Monday, July 21, 2014

BX: Last Hurrah or Things to Come?

The Blackstone Group L.P. (BX) broke above its 20-day price channel on Friday, after earnings were published, and confirmed the bull signal today by continuing to trade above the breakout level, $35.01.

Blackstone, headquartered in New York, manages private capital and provides financial advice. It manages private equity, real estate and hedge funds as well as collateralized loan obligation vehicles.

The stock began an uptrend in May 2012, and although the breakout pushed the price to its highest level yet since that trend began, a closer analysis suggests that if the upward lurch was a novel, it would read more like The Last Hurrah than The Shape of Things to Come.

The Chart

The rise that began from $11.13 on May 18, 2012 is the second significant uptrend since the Great Recession nadir in 2009.

Using Elliott wave analysis, I've counted it as wave 3 {+4}, a wave that carried the price up to $35.39 on March 11 of the present year.

From that point the analysis gets tricky.

Click on chart to enlarge.
BX 5 years 8 months weekly bars (left), 2 years 5 months daily bars (right)
The magnitude of the decline from March to the May 7 low appears sufficient to mark the end of wave 5 {+3}, the final wave internally of wave 3 {+4}. Yet it seems too shallow to count as the entire correction of the rise from 2012, and certainly its lifespan of a few months seems way out of proportion for the entirety of the correction.

The most reasonable analysis, I think, is to count the March peak as the end of wave 3 {+4}, and the subsequent hook movement as the beginnings of wave 4 {+4} correction to the downside.

There's no way of saying what degree the hook represents; I've labeled as the base degree, but that's an arbitrary judgement.

Also, I don't yet know what form the correction will take, and so I can't say if wave A {+3} will be three waves or five waves internally. My dual labeling of the hook as "1 or A" and "2 or B" reflects that uncertainty.

Whatever the labeling, the chart makes clear that BX is well advanced in its run from 2012 and by the calendar, at least, is due for a correction.

Decision for My Account

At this point I can make a decision. I'm declining to trade BX based on my reading of the chart.

Another factor is that I already have exposure to a BX fund, BXMT, in my collection of positions opened under my longer-term rules. I'm not interested in doubling my BX exposure, especially given the fact that BXMT has fallen, forcing me to take out a bearish hedge.

See "BXMT and NYMT: Two mortgage trusts" for an analysis of my current Blackstone holding.

-- Tim Bovee, Portland, Oregon, July 21, 2014


My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

From time to time 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 shorter-term 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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