Wednesday, April 2, 2014

HF: Bullish on commercial real estate

5/15/2014: HF dropped below its 10-day price channel on May 14 and confirmed it by trading still lower today. I'm removing HF from the Watchlist and no longer consider it to be a potential bull play.

Since April 2 and prior to May 14, HF closed below the 10-day channel once, which signals removal from the Watchlist, and failed to confirm the signal. In that period it never again moved above the 20-day price channel, which would, if confirmed, have been a signal to open a position.

Click on chart to enlarge.
HF 6 weeks 1-hour bars

Update 4/2/2014: Momentum faltered four minutes after the opening bell, and it never regained it the rest of the day to any significant extent, despite a slight bump up near the end of the day. I've added HF to my Watchlist for future consideration

HFF Inc. (HF) is in the middle portion of a rise from last June, at a time when most charts I look at show their symbols to be in the latter stages of their upward runs.

A brief correction of the shorter-term rise from January appears likely in the near term. Once that downward movement has done its work, HF has further potential to the upside.

The Chart

The Elliott wave count shows HF to be completing wave 3 to the upside from $26.18 beginning Jan. 28.

Indeed, the price has pulled back from its peak of $36.06 attained in the first minutes of trading, and any further decline would bring it below the upper boundary of the 20-day price channel, negating the bull signal if it closes below.

Those facts alone suggests that wave 4 to the downside may well have begun today.

On the other hand, perhaps not. There is nothing in Elliott that limits the wave 5 {-1}rise. In any case, my trading rules will take care of the dilemma. If HF continues to trade well below the opening price in the half hour before the closing bell, I'll place it on the Watchlist as a possible future trade. If it closes below the breakout level, then I'll remove it entirely from consideration.

The correction, when it begins, will take back a portion of the 37.7% rise beginning Jan. 28.

Click on chart to enlarge.
HF 2 years+ daily bars (left), 60 days hourly bars (right)
There's no way to forecast the depth of the correction, but Fibonanacci retracement analysis suggests prices near $32.29 (a 38.2% retracement), $31.12 (50%) or $29.95 (61.8%) to be likely halting points.

Longer term, HF hit its Great Recession low of $1.05 in 2009 and then began a five-wave trend to the upside.

HF is presently in wave 3 {+3} beginning September 2011. That wave in turn is in its middle stretch, wave 3 {+2}, beginning November 2012.

Odds and Yields

HF has completed three bull signals in wave 3 {+1} beginning June 24, 2013. Two were successful, on average yielding 17.6% over 54 days, compared to a loss of 1.8% over 21 days for the one unsuccessful trade.

The resulting 15.8% win/lose yield spread is quite impressive.

The most recent of the bull signals came in wave 3, which began Jan. 28. It yielded 6.3% over 24 days.

From those numbers I conclude that HF isn't prone to whipsaws when it gives bull signals and follows through with large gains.

The Company

HFF Inc., headquartered in Pittsburgh, Pennsylvania, is a facilitator, a commercial real-estate intermediary that provides services that make it easier to operate in those complex markets across the country.

It has no analyst following to speak of but reports return on equity of 35%, with no long-term debt. By my standards that puts it in growth-stock territory.

The earnings yield in 3.91%, comparable to other real-estate operations companies. The stock is selling at 3.9 times earnings, and also at a premium to sales. It takes $3.67 in shares to control a dollar in sales.

The company pays no dividend.

Institutions own 74% of shares.

The company next publishes earnings in June.

Liquidity and Volatility

HF on average trades 171,000 shares a day and supports a moderate selection of option strike prices spaced $5 apart near the money. Open interest barely exists. Any trade I place on HF will structured as long shares.

Implied volatility stands at 30% and has been working its way lower in great zig-zags from a peak of 60% set in January, at the outset of wave 3.

Options are pricing in confidence that 68.2% of trades will fall between $31.76 and $37.78 over the next month, for a potential gain or loss of 8.7%, and between $33.32 and $36.22 over the next week.

Options today are trading slowly with calls running at 44% of their five-day average volume and puts at 29% of average.

Decision for My Account

I'll open a bull position in HF if it regains its upward momentum by the half hour before the closing bell, structuring the position as long shares. If it fails to show upward momentum, then I'll put it on the Watchlist for future consideration.

Under my rules, that will require a fresh breakout above the 20-day price channel, which from Thursday will stand at today's high, $36.06

My analysis of Mannkind Corp. (MNKD) will be far briefer than I had anticipated. Headquartered in Valencia, California, Mannkind is a development phase biophamaceutical company focusing on treatments for diabetes and cancer.

MNKD gave a bear signal on Wednesday and confirmed in in Thursday's trading, but the chart shows that the symbol is poised for a massive head fake that will carry the price at least 9% above today's opening, and perhaps much higher.

The Chart

MNKD has been in a downtrend for a very long time, since September 2004 when it peaked at $124.31.

The Elliott wave count shows that the decline has traded out five waves to the downside, ending with wave 5 {+4} at $1.57 on May 18, 2012.

The next act is an upward correction in three waves that will take back a portion of the entire decline from 2004.

Click on chart to enlarge.
MNKD 10 years weekly bars (left), 2 years daily bars (right)
So far MNKD has been acting as though an upward correction is underway, having completed the 1st and possibly the 2nd subwaves of an A wave to the upside.

By that count, wave 3 {+3} must move higher than the end of wave 1 {+3}, which was $8.70 on Aug. 14, 2013, a level 9.2% above today's opening price.

Wave 2 has retraced 50% of the rise from May 2012. That's not an uncommon end point for 2nd waves. The next major stopping point in the Fibonacci retracement schema is the 61.8% level, or $4.29, which is 20.6% below today's opening price.

MNKD's price been stalled at the 50% level since October 2013, with two forays down that came close to or touched the 61.8% retracement, suggesting that the 50% level is likely to hold and the next move will be wave 3 {+3} to the upside.

The most recent prior reversal level -- support -- is at $4.86 and a break below that would suggest that MNKD is making another attempt at 61.8%, with no guarantee that it would succeed.

 The chart favors a somewhat bullish view of MNKD's prospects, although some further downside work may be required before wave 3 {+3} makes its move.

By sending a bear signal in chart that is bullish, although not obviously so, MNKD has executed a classic head fake and a potential whipsaw. As a student of charts, I find it to be quite beautiful.

Decision for My Account

I don't intend to open a bear position in MNKD.


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 decisions for his or her own account, and take responsibility for the consequences.

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