Tuesday, January 7, 2014

TRIB: Bullish on diagnostic tests

Update 3/21/2014: I've removed TRIB from the Roll Shelf, where it had been waiting for a chance to roll forward into a new bull position. and calculated the results. The position, entered and exited last January, gained 3.4% over 15 days, or 82.1% annualized.

I exited because the price hit the initial stop/loss point. It once again, in early March, returned to the 20-day channel's upper boundary, but reversed and continued to decline.

The Elliott wave count shows that the $28.06 peak of March 4 could count and the terminus of an extremely truncated wave 5 to the upside.

Update 1/22/2014: I've exited TRIB but will keep it on my Roll Shelf pending completion of wave 4 {+2} to the downside, which will correct the rise from $15.12 on April 24, 2013 to $28 on Jan. 10. A move in the near term above $28 would mean that the descending fourth wave has not yet begun.

Click on chart to enlarge.
TRIB 4-1/2 years 2-day bars (left), 1 year daily bars (right)
As always with potential rolls, I won't calculate profit or loss until I see no possibility of re-entering as a bull play and so remove the symbol from my Roll Shelf.

Update: 1/7/2014: I've opened a bull position in TRIB, structuring it as long shares. The price rose throughout the day, with the exception of a sideways trend late in the morning, and showed several 5-minute periods with price increases on high volume. That was sufficient momentum to make the trade.

Trinity Biotech PLC (TRIB) has confirmed that it is in the final leg of its rise beginning Aug. 28, 2013 from $18.27.

TRIB gave a bull signal on Monday and traded still higher today, breaking clear of the Nov. 29, 2013 high of $25.63 that had marked the peak of the prior upward leg.

One the present uptrend is complete, TRIB will correct the rise from last August, although how deep the correction will go is impossible to determine.

TRIB was chosen from my list of small-cap companies.

The Chart

By the Elliott wave count, TRIB is in wave 5 of wave 5 {+1}. Internally, wave 5 is not a clear count, something often seen in the charts of less liquid symbols. Today's breakout was the first confirmation that TRIB is indeed in wave 5 and not in a correction of the rise from late August.

Click on chart to expand.
TRIB 2-years daily bars (left), 5-month hourly bars (right)

Wave 5 began on Dec. 12, 2013 from $22.01. There's nothing in the Elliott wave rules to define how high it can go or how long it will endure.

Wave 3 at the same degree lasted 2-1/2 months and rose by 30.8%. Wave 5 so far has lasted three weeks and risen by 16.7%.

TRIB is in the process of completing the third, or middle, leg of a rise from $8.81 beginning Feb. 13, 2012.

The full descriptor for TRIB's position is wave 5 of 5 {+1} of 3 {+2} of 5 {+3}. The {+3} degree began from $1.05 on 3/2/2009.

TRIB's bull signals have become less reliable as wave 5 {+3} nears its end.

Of the six completed bull signals from the wave 5 {+3} beginning in February 2012, four were successful, yielding on average 9.3% over 35 days. The two unsuccessful trades lost 4.5% over 11 days, on average.

Compare that to wave 5 {+1}, beginning last August. It has completed two bull signals. The winner yielded 18.6%, but the loser was down by 5.7%, both over 41 days.

But if reliability is flagging, the momentum's magnitude is on the rise. The win/lose yield spread for wave 5 {+3} is 4.8%, compared to the near-term wave 5 {+1} spread of 12.9%.

The current bull signal is the first such of wave 5 beginning Dec. 12, 2013.

The Company

Trinity Biotech, headquartered in Bray, Ireland, develops and manufactures diagnostic test kits for a wide range of diseases. It has four manufacturing facilities in the United States, in a ddition to the one in its headquarters city.

It is followed by fewer than a handful of analysts, too few to justify calculating an enthusiasm index.

The company reports return on equity of 10% with no long-term debt.

Earnings have tended to be steady rather than trending over the past three years with the last three quarters down slightly from their year-ago counterparts. The last five quarters have produced downside earnings surprises; six of the seven before that surprised to the upside.

The earnings yield is 1.61%, lower than 87% of other biotech and drug companies. The annual dividend payout at today's prices is 0.78% annualized, amounting to 51.5% of the earnings yield.

The stock sells as 62 times earnings, a huge mark up, and the price is also at a large premium in comparison to sales. It takes $6.57 in shares to control a dollar in sales.

Institutions own 51% of shares.

Trinity goes ex-dividend in June for a once-a-year payout of 20 cents per share.

Liquidity and Volatility

TRIB on average trades 51,000 shares a day and supports a small selection of optoin strike prices spaced $2.50 apart at most intervals. Implied volatility is too low to meet my standards, and the spread is too wide for my taste. The front-month at-the-money bid/ask spread on calls is 25%.

Implied volatility stands at 37%, at the 65th percentile of the three-month range. It has been tracking sideways since mid-November.

Options are pricing in confidence that 68.2% of trades will fall between $22.95 and $28.41 over the next month, for a potential gain or loss of 10.6%, and between $24.37 and $26.99 over the next week.

Contracts are trading actively today, with calls running at 260% above their five-day moving average and puts at 62% above average.

Decision for my account

The reservations I have about TRIB are of the "missed the train" variety. TRIB has risen for some time, and it has been a spectacular rise, so how much more can be left.

But, as a trend follower, I often find myself in that position. The chart shows and undefinable amount of upside potential, and that's a risk that I'm willing to take.

I intend to open a bull position in TRIB, structuring it as long shares, if the price continues to show upside momentum in the half hour before the closing bell. If momentum falters, then I'll add TRIB 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 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.

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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