Friday, February 28, 2014

Friday's Outcomes: KRE

I analyzed the chart of the regional banks fund KRE but declined to take the trade. See "KRE: Regional banks correcting".

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.

KRE: Regional banks correcting

The exchange-traded fund that tracks the regional banking sector, KRE, has joined the broad markets in a massive uptrend since early October 2011. In KRE's case, the rise began Oct. 3 from $18.31.

It has the potential to rise further, but only after correcting part of the 125% gain of the past two years plus a bit.

KRE broke above its 20-day price channel at $39.28 on Thursday, sending a bull signal that was confirmed in Friday's trading.

However, the magnitude of the anticipated correction that began Jan. 22 from $41.24 is so great that I see no reason to trade this fund now.

The Chart

KRE kicked off an uptrend from its Great Recession low from $14.42 on March 6, 2009 and in January completed wave 3 {+1}, the middle wave of five under the Elliott rules.

Wave 4 {+1} to the downside has begun and so far consists of the little hook at the end of the chart. Wave 1 {+1} lasted more than a year, as did the ensuing wave 2 {+1} correction. Wave 3 {+1} lasted more than two years.

Click on chart to enlarge.
KRE 5 years weekly bars
At the present degree, then, I would expect wave 4 {+1} to carry into 2015. No guarantees, of course. Elliott says little about time spans, but the duration of waves within a degree tend to be roughly proportional.

If $41.24 on Jan. 22 is indeed the peak of wave 3 {+1}, then the ensuing correction will reach a low somewhere above $18.31, the start of the third wave.

It's impossible in Elliott to say how far above that point wave 4 {+1} will terminate, but often corrections will end around one of the three major Fibonacci retracement levels,

38.2%$32.48
50.0%$29.78
61.8%$27.07

That's a lot of potential downside, and I want to get a better sense of what the internal count of wave 4 {+1} looks like. At this point, I can't even estimate the degree of the two waves on the chart so far.

My count will be invalidated if KRE moves back above $41.24. That would mean that wave 5 of 3 {+1} has not ended but is instead extending to greater heights.

Decision for My Account

Having decided not to trade KRE, I'm ending my analysis at this point. I'm cognizant of the irony in the fact that just a day before rejecting a trade in the regional banking fund, I opened a position on a regional bank, TCBI.

The charts are quite different, though. KRE has completed its fifth wave up, and TCBI is still in a fifth wave rise. See Thursday's analysis, "TCBI: On the rise, with ambiguity".

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

On Thursday, Feb. 27:

Of 3,864 stocks and exchange-traded funds in this week's analytical universe, 87 mid- and large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, 80 to the upside and seven to the downside.

Fifty-seven major-exchange small-cap symbols broke out, 52 to the upside and five to the downside.

Six over-the-counter symbols broke out, five to the upside and one to the downside.

Twenty-six mid- or large-cap symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. In descending order of average yield, they are GPN, LOPE, PACW, CE, HUN, PAG, ISBC, CATY, CYN, UGP, OILT, HCA, INFY, KRE, CSL, PH, QLIK, WTFC, UNM, MUSA, CA, SOHU, MMM, ESRT, AR and N.

Eight small-cap major-exchange symbols survived initial screening, all to the upside. They are DWR, TAYC, GABC, BANR, FCF, SIMG, FCBC and BPFH.

One symbol traded over the counter survived my initial screening, GXYEY, having broken out to the upside.

No large-cap symbol 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, Feb. 28.

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, February 27, 2014

Thursday's Outcomes: TCBI, KAR

I opened bull positions in TCBI, newly analyzed today, and KAR, on the Watchlist since Jan. 13.

See the analyses "TCBI: On the rise, with ambiguity" and "KAR: Bullish on car auctions".

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.

TCBI: On the rise, with ambiguity

Update 4/7/2014: I've closed my bull position in TCBI. It closed below its stop/loss level on April 4 and confirmed the exit signal on April 7 by closing below the exit level.

The position, structured as long shares, declined by 1.9% over its 39-day lifespan, or 17.3% annualized.

The $67.08 peak of March 21 ends the rise that began from $6.55 on March 6, 2009 and signals the beginning of a downward move of major proportions. 

In terms of Elliott, the $67.08 peak ends wave 5 {+2} of wave 5 {+3} of wave 5 {+4} in an upward move. I've labeled the downward move that has only just begun as wave A {+4}, a correction within a larger uptrend of {+5} degree. It could just as well be labelled 1 {+4}, the beginning of a new downtrend.

TCBI has also moved below its 10-day price channel, and so I don't intend to add TCBI to the Roll Shelf.

Click on chart to enlarge.
TCBI 1 years daily bars

Update 2/27/2014: I've opened a bull position in TCBI, structured as long shares. The price 30 minutes prior to the closing bell was off the high for the day but well above the open.

Texas Capital Bancshares Inc. (TCBI) has a bullish chart, with a strong rise from $43.43 beginning Sept. 3, 2013 still underway.

TCBI gave a powerful bull signal on Wednesday, breaking above its 20-day price channel at $60.64 and trading still higher on Thursday.

The question is whether the bull signal is the start of the final leg of the rise from last September, or a head fake within a correction that still has a significant decline in its future. My analysis concludes that the correction has ended and the TCBI has resumed its rise.

The Chart

By the Elliott wave count, TCBI in late January completed wave 3 {+2}, the middle part of the rise from September, which is wave 3 {+3}.

The rise from September is in turn the middle part of wave 5 {+4}, which began April 25, 2013 from $36.75 and which is in turn the last part of the rise from the Great Recession low of $6.55 on March 6, 2009.

The problem lies with the decline from the Jan. 22 peak of $63.99, the terminus of wave 3 {+2}. It began as wave 4 {+2}, a downside correction that will precede a push to higher highs upon its completion.

Click on chart to enlarge.
TCBI 8 years 9 months weekly bars (left), 1 year daily bars (center), 30 days hourly bars (right)
In Elliott, a fourth wave is composed of three waves, labelled A, B and C. The A wave is composed of five waves, the B of three and the C of five.

The problem is the decline from Jan. 22 to Feb. 4. If the correction is still underway, then this decline is an A wave. However, internally, it breaks down to three waves, not five. That forces me to the conclusion that the three-wave decline is the entirety of wave 4 {+2}.

By that analysis it is a fairly shallow correction, coming in just shy of a 38.2% Fibonacci retracement. But the Elliott rules don't require that it go any deeper, and 38.2% is a typical retracement level, so I have no quarrel with the magnitude of the decline.

My count will be invalid if TCBI reverses below $64.69 and subsequently moves below $56.45. It will be confirmed if TCBI moves above $64.69.

Odds and Yields

TCBI has a paltry record of bull signals in its rise from last September. It has completed only two, one a winner and the other a loser. However, the winner was so big that it clearly engulfed a number of potential bull signals that would have been generated in a more measured rise.

The successful signal yielded 27.5% over 70 days, and its unsuccessful sibling lost 5.6% over 10 days. The resulting 21.9% win/lose yield spread is quite high.

But honestly, I think these numbers are a bit meaningless, given the sparse data. That TCBI had a lot of momentum is clear, but there are too few data points to reach a conclusion about any tendency toward whipsaws.

The Company

Texas Capital Bancshares, headquartered in Dallas, Texas, runs Texas Capital Bank, a regional financial institution with locations in dozen locations around the state.

The analysts following it, a bit more than a handful, collectively come down with a resounding "Meh!", giving it a negative 14% enthusiasm index.

The company reports return on equity of 13%, with long-term debt 14% greater than equity.

Looking at the last three years, the company showed consistently higher earnings quarter over quarter until the 3rd quarter of 2012. From that peak earnings became choppy and never again equaled that level.

The surprises tell the story. Earnings surprised to the downside only once from the 1st quarter of 2011 to the 3rd of 2012. The rest all surprised to the upside. All five quarter since then have surprised to the downside.

The earnings yield is 4.39%, lower than 84% of other regional banks. The company pays no dividends.

Stocks are priced at 22.8 times earnings, and shares are also priced at a premium to sales. It takes $5.70 in shares to control a dollar in sales.

Whatever analysts might say, the market is pricing in expectations for future earnings.

Institutions own 98% of shares.

Texas Capital next publishes earnings on April 21.

Liquidity and Volatility

TCBI on average trades 415,000 shares a day and supports a moderate selection of options strike prices spaced $5 apart, with open interest near the money running to single and double digits.

The front-month at-the-money bid/ask spread on calls is 48.8%, more than 100 times the 0.4% spread on the S&P 500 exchange-traded fund SPY.

Implied volatility stands at 24%. It rose on Thursday after declining from 28% after Jan. 13.

Options are pricing in confidence that 68.2% of trades will fall between $57.84 and $66.52 over the next month, for a potential gain or loss of 7%, and between $60.10 and $64.26 over the next week.

Contracts are trading very slowly. Calls are at 15% of their five-day average volume and puts at 17%.

Decision for My Account

My quandary is whether to wait for a higher high, nearly 3% above the present level, or to get in now. I have enough confidence in my count that I'm willing to take a risk. Also, the options are too illiquid for my standards, so I'll structure the trade as long shares. That means no leverage and easier fills if I need to get out fast.

I intend to open a bull position in TCBI if upside momentum continues at the end of trading today, structuring the position as long shares.

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

On Wednesday, Feb. 26:

Of 3,864 stocks and exchange-traded funds in this week's analytical universe, 110 mid- and large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, 101 to the upside and nine to the downside.

Thirty-four major-exchange small-cap symbols broke out, 29 to the upside and five to the downside.

Nine over-the-counter symbols broke out, five to the upside and four to the downside.

Twenty-one mid- or large-cap symbols traded on the major exchanges survived my initial screening, 20 having broken out to the upside and one, CVA, to the downside. The upside breakouts, in descending order of average yield, are CUDA, TCBI, EXAS, VMW, CYT, CSRE, GPI, MBFI, DLX, LLTC, CMA, GGG, PII, FMC, RPM, ECL, OB, THI, LHO and EMC.

Five small-cap major-exchange symbols survived initial screening, four to the upside and one, SEAC, to the downside. The upside breakouts are ZEP, RAIL, SHLM and ASUR.

One symbol traded over the counter survived my initial screening, PCRFY, having broken out to the upside.

No large-cap symbol 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 Thursday, Feb. 27.

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, February 26, 2014

Wednesday's Outcomes: DAL, XLY

I opened a bull position in DAL and have updated my analysis with details. See "DAL: The long ascent".

I analyzed XLY as a potential bull play but declined not to trade today, preferring to put the symbol on the Watchlist. See "XLY: Correction over?".

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.

XLY: Correction over?

Update 3/25/2014: I close my XLY position on March 14 after it flirted with the lower boundary of the 10-day price channel, moving it to the Roll Shelf. On Monday it moved decisively below the channel and is trading considerably lower today.

So I'm removing XLY from the Roll Shelf and no longer consider it to be a potential trade for the near future. A fresh bull or bear signal would bring it back under consideration.

The chart shows that XLY might well still be in an uptrend, although it could also, arguably, have completed its upward run and moved to the early stages of a downtrend.

I've added an internal count to wave 5 {+2} that makes the bearish case for wave 5 {+2} having peaked at $67.85 on March 7. A decline below the start of wave 5 {+1}, $61.03 on Feb. 3, would confirm the bearish argument. A rise above $67.85, which I've counted as the end of wave 5 {+1} would confirm the bullish case.

I held one position in XLY. Its shares lost 1.7% over the 10-day life of the position, or -61.5% annualized. The options spreads produced an 8.2% loss on risk, or -300.2% annualized.

Click on chart to enlarge.
XLY 3 years 3-day bars
---
Update 3/4/2014: XLY broke above the $66.85 level today, confirming that wave 5 {+1} to the upside has indeed begun.

I've opened a bull position, structuring it as a bull put options spread, sold for credit and expiring in April.

The exchange-traded fund that tracks consumer discretionary spending, XLY, is nearing the final stages of its rise from June 2013 -- maybe. The chart will remain ambiguous until the price pushes above its high of Dec. 31, 2013, when the price reached $66.85 before reversing into a correction.

Tuesday's break above the 20-day price channel boundary at $65.90 was a step toward resolving that ambiguity and a higher high today confirmed the bull signal.

However, until the $66.85 barrier is breached, the possibility will remain that XLY's correction is still underway, with a period of decline or churning in the near future.

The Chart

The question is the placement of wave 5 of 3 {+1} in the right-hand chart. The magnitude of the ensuing decline to $61.03 on Feb. 3, in wave 4 {+1}. The magnitude suggests that labelling is correct and that wave 3 {+1} did indeed end on Dec. 31, 2013.

However, wave 4 {+1} could just as easily be labelled wave A within an ongoing wave 4 {+1}.

Click on chart to enlarge.
XLY 5 years weekly bars (left), 1 year daily bars (right)
A reversal below the Dec. 31, 2013 peak of $66.85 will confirm that wave 4 {+1} is still underway, with wave A to be followed by waves B and C in what could prove to be either a decline or a sideways correction.

A break above $66.85 will confirm that wave 5 {+1} is indeed in progress.

Odds and Yields

XLY has completed six bull signals since beginning its rise on June 24, 2013. Five were successful, each on average yielding 3.2% over 41 days. The failure lost 6% over 15 days.

The magnitude of the loss produced a disappointing negative 2.8% yield spread. The figures show that XLY isn't prone to whipsaws; its signals have credibility. The one loss was large enough that it calls the strength of XLY's momentum into question. However, one loss may well be an aberration rather than a pattern.

The Fund

XLY is the Consumer Discretionary Select Sector SPDR Fund, which tracks the classic presumptions that consumers drive the economic recovery.

It tracks companies that make and sell things that we buy when we're feeling well enough to spend a bit more freely, but they aren't necessities. Things like melas out or new cars or cable TV or athletic shoes.

The fund's top holdings are all household names: Comcast, Amazon, Disney, Home Depot, McDonald's, Twenty-First Century Fox, Priceline, Time Warner, Nike. They deal in everyday stuff we like but will forego if we hear the wolf scratching at the door.

XLY has an expense ratio of 0.16%, compared to the S&P 500 fund SPY's 0.09%.

It goes ex-dividend in March for a quarterly payout of 26.15 cents per share, which produces an annualized yield of 1.17% at today's prices.

Liquidity and Volatility

XLY on average trades 4.8 million shares a day, sufficient to support a wide selection of option strike prices with open interest near the money running to three and four figures. The front-month at-the-money bid/ask spread on calls is 3.8%, compared to 0.4% for the S&P 500 fund SPY.

Implied volatility stands at 15% and has been falling since reaching a one-year peak of 22% on Feb. 3.

Volatility is in the 37th percentile of the annual range. Historical volatility stands 13% above implied volatility. 

The low level of implied volatility suggests that long options spreads, such as bull call spreads, sold for credit will provide the best opportunity for success.

Options are pricing in confidence that 68.25 of trades will fall between $63.52 and $69.46 over the next month, for a potential maximum gain or loss of 4.5%, and between $65.06 and $67.92 over the next week.

Contracts on puts are trading 14% above their five-day average volume, and calls at 23% below average.

Decision for My Account

I'm adding XLY to the Watchlist and won't open a bull position until the price moves above $66.85, confirming that the present fourth-wave correction has indeed ended.

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.

DAL: The long ascent

Update 4/15/2014: DAL has  continued its descent after taking out the stop/loss on April 7, and on Monday it closed below its 20-day price channel, sending a signal to remove the symbol from the Roll Shelf. The signal was confirmed today.

I plan no further attempts to roll DAL forward into a new bull position.

During the time I held DAL the stock lost 2% over 41 days, or 1.3% annualized. The options spreads produced a 0.9% loss on risk, or -8% annualized.

Update 4/8/2014: DAL closed below its stop/loss level on April 7 and closed still lower the next day, signalling that the bull position must be closed.

The share price declined by 0.15% over the 41-day lifespan of the position, or -1.3% annualized. My bull call vertical options spread lost 2.7%, or 24.2% annualized.

This exit is a result of recent changes to my trading rules that tighten stop/loss levels across the board. The chart shows that the magnitude of the decline isn't all that great.

In terms of the Elliott wave analysis, there's nothing on the chart to indicate that wave 5 to the upside is complete at the $36.52 peak. And indeed, DAL remains above its initial breakout level of $32.31.

The price also remains within the 20-day price channel, and so DAL will go on on the Roll Shelf, from which a fresh confirmed break above the 20-day price channel will allow me to roll over into a new position.

Click on chart to enlarge.
DAL 3 years 3-day bars

Update 2/26.2014: I opened a bull position in DAL. It was up from the prior day's close and from the open, although down a bit from the day's high. I structured the trade as bull call spreads expiring in June, long the $32 strike and short the $35, with the long leg priced at a 54.8% chance of expiring in the money. The position provides 4:1 leverage.

Delta Air Lines Inc. (DAL) has been zig-zagging upward since Sept. 4, 2012, when it reversed from $8.42 following a major correction to the downside.

So a break above the 20-day price channel, such as Monday's above $32.31, is not exactly startling news for this stock. It has been trending upward for a very long time.

The immediate question posed by the chart is, "How high is up"? When has an uptrend expended its momentum?

The answer, in DAL's case at least, is not yet. The chart hasn't yet reached the end of its rise. However, when the reversal comes, perhaps within a few months, it will be a correction of major proportions.

The Chart

The Elliott wave count shows the rise from September 2012 to be a third wave of the variety that finds new life whenever it may seem to be reaching its end.

Some Elliotticians would label wave 3 {+2} as an extended third. I prefer to analyze such moves as repeated launchings of subwaves of lesser degree.

The shift down to smaller degrees is required to meet the Elliott rule that forbids third waves from being shorter than both the first and fifth waves of the same degree.

In either case, the result is a series of waves that are all of similar magnitude with labels that, in terms of degree, are more than a little arbitrary.

Click on chart to enlarge.
DAL 5 years 4-day bars (left), 2-years daily bars (right)
The large-scale rise on the DAL chart began March 6, 2009 from $3.51.

By my count, from that post-Recession low, DAL is in wave 5 of wave 3 {+1} of 3 {+2} of 3 {+3} to the upside.

The good news for bull trades is that the rise from 2009 won't end until wave 5 {+3} is complete, no doubt many months or perhaps years and lots of dollars in the future.

The bad news is that the completing of wave 5 will mark the start of a correction of the {+3} degree, or the rise from $3.51 in 2009.

Under Elliott, there is no way to say how high wave 5 might go. If today's high of $33.57 is the end point, then the most common Fibonacci retracement levels are these:

23.6%$26.44
50.0%$18.52
61.8%$14.97

Typically, the reversal would be paced in a manner that would allow for an orderly exit. But that's not guaranteed either; the end of wave 5 could indeed cause DAL to drop like a rock.

Wave 3, of the same degree, lasted from June 24, 2013 to Jan. 23. Wave 1 lasted from April 5 to May 15, 2013. Wave 5 would typically be somewhere in between, but it could under the Elliott rules last for much longer or be much shorter.

So it goes with the Elliott wave framing of a chart. It gives a good indication of where things stand with price, but very little guidance when it comes to time.

Odds and Yields

DAL has completed seven bull signals since the present uptrend began in 2012. Five were successful, each yielding 11.8% over 40 days on average. The two unsuccessful trades on average lost 2.4% over 18 days.

The resulting 9.4% win/lose yield spread is quite impressive. DAL has had little tendency toward whipsaws and its winning trades have had sufficient power to produce a good return.

The Company

Delta Air Lines, headquartered in Atlanta, Georgia, is the world's largest airline in terms of scheduled passenger traffic.

About a third of Delta's market capitalization represents the company's domestic passenger business, and another third comes from cargo. About 20% results from international flights.

Analysts are optimistic about the company's prospects in its crowded and ultra-competitive sector, collectively coming down with a 64% enthusiasm rating.

Earnings tend to peak in the 3rd quarter, which covers the summer travel season. Delta's 3rd quarter earnings in 2013 came in higher than the year-ago comparable quarter, following two 3rd-quarter declines.

The company has had two losing quarters in the past three years, in 2012 and 2011. It has surprised to the downside four times in that period, the most recent being in 2012. Otherwise, it has surprised to the upside each quarter.

Delta's earnings yield is 36.71%, higher than 88% of other airline companies. The quarterly dividend works out to 0.72% annualized at today's prices.

The stock is selling at 2.7 times earnings, which is a low price/earnings ratio. Contrast it with Delta's competitor, United Continental Holdings Inc. (UAL), which runs United Air Lines, whose stock sells at 32.3 times earnings.

The price is also at a discount to sales. It takes just 75 cents in stock to control a dollar in sales.

Institutions own 84% of shares.

Delta next reports earnings on April 23. It goes ex-dividend in May for a quarterly payout of 6 cents per shares.

Liquidity and Volatility

DAL on average trades 10.6 million shares per day, sufficient to support a wide selection of option strike prices spaced a dollar apart, with open interest running to four and five figures near the money.

The front-month at-the-money bid/ask spread on calls is 3.7%, about eight times the spread on the S&P 500 fund SPY.

Implied volatility stands at 36% and has been falling since Feb. 3, when it was at 47%.

The 36% level is 6% above historical volatility and is in the 31st percentile of the annual range, suggesting that any trade would be best structured as a long options vertical spread, such as a bull calls spread, sold for credit and expiring in June or later.

Options are pricing in confidence that 68.2% of trades over the next month will fall between $29.94 and $36.98, for a potential gain or loss of 10.5%, and between $31.77 and $35.15 over the next week.

Contracts today are trading near their five day average volume, just 3.4% above average for calls and 8.8% below for puts.

Decision for My Account

The key to my decision on trading DAL is my expectation of how long wave 5 will last. The preceding third wave of the same degree took half a year of work, and the first wave took a couple of months. That suggests that wave 5 has sufficient time to produce a reasonable profit.

I intend to open a bull position on DAL if upside momentum continues today, structuring it as a bull call options spread.

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.

Tuesday's Outcomes: DAL

Among "Tuesday's Prospects", only DAL remains a candidate for further analysis. I'll look at it for the full treatment on Wednesday.

XLI failed confirmation, and VOD at first glance seems insufficiently bullish to warrant a trade.

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

On Tuesday, Feb. 25:

Of 3,864 stocks and exchange-traded funds in this week's analytical universe, 45 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 nine to the downside.

Twenty-seven major-exchange small-cap symbols broke out, 21 to the upside and six to the downside.

Six over-the-counter symbols broke out, four to the upside and two to the downside.

Nine mid- or large-cap symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are PSMT, KND, SEE, GRFS, TPC, KAR, XRT, XLY and LQD.

Two small-cap major-exchange symbols survived initial screening, both having broken out to the downside. They are ENZY and HVT.

One symbol traded over the counter survived my initial screening, WYNMF, having broken out to the upside.

No large-cap symbol 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 Wednesday, Feb. 26.

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, February 25, 2014

Tuesday's Prospects

Note: This is a bit late, since I'm en route from Fukuoka, Japan to Portland, Oregon today. I'll do any analysis after Tuesday's market close.

On Monday, Feb. 24:

Of 299 stocks and exchange-traded funds in this week's analytical universe, 26 high-volume large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, 25 to the upside and one to the downside..

Three symbols survived initial screening, all having broken out to the upside. They are, in descending order of average yield, DAL, VOD and XLI.

I shall do further analysis Tuesday after the close or on Wednesday, depending upon the vagaries of trans-Pacific jet lag.

I'm traveling in East Asia through Feb. 25. See "Private Trader schedule for February" for details of how the trip impacts my analysis schedule and trading.

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.

Sunday, February 23, 2014

Posting Schedule

This is a travel week as I end my extended stay in western Japan and fly back to the damp and cold of home base in Portland, Oregon. Here's the impact on my posting schedule:

  • I've completed my filing from Friday's markets and anticipate to Outcomes filing on Monday.
  • I'll be airborne and therefor unable to file "Tuesday's Prospects" prior to the close on Tuesday. I'll post a retrospective screening after the close.
  • Jet Lag, willing, "Wednesday's Prospects" will be posted shortly before the market open on Wednesday, with a screening of 3,864 symbols.
After that, my schedule will be back to normal -- Prospects before the open, Analysis at mid-day, Outcomes at the close.


UNG: A risky bull play

The exchange-traded fund that tracks natural gas prices (UNG) broke above its 20-day price channel on Friday. If it continues to trade above the breakout level, $27.58, on Monday, then it will have sent a bull signal and, under my rules, be a candidate for a possible bull play.

UNG has reached its present level in a rise from $14.25 on April 19, 2012, the end of an epic decline from a pre-recession peak of $511.12 on July 1, 2008.

The present rise of nearly two years can be seen as a new uptrend or as a countrend rally within the long-running downtrend from 2008 peak. In either case, the chart shows UNG to be in the final stages of its rise, ushering in the near-term likelihood of a downward correction of significant proportions.

The Chart

By my Elliott wave count, I see UNG as being in the final leg up of the final leg up of its rise from April 19, 2012. I've labelled the wave as 5 {+2} of 5 {+3}.

Within wave 5 {+2}, which began Jan. 9 from $19.47, UNG is in the final stages of its middle wave, labelled wave 5 of wave 3 {+1}.

Click on chart to enlarge.
UNG 2 years daily bars (left), 30 days hourly bars (right)
Wave 5 exceeded the end of wave 3 on Feb. 21, when it peaked at $27.75. That satisfied the minimum requirement for wave 5 under the Elliott wave rules. However, there is nothing under the rules to hinder wave 5 from continuing upward for quite some time.

The prior uptrending wave at that degree, wave 3, began on Feb. 12 and lasted a week. A similar lifespan would bring wave 5 into the end of February before it reaches its completion.

If wave 5 has peaked, the correction now beginning will take back a portion of the $5.25 rise from Feb. 10. Fibonacci retracement analysis suggests typical endpoints of $26.51, $25.13 or $24.51, although the correction could be more or less than those levels.

Looking at the very long term, I find to possible counts:

Case 1: the decline from 2008 to 2012 was possibly an A wave to the downside, which would make the present rise of nearly four years part of the first wave of a B wave upside correction.

Case 2: Or, the decline from 2008 to 2012 can be seen as the first wave to the downside, making the present rise since 2012 an A wave within a second wave counter-trend move upward.

In either case, the 2012 low of $14.25 will eventually be broken in a further decline, a C wave in Case 1 or a third wave in case 2.

UNG began trading in April 2007, so there is insufficient history to sort out the matter. Neither case makes a difference in my present trading decision but is of interest to afficionados of Elliott wave analysis.

Odds and Yields

The present wave 5 {+3}, which began Aug. 8, 2013 from $16.60, has seen three bull signals completed. Two were successful, yielding 2.8% over 22 days on average, compared to a 3.3% loss over 16 days for the unsuccessful signal.

The most recent completed signal came a degree lower, in wave 5 {+2}. It was successful, but barely so, yielding a paltry 0.7% over 13 days and suggesting a sharp lessening of upside momentum.

The Fund

United States Natural Gas Fund LP aims at matching percentage change in the spot price of natural gas delivered at the Henry Hub in Louisiana, using mainly the near-month NYMEX futures contract as the underlying asset.

The expense ratio is 0.85%, compared to 0.09% for the S&P 500 fund SPY.

Liquidity and Volatility

UNG on average trades 25.7 million shares a day and supports a wide selection of option strike prices spaced a dollar apart, with open interest running mainly to four figures near the money.

The front-month at-the-money bid/ask spread on calls is 4.9%, a bit more than double that of the S&P 500 fund SPY.

Implied volatility stands at 56% and is rising again after having fallen from its Jan. 29 peak of 69%. Volatility is at the 68th percentile of the one-year range and is 4% above historical volatility.

That high level of volatility suggests the bull plays are best structured as short vertical options structures, as as bull put spreads, sold for credit and expiring in March.

Options are pricing in confidence that 68.2% of trades will fall between $23.21 and $32.17 over the next month, for a potential gain or loss of 16.2%, and between $25.54 and $29.84 over the next week.

Contracts were trading actively on Friday, with calls running at 64% above their five-day average volume and puts at 35% above average.

Decision for My Account

My chart analysis shows UNG as likely being in the final weeks of its upward run, to be followed by a decline of significant proportions, perhaps greater than 10%. As I noted, there is no limit on the present upward rise, but on balance, especially given the high volatility, I judge the potential reward of further rise to be outweighed by the risk of a sudden downturn.

Therefore, I am passing on UNG. I won't be opening a bull position at this point. The final wave 5 {+1} to the upside, following the correction, should provide a significant opportunity for a bull play.

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.

Saturday, February 22, 2014

The Week Ahead: GDP, new homes, durable goods, Yellen

The gross domestic product second estimate, for the final quarter of 2013 and also for the full year, will be released Friday at 8:30 a.m. New York time. The first estimate was  released near the end of January, so the February release will have an impact only if it changes significantly from the first round.

Other top reports of the week: New home sales on Wednesday at 10 a.m. and durable goods orders on Thursday at 8:30 a.m.

Federal Reserve Chair Janet  Yellen testifies before the Senate Committee on Banking, Housing and Urban Affairs at 10 a.m. on Thursday. Her semi-annual monetary policy report had been scheduled for Feb. 13 but was postponed by severe weather.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

The S&P 500 index, reported continually during market hours.

Average weekly initial jobless claims, at 8:30 a.m. Thursday. 

Index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, at 9:55 a.m. Friday.

Other reports of interest:

Monday: Dallas Federal Reserve manufacturing survey at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price index in 20 metro areas at 9 a.m. and the Conference Board consumer confidence report at 10 a.m.

Wednesday: Petroleum inventories at 10:30 a.m.

Thursday: The Federal Reserve money supply report at 4:30 p.m.

Friday: The Chicago purchasing managers index at 9:45 a.m. and pending home sales at 10 a.m.

I also keep an eye on the Baltic Dry Index, updated daily.

Fedsters

Besides Yellen, other Federal Open Market Committee members in the public eye this week are Fed Gov. Daniel Tarullo on Tuesday, Cleveland Fed Pres. Sandra Pianalto on Wednesday and Fed Gov. Jeremy Stein on Friday.

Also speaking are two FOMC alternates: Atlanta Fed Pres. Dennis Lockhart on Thursday and Chicago Fed Pres. Charles Evans on Friday.

Analytical universe

This week through Tuesday I shall be analyzing new bull and bear signals among 299 high-volume large-cap stocks and exchange-traded funds that have some analyst interest. From Wednesday, for "Thursday's Prospects", I shall expand analysis to my full universe, 3,864 small-cap and larger stocks and exchange-traded funds.

Trading calendar

By my rules, I'm trading March options for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading June options for single calls and puts as well as straddles. Shares, of course, are good at any time.

Good trading.

Monday's Prospects

On Friday, Feb. 21:

Of 299 stocks and exchange-traded funds in this week's analytical universe, six high-volume large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, two to the upside and four to the downside..

One symbol, UNG, survived initial screening, having broken out to the upside.

I shall do further analysis prior to the market's open on Monday, Feb. 24.

I'm traveling in East Asia through Feb. 25. See "Private Trader schedule for February" for details of how the trip impacts my analysis schedule and trading.

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, February 20, 2014

CNX updated with results

I've updated my CNX analysis, "CNX: Bearish on coal and natural gas", with final results. I removed the holding from my Roll Shelf on Thursday.

Friday's Prospects

On Thursday, Feb. 20:

Of 299 stocks and exchange-traded funds in this week's analytical universe, seven high-volume large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, all to the upside.

No symbol survived initial screening, and I plan no further analysis.

I shall do further analysis prior to the market's open on Friday, Feb. 21.

I'm traveling in East Asia through Feb. 25. See "Private Trader schedule for February" for details of how the trip impacts my analysis schedule and trading.

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's Outcomes: CNX

I've removed CNX from the Roll Shelf as a potential bear play after reanalyzing the chart. See my update to the original analysis, "CNX: Bearish on coal and natural gas".

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, February 19, 2014

Thursday's Prospects

On Wednesday, Feb. 19:

Of 299 stocks and exchange-traded funds in this week's analytical universe, two high-volume large-cap symbols that are traded on the major American stock exchanges broke beyond their 20-day price channels, one in either direction.

No symbol survived initial screening, and I plan no further analysis.

I shall do further analysis prior to the market's open on Thursday, Feb. 20.

I'm traveling in East Asia through Feb. 25. See "Private Trader schedule for February" for details of how the trip impacts my analysis schedule and trading.

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.