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

BR and EDE from the large-/mid-cap list have made it to the finals of my second round of analysis. GE from the innovators supplemental list has also earned a spot in the finals. (See "Thursday's Prospects" for a rundown of the first round of analysis.)

More on the finalists below, but first, here's how the rest of the pack fared. All produced bull signals in Wednesday's trading.

Three symbols failed confirmation by moving back within their 20-day price channels: SLCA, NLSN and ANV.

A large number of symbols remained above their channels but showed downward momentum: EXAS, DAL, SNDK, ST, PBF, PSA and WNRL. This isn't always disqualifying, but it's like a horse race. Who wants to bet on a nag that comes stumbling out of the starting gate?

Three have charts that are insufficiently bullish to support the signal: EBR, ALTR and VVC.

The main argument in favor of BR and EDE is their bullish ratings from Zacks Investment Research, the service I use to short-cut my analysis of the financials and opinion on the Street.

However, the downside: Their charts are on the verge of not being bullish enough to meet my standards.

BR has traced out a shallow series of lower highs and lower lows since peaking on June 3. It's not super bearish, but certaining isn't bullish either.

As of today's high, EDE is 0.2% below its July 3 peak, and 1.2% below another peak set in April 2007. These are major resistance levels, the 2007 peak more than the recent one. Absent a compelling reason to commit, a prudent trader will wait until one or both of those levels are breached before jumping in.

A compelling reason, always, is the presence of liquid options that can be used for leverage and hedging. The open interest on options written on both BR and EDE is too sparse to meet my standards.

Neither symbol makes the grade.

That leaves GE from my supplemental list of innovative companies. The company is on the Fast Company list of the most innovative companies of 2014. John Gertner's article on GE may be read here.

The company has long fascinated me for its global stretch and the wide variety of businesses it engages in. When I read about "transnats" in Kim Stanley Robin's Red Mars, GE was the company that came to mind.

It has a neutral rating from Zacks but is trading at a fairly reasonable premium of 48% above the price implied by growth estimates and its dividend, which is north of 3% a year. It is highly liquid, both shares and options.

It is a candidate for a bull play under my longer term rules.

The problem, of course, is the chart. It is bearish and has been tracing out a triangle correction since Dec. 31, 2013. It might be a reasonable play for a swing trader, but that's not what I do. For me, it's momentum all the way.

As a shorter term play, it's possible that GE could be made to work. The present target on the present up leg within the triangle is about 4% beyond the present level; not at all shabby for a leveraged trade.

Of course, the way to play it would have been to catch the bounce off of the lower boundary, and the way to play it going forward is as a bear play as it bounces off of the upper boundary.

Triangles in Elliott wave framing have five legs. GE has completed three of them, so the end of the present rise will be followed by a decline and after that lies the unknown.

I'll put off opening a position in GE until after the correction has done its work.

Click on chart to enlarge.

GE 9 months daily bars

In the end, no symbol has made it past my second round of analysis. I plan no further analysis and won't be opening any new position from the prospects list today.

By Tim Bovee, Portland, Oregon, Aug. 21, 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.

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.

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.