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.
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| 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.
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