Monday, December 2, 2013

SCGLY: Correcting higher

Société Générale S.A. (SCGLY) has a shock that shows on its chart, just as clearly as the layer of iridium does for geologists as a footprint of the meteor that destroyed the dinosaurs.

SCGLY's decades-long rise culminated in a massive one-day spike on high volume to $130 on Jan. 18, 2008. The next day the price retreated, opening at $24.04, and a week later, the bank announced that a futures trader had lost it $7.2 billion (€4.9 billion).

The price had in fact begun to slide earlier, on May 4, 2007, from $43.35. But it was the spike that forever marks the shock that sent the 144 year old institution reeling into a downtrend that continued, and perhaps continues, to this day.

Fast forward to the present, and SCGLY is again on the rise, having touched a post-spike low of $3.62 on July 24, 2012. The stock is now in the third wave of that rise, and it is the third wave, from $6.16 on April 17, 2013, that will engage my interest.

Click on the chart to enlarge
SCGLY 3-years 2-day bars (left), 180 days 2-hour bars (right)
Using Elliott wave terminology, the present wave is third or middle rise from the beginning of the trend in July. That third wave, labeled 3 {-1} on the charts. Wave 3 {-1} is in its fifth and final rise, wave 5 {-2} from $10.71 on Nov. 20.

What's with the curly braces in the wave labels? Click here to find out.

Friday's break above the 20-day price channel was SCGLY's third bull signal since wave 3 {-1} began last July. The two completed signals were both successful, with an average yield of 15.4% over 32 days.

Under Elliott wave rules, wave 5 {-2} must exceed the prior rise, wave  3 {-2}. If it doesn't, then my count is wrong.

That gives a lower target of at least $11.69, or 1.7% above Friday's close. There is no upper limit imposed by Elliott wave analysis, although certainly the markets will impose plenty of limits of their own.

Over the very long term, when the present wave C rise from last April is completed, the will mark the end of the uptrend of a higher degree that I've labeled as wave B {+1}. It will be followed by a downtrend, probably lasting years, that will carry down to or below the 2012 low, $3.62.

But, how do I know that the decline from January 2008 is indeed a correction rather than a new downtrend? The answer is that I don't. Wave A {+1} can be considered the first wave of a five-wave downtrend and labelled wave 1 {+1}. 

That would put SCGLY's present location in the left-hand chart as tracing out wave 3 {+1}, with the expectation of a correction at its end and then a further rise.

The correct count will emerge on the chart with the passage of time.

SCGLY was one of seven symbols that survived initial screening over the weekend. (See "Monday's Prospects".) 

I shied away from the American stocks because Friday was a short trading day sandwiched between Thanksgiving and the weekend. Low volume, quirky trades -- who knows what was really going on.

SCGLY, however, is principally traded on the Euronext exchange, where the American holiday isn't celebrated. It also has the advantage of being the sole surviving signal to have a bullish rating from Zacks.

The American-traded shares, listed on the over the counter Pink Sheets, reflect the trading of the parent shares on Euronext, but with a lag, since Europe is closed while New York is still going strong.

Like most ADRs traded on the OTC market, Paris-based Société Générale, called SocGen for short, has a very small following of analysts, who have split in their assessment for a perfect zero of an enthusiasm rating.

SocGen reports return on equity of 2.7% with a nearly equal level of long-term debt, at 2.4% of equity.

After peaking in the quarter ending in September 2009, quarterly earnings began a zig-zagging downward march that hit bottom in the quarter ending in September 2012. From there it saw increasing earnings for two quarters with a decline from the prior quarter in the most recent.

The earnings yield is 1.96%, or a share price of 51 times earnings, a very large premium, but it's an issue that mainly impacts longer-term traders.

Institutional ownership is practically non-existent, and the price is at a discount to sales. It takes 47 cents in shares to control a dollar in sales.

SCGLY on average trades 197,000 shares a day. There are no options, as is commonly the case with over-the-counter shares. The bid/ask spread on shares is 0.5%.

SocGen next publishes earnings on Feb. 24. The stock goes ex-dividend in May for an annual payout yielding 1.02% at today's prices, bringing the stock's combined earnings and dividend yield to 2.98%.

Decision for my account: This is a stock I could trade, even if it is over the counter. Frankly, I've done so little OTC trading that I have no idea what to expect -- how quick are the fills? How much negotiation leeway is there? It would be worth a try just for the experience.

I intend to open a bull position in SCGLY, structured as long shares, if the price shows an uptrend in the last half hour before the closing bell. If I don't make the trade today, then I'll abandon the attempt rather than adding SCGLY to my Watchlist.


My shorter-term 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. 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

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

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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