Wednesday, January 22, 2014

Wednesday's Prospects: No Trade

None of the survivors from my first round of screening made it past the second round. (See "Wednesday's Prospects".)

PrivateBancorp Inc. (PVTB) was the finalist, with a chart that is, by the Elliott wave count, in the fifth wave up of a rise that began from $6.44 in early October 2011. The high on Tuesday, when PVTB broke above its 20-day price channel, sending a bull signal, was $30.69.

The chart is fine. PVTB fails on implied volatility. As the one-year right-hand chart below shows, volatility took a huge leap today, moving from 23% to 75%.

No matter how bullish the chart, swiftly rising volatility is often a sign that a share-price decline lies ahead.

My rule on volatility, as in all things, is to buy low and sell high, although not necessarily in that order.

Volatility on PVTB is high. The ways to sell that volatility are to short shares or to set up a net credit options spread.

With average volume of 834,000 shares a day and virtual no open interest on options, PVTB lacks the liquidity for me to short shares or to set up any sort of an options play.

My decision: No trade.

Click on chart to enlarge
PVTB 3 years 2-day bars (left), 1 year daily bars with implied volatility (right)


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.

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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