Tim Bovee, Private Trader: Tuesday's Prospects: Round 2

Tuesday, July 8, 2014

Tuesday's Prospects: Round 2

The three symbols that survived my first round of analysis had given bear signals. They were confirmed in trading today and have bearish charts.

So far so good.

However, all three lack liquidity. The open interest on their options is far too low for me to use them in construction a bear position.

It is a fact of trading that it takes liquidity to build a bear position, whether it's options or a short sale. I use options exclusively for bear plays and I require that the open interest be in the three figures or greater.

The earnings announcements flood gates have been opened and a huge proportion of symbols on the prospects lists are being disqualified under my rule that forbids opening new positions in symbols that are within 30 days of an earnings announcement.

Three symbols survivied, but five symbols were disqualified under the 30-day rule.

I adopted that rule based on the dictum of Nathan Rothschild, the London financier who in the era of the Napoleonic wars counseled traders to buy on the sound of cannons and sell on the sound of trumpets.

In other words, he says we should buy into uncertainty and sell on certainty. Earnings announcements bring certainty, and I want more than 30 days of uncertainty when opening my positions, time to give stocks room to move.

Generally, for liquid stocks, the 30 days before earnings see the analysts coming out with their forecasts, increasing certainty. I want to trade before that happens.

So, I won't be opening any new positions off of the prospects list. See "Tuesday's Prospects" for a rundown of the first round of analysis.

-- Tim Bovee, Portland, Oregon, July 8, 2014

References

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.

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