Wednesday, January 29, 2014

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:
  • 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.


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.

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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