Friday, August 22, 2014

Friday's Prospects: Round 2

Today's choice of a stock or fund for analysis comes down to four symbols from the large-/mid-cap list -- three bull signals and one to the bear side. They were the last symbols standing from among the 24 survivors of my first round of analysis. (See "Friday's Prospects" for details.)

One, FAZ, turns out to be an inverse fund --  the sort of beast I avoid -- and then doubles down by also being a leveraged fund, so I voted it off the island.

Six symbols failed confirmation by returning to with their 20-day price channels: GOGO, LH, BJRI, ADP, RPM and LG.

Six others remained beyond their channel boundaries but lacked momentum: UHAL, TFSL, CINF and SYK from the large-/mid-cap list and FLML and XLRN from the small-cap list.

Four, all bull signals, had charts that were insufficiently bullish to support a bull trade: TEP, STX and ACE from the large-/mid-cap list and CMGE from the small-cap list.

Three, all bear signals, had options that were insufficiently liquid to support a bear play: IRWD from the large-/mid-cap list and AKG and RMTI from the small-cap list.

That left the four: SMLP, KLAC, SLW and AGII.

I turned first to Zacks Investment Research, the service I use to short-cut my consideration of the financials and Street opinion, and found no help there. All four are rated neutral.

The one bear play, SLW, has the greatest liquidity, but it's a silver mining company. At this point, I'd rather play the metal itself via SLV, to remove extraneous factors. Also, SLW appears to be tracing out a triangle, which is a rather weak downtend.

The two with the best odds, SMLP and KLAC, are dividend plays, with SMLP paying 3.85% and KLAC 2.66%. Dividend plays are candidates for trades under my longer-term rules.

But SMLP has low liquidity, making it had to hedge, and is also selling for more than five times the "fair" price implied by its growth estimates and dividend.

KLAC is more reasonably priced, with only a 24% mark-up, and is also the more liquid of the two. However, the front-month at-the-money bid/ask spread on call options is 38%, fare wider than I'm willing to countenance. To play KLAC, I would need to forego the leverage and hedging capabilities that options bring.

That leaves AGII, with a low dividend and a mark-up over "fair" price of only 21%. Its options are too illiquid to support a trade, meaning no leverage or hedging.

The overpriced, the unleveraged and the unhedgable. Definitely uninteresting. I am setting these symbols aside without further analysis.

One symbol from my supplemental list of innovative companies, CBSH, made it into the second round. However, its chart is insufficiently bullish to support the bull signal. No joy.

I'm left without anything to analyze today and plan no further work on and no trades from the prospects list.

By Tim Bovee, Portland, Oregon, Aug. 22, 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.

My chart assessments are based on Elliott wave analysis, which 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.

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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