During the 23-day life of the position, the shares lost 8.2%, or 130.6% annualized.
Update 2/19/2013: I opened a bull position in CX. The price dropped a bit after my trade, making it a net down day, although still above Tuesday's breakout level.
I had difficulty constructing a satisfactory bull call vertical options spread and so structured the position as long shares.
Cemex SAB de CV (CX) has resumed its rise from Feb. 3, breaking past its 20-day price channel on Tuesday to a new high of $13.34. The chart is bullish, although within the context of a very long term bear trend. The financials, however, are of the classic struggling commodity company variety.
The bull signal resulting from the breakout, to be valid, must be confirmed on Wednesday by CX closing above the breakout level, $13.17.
The Chart
The present uptrend, from $11.78 in early February, is the final wave, 5 {+2} of a middle wave, 3 {+2} to the upside, according to the Elliott wave count.
The higher-degree third wave began on Nov. 8, 2013 from $9.81 and is itself part of a final wave, 5 {+3} within an upward correction, wave A {+4} of 2 {+5}, which began Oct. 4, 2011 from $2.27.
Oct. 4, 2011 is also the date that the S&P 500 began its present uptrend. CX, like the blue chip indexes, is part of a very old trend, and that age factor alone introduces a note of caution
Click on chart to enlarge.
Oct. 4, 2011 is also the date that the S&P 500 began its present uptrend. CX, like the blue chip indexes, is part of a very old trend, and that age factor alone introduces a note of caution
Wines, cheeses and people usually improve with age, but stock market trends rarely do.
Click on chart to enlarge.
 |
| CX 3 years daily bars (left), 90 days hourly bars (right) |
The internal count of wave 3 {+2} narrowly escaped being severely limited. Under Elliott wave rules, a third wave can never be shorter than both the first and fifth waves of the same degree.
The third wave by my count is larger than the first wave by only three cents. Had it come in below that level, then the fifth wave presently underway would be required to end below $13.73,, only 39 cents above the breakout-day high.
As it is, wave 5 {+2} has no limit under Elliott.
Odds and Yields
CX has completed 11 bull signals since beginning its second wave correction of degree {+5} on Oct. 4, 2011. Six of those were successful, yielding 18.5% over 39 days on average. The unsuccessful trades lost an average of 6.1% over 12 days.
The resulting 12.4% win/lose yield spread is quite good. The overall picture is of a stock that has been more likely to give valid signals than to whipsaw, and that has returned good value from the valid signals.
Nearer term, CX has produced only one other bull signal since the present wave 3 {+2} began on Nov. 8, 2013. It was profitable, yielding 7.1% over 40 days.
The Company
Cemex, headquartered in Monterrey, Mexico, makes cement. It isn't exactly an exciting product -- it's a classic commodity easily made from raw materials available almost everywhere -- but it is the basis of all construction.
As more countries begin to enter the rich-world economy, there is a huge demand for concrete, and Cemex has positioned itself to meet much of that demand, with production facilities in 50 countries around the globe.
The symbol in this analysis, CX, is an American depository receipt traded in New York. Cemex's principal trading home is the bolsa in Mexico City.
As more countries begin to enter the rich-world economy, there is a huge demand for concrete, and Cemex has positioned itself to meet much of that demand, with production facilities in 50 countries around the globe.
The symbol in this analysis, CX, is an American depository receipt traded in New York. Cemex's principal trading home is the bolsa in Mexico City.
Analysts collectively come down at a 25% positive enthusiasm rating, a level that is higher than many companies receive.
They can't be looking at the current financials when they make their optimistic assessment. Cemex reports return on equity of negative 8%, with the most recent debt report coming in at 38% above equity.
Records of the last three years show Cemex has not reported a profit in even one Losses in 2013 were generally less than those of a year earlier, which in turn were less than those of 2011. CEMEX has surprised to the upside only twice in the last 12 quarters, in 2011 and 2012. The other quarters have consistently surprised to the downside.
The earnings yield is a negative 5.37%. The company pays no dividend.
The stock is at parity with sales, meaning a dollar in shares enables control of a dollar in sales.
Institutional ownership is low, at 34%.
Liquidity and Volatility
CX on average trades 13 million shares a day and supports a wide selection of option strike prices spaced a dollar apart, with open interest running to three and four figures near the money. The front-month at-the-money bid/ask spread on calls is 6.3%.
Implied volatility stands at 39% and has been falling steadily from 52% on Feb. 6. That level is at the 17th percentile of the one-year range a low reading buttressed by implied volatility's standing at 38% below historical volatility.
Levels that low suggest that a credit options spread, such as a bull call spread, would have the better chance of success.
Options are pricing in confidence that 68.2% of trades will fall between $11.75 and $14.75 over the next month, for a potential gain or loss of 11.3%, and between $12.53 and $13.97 over the next week.
Put contracts traded actively on Tuesday, running 42% above their five-day average volume. Calls were trading at 47% of average volume.
Decision for My Account
The chart analysis shows CX to be a reasonable bull play. The financial negatives would be off-putting for a long-term trade but are no problem for my short-term strategies.
If CX is confirmed in trading on Wednesday, with the appearance that it will like close above its 20-day price channel boundary of $13.17, and if it shows upside momentum, then I shall open a bull position, structuring it as a bull call spread expiring in July.
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.
No comments:
Post a Comment