Thursday, July 24, 2014

Thursday's Prospects: Round 2

Today's first-round analysis was notable for the number of bull and bear signals prompted by earnings announcement that were then considered under my trading rules for earnings.

The nature of earnings is that they often cause sudden moves in the stock price, but not all continue those moves. Earnings are whipsaw bait, a sure-fire way for news groupies to lose money.

Under my rules, the first trading day after an earnings announcement is called "earnings day". If the release was before the market opened, then earnings day is the same day as the release. If earnings are announced after the market closes, then earnings day is the day after publication.

To qualify for consideration as a trade, a symbol must close beyond its 20-day price channel on earnings day.

The signal must be confirmed the day after earnings day, which is called "reset day". To confirm the signal, the symbol must trade beyond the new 20-day price channel set on earnings day.

I've set the bar so high because experience has taught me to distrust the enthusiasm produced by an earnings report. My ideal trade is based on hopes and fears prior to earnings publication, not on reactions to the earnings report.

Fifteen symbols survived my first round of analysis. Five were breakouts unrelated to earnings. Today is earnings day for two symbols and reset day for nine symbols.

Three reset-day symbols have been confirmed: GD, TSS and EXP off of the  mid-/large-cap list.

Two symbols, both from the over-the-counter list, were also confirmed. Their breakouts are unrelated to earnings.

All five symbols surviving to this point in my second round of analysis have given bull signals.

TSS, ACGBY and RTOKY have charts that are insufficiently bullish to interest me.

That leaves GD and EXP as possibilities.

Looking at the past year, EXP has the better success rate for bull trades, at 80%, compared to GD's lower rate of 66.7%. Both are quite high, however. The average net return on successful trades is far more interesting: GD has returns of 10.5%, compared to EXP's 2.7%.

One quick way to do a quick comparison is to multiply the success rate by the net return. That produces a score of 7 for GD and of 2.1 for EXP. By this measure, GD is a far better prospect.

Also, GD's volume is about double that of EXP.

Finally, I check the Zacks Investment Research rating to see if that helps distinguish among the two symbols. And indeed it does: GD has a strong bull rating, and EXP is rated bearish.

I shall post a complete analysis of GD before the closing bell today, to see if I really do want to open a bull position.

-- Tim Bovee, Portland, Oregon, July 24, 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.

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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