear position.
The options had a negative 50% yield on risk, or a loss of 553% annualized.
Update 10/16/2013: TUMI failed to follow through on on the close signal. I'm keeping the position open for now but will consider an exit based on the reward/risk ratio of my option spreads.
Update 10/15/2013: TUMI broke above the 10-day price channel today, sending a close signal, and then retreated near the end of trading. Under my rules, if that breakout is confirmed by continued trading above the 10-day channel on Wednesday, I'll close the bear position.
Given the Elliott wave count, it appears unlikely to me at this point that TUMI will continue its very near term rise. Having said that, I'll also note that the push above the channel came as a 10.3% intra-day rise. That's a lot of upside momentum.
If the rise does indeed continue, topping the wave 4 peak of $21.32 and, even more important, the wave ii peak of $22.27, then I'll need to revisit the Elliott wave count. The wave ii high is also the 20-day price channel breakout to the upside, which would send a bull signal.
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| TUMI 20 days 30-minute bars |
Update 10/3/2013: TUMI opened at $19.81 at the opening bell, peaked within the first 10 minutes of trading and then began a long fall down to its low of $19.24. It has remained within 20 cents of that level in the final half hour before the closing bell until the last five minutes, when it took a dive down to $19.09.
That's sufficient downside momentum to support a trade. I've opened a bear position in TUMI, structuring it as a bear call spread expiring in November.
The leverage is 2.3:1 with a potential maximum yield at expiration of 31.6% The position provides a hedge of profit up to 6.4% above the entry price.
Tumi Holdings Inc. (TUMI) pushed below its 20-day price channel on Wednesday and confirmed the bear signal by trading still lower the next day.
The 10-day decline marked the start of what I've labeled a third wave on the TUMI chart, using Elliott wave analysis.
TUMI is a fairly new symbol, having gone public on April 19, 2012 with a $26 opening price. The stock hit a high of $28.70 on IPO day and then headed south, never to see $28 again.
It is the nature of IPO charts that they are mired in a "Ball of Confusion", as the Temptations put it in their 1970 song about the troubles of that age. (That may well be what our world is today, as much as then, but for now, at least, let's not plumb the sad depths of American politics.)
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| TUMI 18 months 1-day bars (left), 180 days 2-hour bars (right) |
The reason for the confusion, aside from a lack of history to guide traders, is that the favored holders of the IPO shares at the opening price are in most cases forbidden from selling their stock for a period of time known as the lock-up, often 180 days. I've found that it is, in fact, about six months out that the chart of a new stock starts to make some sense.
I've begun my wave count after the end of the confusion period as the first three waves of a downtrend.
That analysis is certainly open to question, given the lack of historical context on such a brief chart. I considered counting it as a downward zig-zag correction within an uptrend, but the lack of a wave C in the alternate count negates that possibility in my opinion. Wave C within an uptrend would typically show a strong push downward. That's missing from this chart.
My preferred count shows wave 2 ending on Aug. 8, to be followed by wave 3 which is still in progress. I count the present wave as a shorter-span third wave within wave 3, suggesting considerable room for further decline, down to at least $16.43, a fall of 15.1%, at a minimum, for the distance relationship between wave i and wave iii to conform to Elliott wave doctrine.
This is TUMI's first bear signal since wave 3 began in early August. Since the IPO there have been two other bear signals, one of them successful for a 4.6% yield over 19 days and one a failure with a 5.8% loss over 22 days. The resulting win/lose yield spread is negative 1.2%, certainly not a confidence builder.
On the other hand, TUMI has so little history, I find it difficult to give much crededence to the odds. I tend to give greater weight to the wave count.
The one symbol to survive my initial screening last night, SF, lacks sufficiently liquid options for me to construct a bear trade. (See "Thursday's Prospects".) I looked at bear signals that had failed to pass my screening, and only TUMI met my second-wave tests sufficiently well to merit a closer look.
Tumi Holdings, headquartered in South Plainfield, New Jersey, makes really light, well designed high-end luggage. Their products are designed for people who travel frequently enough to care a lot about the bag they're wheeling through airport security and customs. Full disclosure: I carry a Tumi suitcase on my twice-a-year travels to East Asia and find it to be the best bag I've ever owned. Not that that's a reason to go bullish on the stock, mind you.
The company is followed by only a handful of analysts, who collectively come down with a positive 20% enthusiasm rating.
The company reports a 16% return on equity, which is quite respectable, with a low level of debt, amounting to just 7% of equity.
Tumi has been profitable in each of the six quarters it has reported since going public. There doesn't appear to be a trend, but the record doesn't yet show a year over year 4th quarter comparison, which is typically the most profitable quarter of the year for a product like this. Think Christmas presents.
Of course, with earnings, its often not the results but the expectations that count. Tumi produced downside earnings surprises twice, including in the most recent quarter reported. That produced a 12.2% opening gap to the downside.
Four quarters have produced upside surprises, but the markets are unforgiving, forever asking, "What have done lately?"
Institutions own 92% of shares, and the price has been bid up in anticipation of future earnings; it takes $3.07 in shares to control a dollar in sales.
TUMI on average trades 622,000 shares a day. It supports a small inventory of option strike prices spaced $2.50 and $5 apart but with surprisingly high open interest on calls, in the three- and four-figure range. These are precisely the options I need to construct a bear options spread.
Implied volatility stands at 46%, about the middle of the six-month range, and has been rising since Sept. 16.
Options are pricing in confidence that 68.2% of trades will fall between $16.83 and $21.95 over the next month, for a potential gain or loss of 13.2%, and between $18.16 and $20.62 over the next week.
Trading in TUMI contracts is fairly slow today, with calls running at 60% of their five-day average volume and puts at slightly above the average.
TUMI next publishes earnings on Nov. 6.
Decision for my account: I intend to open a bear position in TUMI if it maintains its downside momentum through the end of the day, structuring it as a bear call spread.
A closer: "Ball of Confusion", by The Temptations
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.
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