Friday, January 31, 2014

Friday's Outcomes: BPOP

I analyzed BPOP as a potential bear play but decided not to take it. See my analysis, "BPOP: Bearish on Hispanic banking".

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.

BPOP: Bearish on Hispanic banking

Popular Inc. (BPOP) is in the final leg of a decline from $29.34 on Dec. 9, 2013. The decline is correcting the rise from $24.95 on Oct. 31, 2013.

From a broader standpoint, BPOP has begun a decline from $34.27 on Aug. 20, 2013, that is correcting the rise from $13.38 on July 23, 2012.

Whether the viewpoint is near term or far term, BPOP's chart is bearish. The question for the near term is how much downside potential there really is. My chart analysis suggests that there's very little.

BPOP's most recent bear signal occurred on Thursday, when the price broke below its 20-day price channel, and the signal was confirmed today as the price continued to trade outside the channel boundary.

The Chart

BPOP is within a downward correction of an upward correction during a massive declining B wave that began from $42.25 on Aug. 30, 2010. That wave sits within a second wave to the upside, wave 2 {+5}, that began July 22, 2009, the Great Recession low.

My positions generally measure their lives in months, so what I care about as a trader is that wave 4 decline from early December.

Click on chart to enlarge.
BPOP 5 years 3-day bars (left), 90 days 1-hour bars (right)
My Elliott wave count puts BPOP in wave 3 {-2} of C {-1} of 4 of a correction within wave 2 {+1} to the upside within B {+2} of 5 {+3} of C {+4} of 2 {+5}, also to the upside.

Under the Elliott rules, the wave 4 decline must stop short of the beginning of wave 3 in the same degree, $24.95 on Oct. 31, 2013.

Corrections rarely take back all of the rise that they're correcting. Common stopping points, called Fibonaccci retracement levels, are $38.2%, 50% and 61.8%.

BPOP is already at the 61.8% level, $62.63, and is in the second day of a pause at that point.

The next Fibonacci retracement level is 78.6%, or $25.89. If that is the endpoint, then BPOP's downside potential from today's opening price is down 2.9%.

Fibonacci retracement reversals are often observed but never guaranteed.

The certainty is that a decline below $24.95, the beginning of wave 3 to the upside, would mean that my count is wrong and needs to be redone.

Once wave 4 ends, then wave 5 to the upside can be expected to carry BPOP above $29.34, the peak of the prior wave 3. That is a rise of 10.1%.

As I read the chart, the ratio between the upside potential and somewhat optimistic downside potential is a around 3-1/2 to one, meaning that my chances of losing in a bear play are more than triple my chances of winning.

Odds and Yields

This is BPOP's first bear signal since October 2013, when the present upside correction began, so there is no history in that timespan.

Looking at the longer term, the present wave B {+4} decline has produced 12 prior bear signals. Five were successful, yielding 16% over 53 days on average. The seven unsuccessful trades lost 6.1% over 13 days on average.

The Company

Popular is the largest bank in Puerto Rico and largest Hispanic bank in the United States. It operates under the name Banco Popular through branches in Puerto Rico, New York, California, Illinois, New Jersey and Florida.

Analysts collectively come down to a Goldilocks opinion about Popular's prospects: Neither bullish nor bearish.

The company reports return on equity of 6% with no long-term debt.

It has reported a loss only once in the last 12 quarters; that was in the 1st quarter of 2013. Four the last 12 earnings reports have surprised to the downside and eight to the upside.

The earnings yield is 21.72%, higher than 95% of other regional banks. Stock is selling at 4.6 times earnings and also at a slight premium to sales. It takes $1.22 in shares to control a dollar in sales.

Institutions own 78% of shares.

The company pays no dividend. It next publishes earnings on April 14.

Liquidity and Volatility

BPOP on average trades 1.3 million shares a day and supports a moderate selection of option strike prices spaced a dollar apart, with near-the-money open interest in the front month running to triple digits.

The front-month at-the-money bid/ask spread on puts is at bit wide, at 7.6%.

Implied volatility stands at 40% and has been zig-zagging higher since early November. Volatility stands at the 65th percent in the annual range, suggesting that short options spreads sold for credit, such as bear call spreads, would be the best vehicle for a bear trade.

Options are pricing in confidence that 68.2% of trades will fall between $23.51 and $29.65 over the next month for a potential gain or loss of 11.6%, and between $25.10 and $28.06 over the next week.

Contracts are trading actively today, with puts running at more than seven times their five-day average volume and calls at 2-1/2 times average.

Decision for My Account

I don't see that much downside potential on the chart compared to the upside risk of a bear position. Time and time again, I've seen the 68.2% Fibonacci retracement level be the end of the road for corrections. Not always, but often enough for it to set off my Spidey sense.

Entirely because of the chart analysis, I won't be trading BPOP based on this bear signal.

References

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 practitioner 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.


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: Round 2

The survivors of the first round of my screening -- see "Friday's Prospects" -- are tending toward the less liquid end of the scale. It's not a great choice.

The best of the lot is a potential bear play on the Puerto Rico-based bank-holding company Popular Inc. (BPOP). A complicating factor is the fact that Zacks gives BPOP a bullish rating, contrary to the potential trade. In itself, that isn't a deal killer. I'll get a better sense of things once I've dug into the financials.

I intend to post an analysis of BPOP later in the day.

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.

Friday's Prospects

On Thursday, Jan. 30:

Of 3,877 stocks and exchange-traded funds in this week's analytical universe, 48 mid- and large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, 36 to the upside and 12 to the downside.

Twenty-three major-exchange small-cap symbols broke out, nine to the upside and 14 to the downside.

Nine over-the-counter symbols broke out, three to the upside and six to the downside.

Two mid- or large-cap symbols traded on the major exchanges survived my initial screening, FTK, having broken out to the upside, and BPOP, to the downside.

One small-cap major-exchange symbol survived initial screening, CSFL, having broken out to the upside.

Two symbols traded over the counter survived my initial screening, both having broken out to the upside. They are TCEHY and JEXYY.

From among the large-cap symbols, none with high volume broke out to the downside, met the earnings exclusion test and had sufficient liquidity for a bear play, regardless of historical odds analysis.

I shall do further analysis on Friday, Jan. 31.

Earnings season began on Jan. 9, with the announcement by AA, triggering the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that increasing numbers of symbols will be removed from my prospective trades list during initial screening.

Methodology

The symbols are sorted into three groups and all have analyst coverage through the stock-ranking company Zacks. The groups are:
  • mid- and large-cap stocks as well as selected exchange-traded funds listed on major exchanges,
  • small-cap stocks on major exchanges,
  • mid- and large-cap over-the-counter stocks.
The small-cap group is further selected to ensure a minimum market capitalization of $1 million and a Zacks ranking of neutral or more bullish. (Small-cap stocks rarely have sufficient liquidity to allow a bear trade.)

I then screen the symbols for historical odds of a profitable signal in the direction of the breakout since June 24, 2013. That date is when the present uptrend on the S&P 500 chart began. In Elliott wave terms, it is wave 5 to the upside.

If the odds of success are 50% or greater, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen 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. Symbols that are too illiquid for a bear trade are removed from consideration.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner 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.

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, January 30, 2014

Thursday's Outcomes: HZNP, BDE

HZNP shows signs of having moved into a short-term correction, and so I shall put the symbol on my Watchlist for later consideration for a bull play. See "HZNP: Bullish on arthritis and pain" for details and a chart update.

I've removed BDE from the Roll Shelf as a potential bull play and updated my analysis with results. See "BDE: Bullish on mountains".

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.

HZNP: Bullish on arthritis and pain

Update 4/7/2014: The March 19 peak of $18.30, described in the update below, turns out to have been the peak of the rise from Feb. 7, sending the price into a steep downward correction. The price is nearing the 61.8% Fibonacci retracement level and must stop above, probably well above, the $9.55 level, from where the rise began.

In terms of Elliott, wave 3 {-2} ended on March 19 and 4 {-2} is well underway.

HZNP gave an exit signal on April 4, closing bellow the 10-day price channel, and confirmed it on April 7 by closing below the signal level. I'm therefore removing HZNP from my Watchlist and no longer look at it as a potential trade.

Click on chart to enlarge.
HZNP 90 days hourly bars

Update 3/19/2014: Horizon Pharma announced that it is buying an Irish pharmaceutical house, sending HZNP shares into a 22.6% opening gap. (Read the Bloomberg report by Caroline Chen here.) 

I sold my position immediately, on the assumption that profit taking will bring the price down off of its peak of $18.30. Also, the purchase makes HZNP into a new company of sorts, and I'll be more comfortable once a fresh baseline has been established on the chart, beginning 20 trading days from now in mid-April.

The major outlines of the Elliott wave count remain unchanged from the chart posted Feb. 19 (see below). HZNP is in wave 5 {+1} of wave 5 {+2}.

The stock rose by 59.2% over the 28-day lifespan of my position, or 771.3% annualized.

I've added HZNP to my Watchlist.

Update 2/19/2014: HZNP moved conclusively above $10.68 on Monday, meeting the requirement of my original analysis, below, and I opened a bull position on Tuesday, structuring the position as long shares. By my count, HZNP is in wave 3 {-1} of wave 3 to the upside.

Click on chart to enlarge.
HZNP 20 days 15-minute bars



Update 1/30/2014: HZNP's chart suggest that the price has completed wave 3 to the upside and moved into wave 4. It's not conclusive, but it's enough to give me pause before opening a bull position.

In the three-day chart below, note the whipsawing prior to the peak, a sure sign of a market that struggling to attain that new high.

Yet, the count is not conclusive. HZNP has stalled just below $10 in the half hour before the closing bell and remains above the base of the whipsaws. So the whole structure might well be a sideways correction at a degree below wave 3, with the conclusion of wave 3 still lying ahead.

I'm playing it this way: 
  • A conclusive rise above $10.68, the peak that I've labelled as wave 3, will lead me to conclude that wave 3 to the upside is still underway and I can open a bull position. It will also mean that my wave 3 label is incorrect.
  • A conclusive decline below $9.77, the whipsaw base, will tell me that the correction has indeed begun and HZNP has moved into wave 4 to the downside. This will confirm my placement of the wave 3 label.

If the correction is indeed underway, how far can it be expected to go? HZNP has paused at the 23.6% Fibonacci retracement level of the rise from the end of wave 2, also the start of wave 3, $7.63.

The more common retracement levels and their positions on the HZNP chart are:
  • 38.2% at $9.52
  • 50% at $9.16
  • 61.8% at $8.80
There is no rule requiring a correction to one of these levels, but they tend to be significant points.

Click on chart to enlarge.
HZNP 3 days 3-minute bars

Horizon Pharma Inc. (HZNP) has been in a sharp rise for the past three days as it pushes ahead in the middle uptrend of a larger rise that began Dec. 13, 2013 from $6.43.

The price broke above its 20-day price channel on Wednesday, sending a bull signal, and continued to rise today, hitting a high so far in morning trade of $10.68.

The bullish chart puts HZNP at odds with the general trend of the market, which has been bearish since last week.

The Chart

As is often the case with stocks on the move, the Elliott waves in HZNP's chart are poorly differentiated by degree. Such is the momentum of the rise, the downward corrections all tend to be of about the same magnitude.

Any Elliott wave count on such a chart will be educated guess when it comes to the precise degree of each wave, while being quite accurate in assessing the relative postion of each wave.

HZNP went public on July 28, 2011 with an initial public offering price of $9 per share. As is often the case with IPOs, the price immediately headed south, hitting bottom at $1.97 on March 4, 2013.

It is from that point that the major uptrend began.

Click on chart to enlarge.
HZNP 2-1/2 year chart 2-day bars (left), 90-day chart 2-hour bars (right)
My "You Are Here" count puts HZNP in the midst of wave 3 within waves 5 {+1} and 5 {+2}, all moving to the upside.

An IPO creates a chart that jumps into the story in the middle, so I can't with any certainty characterize the nature of the {+3} degree, one higher than the larges waves I've counted.

None of that matters for any potential trade today.

HZNP's upside potential is suggested by the length of wave 1, which is $2.70.

Wave 3 began Jan. 27 from $7.63. Third waves can never be the shortest of the three waves that move in the direction of the main trend and are often the longest.

Assuming that the future wave 5 is longer than wave 1, then wave 3 must at a minimum travel $2.70, to $10.33. It accomplished that feat on Wednesday. There's no rule in Elliott that says the rise has to stop at that level, nor is there a rule forbidding it from doing so.

What can be said is that HZNP has used up its minimum upside potential.

Of course, the end of wave 3 isn't the end of the uptrend from March 2013. HZNP would move into a downside correction that would end above $7.63 and then, as wave 5, move to still a higher high, above the peak of wave 3.

It is a bullish chart with enough chance of more upside potential over the next month or so to hold my interest.

Odds and Yields

This is HZNP's sixth bull signal since the major uptrend began in March 2013. Three of the completed signals were successful, on average yielding 25.9% over 28 days. The two unsuccessful trades lost 6% over 16 days on average.

That is a 19.9% win/lose yield spread, which is excellent by any reasonable standard.

The Company

Horizon Pharma, headquartered in Deerfield, Illinois, develops medicines to treat arthritis, pain and inflammatory diseases. Its flagship products are Duexis, Rayos/Lodotra and Vmovo. Market capitalization is $680.2 million.

Like all pharmaceutical development houses, Horizon is subject to regulation by the Food and Drug Administration and the vagaries of research results. These can, on occasion, lead to quite violent price springs caused by news outside of the company's control and beyond the power of any trader to analyze.

Fewer than a handful of anlaysts follow Horizon and they are universally optimistic about the company's future prospects.

That's with an emphasis on "future". Horizon reports negative return on equity of -79% and debt amounting to 42% of equity. This isn't unusual for a company that is developing new products; the narrative is one of future promise rather than current returns.

Horizon has yet to earn a profit but its losses since the 1st quarter of 2012 have grown steadily lower. Earnings have surprised to the upside five times in the nine quarters the company has reported, with four downside surprises.

The earnings yield is negative 10.2% and the company pays no dividend. However, the stock is priced at a high premium to sales. It takes $12.17 in shares to control a dollar in sales.

Liquidity and Volatility

HZNP on average trades 2.1 million shares a day,sufficient to support a moderate selection of option strike prices spaced a dollar apart.

Open interest runs to three and four figures near the money. The front-month at-the-money bid/ask spread on calls is 23.1%, far wider than I'm willing to use in my trades. So any position I consider would be structured as long shares.

Implied volatility stands at 68% and has been rising from 47% since Jan. 17. It stands at the 21st percentile in the one-year range, which is on the low side. There were some major outliers early on in past 12 months. Looking at the six-month range, HZNP is at the 37th percentile, which I still consider to be low.

Implied volatility, based on options pricing, stands 32%  below historical volatility, which is based on actual price behavior.

Options are pricing in confidence that 68.2% of trades will fall between $8.25 and $12.31 over the next month, for a potential gain or loss of 19.8%, and between $9.30 and $11.26 over the next week.

Contracts are trading actively today, with calls running at more than four times their five-day average volume, and puts at 70% of average volume.

Decision for My Account

It's a bullish chart and a shorter-term trade, so I don't worry about the current finances. I intend to open a bull position in HZNP if upside momentum continues in the half hour before the closing bell. If momentum falters, then I'll add HZNP to my Watchlist for later consideration.

References

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 practitioner 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.


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: Round 2

Here is how the survivors of my first round of analysis fared. See "Thursday's Prospects".

The one survivor among the large- and mid-cap symbols traded on major exchanges, ASBC, was a bear signal, but it lacks the liquidity needed to support a bear trade. Sames goes for ANGO, the small-cap symbol that broke out to the downside.

The three high-volume large-cap symbols from round one that broke out to the downside rose to within their 20-day price channels and so failed confirmation: QQQ, QLD and SCHW.

That leaves the one upside breakout of the lot: Horizon Pharma Inc. (HZNP), a small-cap company. I'll be posting an analysis later in the day.

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.

Prospects, Advisory

Beginning today, I'm changing my naming and posting practice as follows.

I'm eliminating the "(day) Prospects: No Trade" posting, which I publish only when none of the potential trades from the first round of analysis survives the second round.

I'm replacing it with "(day) Prospects: Round 2", which I'll post daily as soon as I've completed my first round analysis. It will give the outcome of the second round analysis and will let readers know early in the day what symbol(s) I'm planning to look at in my detailed analysis.

The first posting under this plan, "Thursday's Prospects: Round 2", will move shortly.

Thursday's Prospects

On Wednesday, Jan. 29:

Of 3,877 stocks and exchange-traded funds in this week's analytical universe, 93 mid- and large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, eight to the upside and 85 to the downside.

Forty-eight major-exchange small-cap symbols broke out, three to the upside and 45 to the downside.

Eleven over-the-counter symbols broke out, one to the upside and 10 to the downside.

One mid- or large-cap symbol traded on the major exchanges survived my initial screening, ASBC, having broken out to the downside.

Two small-cap major-exchange symbols survived initial screening, HZNP having broken out to the upside and ANGO to the downside.

No symbols traded over the counter survived my initial screening.

From among the large-cap symbols three with high volume broke out to the downside, met the earnings exclusion test and have sufficient liquidity for a bear play, regardless of historical odds analysis. They are QLD, QQQ and SCHW.

I shall do further analysis on Thursday, Jan. 30.

Earnings season began on Jan. 9, with the announcement by AA, triggering the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that increasing numbers of symbols will be removed from my prospective trades list during initial screening.

Methodology

The symbols are sorted into three groups and all have analyst coverage through the stock-ranking company Zacks. The groups are:
  • mid- and large-cap stocks as well as selected exchange-traded funds listed on major exchanges,
  • small-cap stocks on major exchanges,
  • mid- and large-cap over-the-counter stocks.
The small-cap group is further selected to ensure a minimum market capitalization of $1 million and a Zacks ranking of neutral or more bullish. (Small-cap stocks rarely have sufficient liquidity to allow a bear trade.)

I then screen the symbols for historical odds of a profitable signal in the direction of the breakout since June 24, 2013. That date is when the present uptrend on the S&P 500 chart began. In Elliott wave terms, it is wave 5 to the upside.

If the odds of success are 50% or greater, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen 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. Symbols that are too illiquid for a bear trade are removed from consideration.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner 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.

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, January 29, 2014

Wednesday's Outcomes: SWKS, NWN

I removed SWKS from the Watchlist and have updated my Jan. 21 analysis, "SWKS: Divergent analyses".

I made no trades off of the prospects list. The lone survivor from my first round of screening, NWN, failed to get past the second round because of going ex-dividend.

In "Wednesday's Prospects: No Trades", I explain how my trading rules handle dividends, with an illustrative chart.

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's Prospects: No Trades

The one survivor of my first round of analysis, NWN, gave a bear signal by breaking below its 20-day price channel on Tuesday and confirmed the signal by trading below the channel boundary again today. (See "Wednesday's Prospects".)

A complicating factor is that NWN went ex-dividend today for a quarterly payout yielding 4.47% annualized at current prices.

My trading rules say this about dividends:
Definitions
  • Ex-Dividend Day: The day a stock goes ex-dividend.
  • Post-Dividend Day: The fifth trading day after the date a stock goes ex-dividend (with the day after ex-dividend day counted as the first of the five).
Dividend ExclusionsIf a symbol breaks out on Ex-Dividend Day, no entry is allowed until a breakout on Post-Dividend Day, and the Post-Dividend Day price channel boundaries are treated as the breakout levels (rather than using those levels on Ex-Dividend Day).
A symbol trading beyond the Post-Dividend Day boundaries at the Post-Dividend Day open is treated as a new breakout.

NWN broke below the 20-day price channel on Tuesday, which under my rules counts as a normal bear signal.

Today, NWN again broke below the price channel in confirming Tuesday's breakout, but this time it counts as an ex-dividend breakout, on Ex-dividend Day using the terminology of my rules. That means NWN can't be considered for a bear play until Post-Dividend Day, the fifth trading day after today.

Click on chart to enlarge.
NWN 6 days daily bars
I chose that interval to give the price some time to settle down. Dividends, especially large ones like NWN's, have a significant impact on prices, even though they are totally surprise-free events. The impact lasts more than a day, and often more than five days, but I had to pick a number, and five is what I chose.

The rule reflects my twin strategies of being a trend follower but not an ambulance chaser.

By ambulance chaser I mean the sort trader who reads a good earnings report or a take-over bid or a new product announcement and immediately jumps on board.

Traders who visit Private Trader often will know that with boring regularity, I quote Nathan Rothschild's dictum about buying on the sound of cannons and selling on the sound of trumpets. Ex-dividend Day is the trumpets, so under my strategy, it is no time to open a new position.

I won't be trading NWN today. Friday of next week? That depends upon whether NWN breaks below the 20-day price channel that day.

In my overnight analysis, I also split out large-cap, high-volume symbols that broke beyond the price channel, even if they had low historical odds of success. None of them survived my second round of analysis because they were all within the 30-day earnings exclusion period.

References

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.


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

On Tuesday, Jan. 28:

Of 3,877 stocks and exchange-traded funds in this week's analytical universe, 23 mid- and large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, six to the upside and 17 to the downside.

Twenty-two major-exchange small-cap symbols broke out, six to the upside and 16 to the downside.

Five over-the-counter symbols broke out, all to the downside.

One mid- and large-cap symbol traded on the major exchanges survived my initial screening, NWN, having broken out to the downside.

No small-cap major-exchange symbols survived initial screening.

No symbols traded over the counter survived my initial screening.

Three high volume symbols representing exchange-traded funds or companies with large market capitalization broke out to the downside and have sufficient liquidity for a bear play, regardless of historical odds analysis. However, they all fall within the 30-day earning exclusion window and so I can't trade them under my rules. They are CSCO, GLW and QCOM.

I shall do further analysis on Tuesday, Jan. 28.

Earnings season began on Jan. 9, with the announcement by AA, triggering the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that increasing numbers of symbols will be removed from my prospective trades list during initial screening.

Methodology

The symbols are sorted into three groups and all have analyst coverage through the stock-ranking company Zacks. The groups are:
  • mid- and large-cap stocks as well as selected exchange-traded funds listed on major exchanges,
  • small-cap stocks on major exchanges,
  • mid- and large-cap over-the-counter stocks.
The small-cap group is further selected to ensure a minimum market capitalization of $1 million and a Zacks ranking of neutral or more bullish. (Small-cap stocks rarely have sufficient liquidity to allow a bear trade.)

I then screen the symbols for historical odds of a profitable signal in the direction of the breakout since June 24, 2013. That date is when the present uptrend on the S&P 500 chart began. In Elliott wave terms, it is wave 5 to the upside.

If the odds of success are 50% or greater, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen 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. Symbols that are too illiquid for a bear trade are removed from consideration.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner 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.

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, January 28, 2014

Tuesday's Outcomes: INTC

I've rolled INTC over into a new bear position. See my reanalysis of the chart in today's update to my initial analysis, "INTC moves to a downtrend", originally posted on Nov. 26.

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.

INTC reanalysis

I've done a partial chart and volatility reanalysis of Intel Corp. (INTC) with an eye to rolling the position forward after its options expired earlier this month. See my original posting, "INTC moves to a downtrend", for the revised analysis.

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: No Trade

The markets have moved into the puzzlement phase after last week's broad decline in stock prices. This is where traders all scratch their heads while looking around nervously, muttering, "What just hit us?"

There's nothing in today's batch of potential trades that rings my bell. (See "Tuesday's Prospects".)

The regular analysis, including screening by historical odds, turned up only one potential with sufficient liquidity, KRE, and its chart is insufficiently bearish at first glance to be worth a second look.

The high-volume bear signals that failed the odds test are all up intra-day and so seem unlikely to provide an opportunity to trade/

So I shall focus my efforts on other things.

References

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.


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.

Stocks in bear mode

Friday's broad market created a ton of bear signals. Many of them got lost because I exclude from analysis stocks are are within 30 days of an earnings announcement.

There are 175 high-volume large-capitalization stocks in my analytical universe that have sufficient liquidity for a bear play. A bear position can be build from either options or short shares, and both tactics require liquid symbols, which excludes most of the market.

The stocks have average daily volume of 3 million shares or more and market caplitalization of $10 billion or greater. 

Out of those 175 symbols, 76 are presently in confirmed bear mode according to my rules. That means that each has broken below its 20-day price channel and continued to trade below the breakout level on the next day.

As of the Jan. 27 close, the 76 symbols in bear mode are:

ABBV
ABEV
ABT
ADM
AIG
AMAT
AMX
BBBY
BBD
BIDU
BK
BMY
BRK/B
BSBR
C
CBS
COF
COP
CSX
CTL
CVS
CVX
DD
DG
DIS
FCX
FOX
FOXA
GE
GGB
GGP
GM
HAL
HD
HIG
HST
INTC
JNJ
JPM
KEY
KO
KR
LVS
LYB
MA
MCD
MDLZ
MET
MRO
MS
MT
NBG
NKE
NOK
OXY
PBR
PBR/A
PFE
PGR
PM
POT
RIG
S
SAN
SLM
SYY
TGT
TJX
TWX
UNH
UPS
WFM
WMT
XOM
XRX
YHOO

References

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.


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, Jan. 27:

Of 3,877 stocks and exchange-traded funds in this week's analytical universe, 148 mid- and large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, five to the upside and 143 to the downside.

Eighty-nine major-exchange small-cap symbols broke out, three to the upside and 86 to the downside.

Thirteen over-the-counter symbols broke out, all to the downside.

Six mid- and large-cap symbols traded on the major exchanges survived my initial screening, all having broken out to the downside. They are I, NPBC, CMLP, CMA, IWN and KRE.

Seven small-cap major-exchange symbols survived initial screening, all having broken out to the downside. They are CETV, CSU, ADK, EPIQ, SEAC, CBK and GLPW.

No symbols traded over the counter survived my initial screening.

Six high volume symbols representing exchange-traded funds or companies with large market capitalization broke out to the downside and have sufficient liquidity for a bear play, regardless of historical odds analysis. They are AXP, IWM, IWO, KRE, TNA and XLK.

I shall do further analysis on Tuesday, Jan. 28.

Earnings season began on Jan. 9, with the announcement by AA, triggering the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement. This means that increasing numbers of symbols will be removed from my prospective trades list during initial screening.

Methodology

The symbols are sorted into three groups and all have analyst coverage through the stock-ranking company Zacks. The groups are:
  • mid- and large-cap stocks as well as selected exchange-traded funds listed on major exchanges,
  • small-cap stocks on major exchanges,
  • mid- and large-cap over-the-counter stocks.
The small-cap group is further selected to ensure a minimum market capitalization of $1 million and a Zacks ranking of neutral or more bullish. (Small-cap stocks rarely have sufficient liquidity to allow a bear trade.)

I then screen the symbols for historical odds of a profitable signal in the direction of the breakout since June 24, 2013. That date is when the present uptrend on the S&P 500 chart began. In Elliott wave terms, it is wave 5 to the upside.

If the odds of success are 50% or greater, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen 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. Symbols that are too illiquid for a bear trade are removed from consideration.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner 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.

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.