Tuesday, September 30, 2014

Tusday's Prospects

On Monday, Sept. 29:

Of 1,203 stocks and exchange-traded funds in my analytical universe, 23 broke beyond their 20-day price channels, four to the upside and 19 to the downside.

No symbols survived my initial screening.

There were no breaks above the price channel from my supplemental list of innovative companies.

I shall do further analysis of the surviving symbols on Tuesday, Sept. 30.

With no survivors, there is no further analysis to do.

The next round of earnings will begin Oct. 8 with the announcement by AA. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
(none)

Bear
(none)
Innovators
(bull)
(none)


First-round survivors: Earnings or dividend rules

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.


Bull
(none)

Bear
(none)
Innovators
(bull)
(none)


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Sept. 30, 2014

References

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

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.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.T

Monday, September 29, 2014

Monday's Finalists: None

Friday's markets tossed up a very small pool of prospects indeed. (See "Monday's Prospects", posted over the weekend.

The one live possibility for a trade today, AOL, failed confirmation, and so moves out of contention.

The other symbol, MU, broke above its 20-day price channel in the first trading day after publishing earnings, and so comes under my variant rules for handling earnings.

It works like this: Friday, the first post-earnings trading day ("Earnings Day" in my nomenclature), set a high of $34.10. That's the new 20-day price channel. To stay in play, MU must close above that level today, resetting its breakout level. (That's why I call it "Reset Day".) Then it must confirm the Reset Day signal by trading above that level on Tuesday.

The same applies to the one symbol that survived the first round of analysis from my supplement list of innovative companies. NKE broke above its channel on Friday, the first trading day after earnings, setting a high of $89.99. It must break above that level on Reset Day (today), and confirm it the day after, on Tuesday.

The earnings rules are formally stated in my "Trading Rules: Shorter-term", as follows:

Earnings Day: The first trading day after earnings are announced. (For example, if earnings are published after the close on Monday, earnings day is Tuesday. If they are published before the open on Monday, earnings day is Monday. Earnings published during the trading day are treated as though they had been announced before the open.)

Reset Day: The day after the first trading day following an earnings announcement. (For example, if earnings are released after the close on Monday, the Reset Day is Wednesday. If earnings are released before the open on Monday, the Reset Day is Tuesday. Releases during the trading day are treated as though they had occurred before the open.)

If a symbol breaks out on Earnings Day, no entry is allowed until the day after Reset Day, and the Reset Day price channel boundary is treated as the confirmation level (rather than using those levels on Earnings Day).

I have no potential trades, so I'll be doing no further analysis today.

-- Tim Bovee, Portland, Oregon, Sept. 29, 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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Sunday, September 28, 2014

The Week Ahead: Jobs, Income and Outlays, International Trade

The employment report, including the headline-generating unemployment rate, will be published Friday at 8:30 a.m. New York time. It will dominate market talk over the week as traders try to guess how changes in employment will impact money policy decisions by the Federal Reserve.

I find it to be a counter-intuitive exercise. Unemployment down? That's good for workers and the country. But perhaps it's an indicator to the Fed that the economy is overheating and that it's time to tighten a bit, which would be bad for market bulls.

The employment report gets a sneak preview on Wednesday when a private-sector payroll company releases the ADP employment report, on Wednesday at 8:15 a.m.

Three other potential market-movers will hit the Street during the week: Personal income and outlays, which are used to calculate the savings rate, another key measure of the economy's temperature, on Monday, and international trade on Friday, both at 8:30 a.m., and the Institute of Supply Management manufacturing survey on Wednesday at 10 a.m.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

The average hourly workweek in manufacturing from the employment report, at 8:30 a.m. Friday.

Manufacturers new orders for consumer goods and materials from the factory orders report, at 10 a.m. Thursday.

Vendor performance, also called the deliveries times index, from the ISM manufacturing survey, Wednesday at 10 a.m.

The S&P 500 index, reported continually during market hours.

Average weekly initial jobless claims, at 8:30 a.m. Thursday. 

Other items of interest:

Monday: Pending home sales at 10 a.m. and the Dallas Federal Reserve manufacturing survey at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price survey on conditions in 20 metropolitan areas at 9 a.m., the Chicago Purchasing Managers index at 9:45 a.m., and consumer confidence at 10 a.m.

Wednesday:  Motor vehicle sales throughout the day, the Purchasing Managers Institute manufacturing index at 9:45 a.m., construction spending at 10 a.m., and petroleum inventories at 10:30 a.m.

Friday: The Institute of Supply Management non-manufacturing index at 10 a.m.

I also keep an eye on the Baltic Dry Index, updated daily.

Fedsters

Fed Gov. Jerome Powell, a member of the Federal Open Market Committee, takes part in a panel discussion of Government Debt Management a the Zero Lower Bound, on Tuesday at 10:30 a.m. The subject is a core consideration as the Fed seeks to manage its efforts to stimulate the economy with interest rates already cut as far as they possible can be.

Chicago Fed Pres. Charles Evans, an FOMC alternate, speaks on Monday.

Analytical universe

This week I shall be analyzing new bull and bear signals among 1,203 mid-cap and larger stocks and exchange-traded funds.

Trading calendar

By my rules, I'm trading October options and later for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading January options and later for single calls and puts as well as straddles. Shares, of course, are good at any time.

Good trading.

-- Tim Bovee, Portland, Oregon, Sept. 28, 2014
License

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All content on Tim Bovee, Private Trader by Tim Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Saturday, September 27, 2014

Monday's Prospects

On Friday, Sept. 26:

Of 1,203 stocks and exchange-traded funds in my analytical universe, 16 broke beyond their 20-day price channels, four to the upside and 12 to the downside.

Two symbols survived my initial screening, both having broken out to the upside. One symbol gave a signal upon an earnings announcement and so comes under my Reset Day rules.

One symbol survived screening as a potential bull play from my supplemental list of innovative companies. It gave its signal immediately after earnings were published and will be considered under my Reset Day rules.

I shall do further analysis of the surviving symbols on Monday, Sept. 29.

The next round of earnings will begin Oct. 8 with the announcement by AA. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
AOL

Bear
(none)
Innovators
(bull)
(none)


First-round survivors: Earnings or dividend rules

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.


Bull
MU

Bear
(none)
Innovators
(bull)
NKE


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Sept. 27, 2014

References

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

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.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.T

Friday, September 26, 2014

Friday's Outcomes: RL, QQQ

I've opened a bear position in RL. See today's analysis, "RL: Not quite haute couteur", for details of the trade.

I've closed my bull position in QQQ. See the Aug. 20 analysis, "QQQ: Swift-footed Achilles", for reasons why, including a chart update and discussion.

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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

RL: Not quite haute couture

Update 9/17/2014: RL rose above the beginning of wave 5 to the downside without making a lower low at the terminus, negating my count. It appears that rather than wave 5 beginning on Sept. 11, wave 4 is continuing into a more complex sideways pattern.

The rise put RL above its 10-day moving average, and so no roll will be possible under my rules.
The share prices rose by $5.8% over 52 days. The bearish options position produced a 129.5% loss.

Update 9/26/2014: I've opened a bear position in RL, structuring it as a bear put spread, long the $170 puts and short the $165 puts, bought with a credit and expiring Jan. 15. The position provides 2:1 leverage.

Ralph Lauren Corp. (RL) last year ended its uptrend of more than a decade and has since been skidding down the walkway in a decline that, for bullish investors, resembles a bear-skin robe more than haute couture.

The Chart

RL, at its post-recession peak, had nearly doubled its pre-recession high, making it an outlier among the stocks I've analyzed.

The Elliott wave frame declares May 2013 peak to have been the 5th wave of a very high degree, putting RL in a correction of such magnitude that it will look like a downtrend for a very long time to come.

Click on chart to enlarge.
RL 20 years monthly bars (left), 19 months daily bars (right)
The five waves up that culminated last year took more than a decade to complete their work, and I would expect the correction to be of a similar magnitude. While looking at this chart, we can profitably contemplate fashion in the mid-2020s.

Our immediate task, however, is far less grandiose: To identify where RL stands as it begins its journey down wave A {+4}.

A waves are composed of five-wave patterns, much like uptrending waves turned on their heads. These are called "impulse waves" in Elliott. The largest degree of wave in my count, A {+4}, is a corrective pattern. Corrections tend to be based on three-wave movements, although some of these have impulse waves internally.

In the right-hand chart, I've counted the major movements as the base degree. This is clearly a mere guess. There's no way to say at this point how the magnitude of the price movements this year and last relate to the magnificent swings of the {+4} degree.

By my count, the 1st wave down, which I've called wave 1 {+1}, is in its 5th and final internal wave. Under the Elliott wave rules, it can be expected to carry below the end of wave 3, perhaps far below.

From today's opening price, such a decline gives RL downside potential of 14% at a minimum, and potentially much more.

Odds and Yields

RL has completed six bear signals since the May 2013 peak. They split evenly between winners and losers. The three successful trades yielded 3.1% over 59 days, on average. The unsuccessful trades lost 3.6% over 16 days.

These are not particularly impressive results, especially the negative half a percent win/lose yield spread.

The Company

Ralph Lauren, headquartered on Madison Avenue in New York City,  is one of the best known names in clothing design. It also markets accessories, fragrances and home furnishings under its brands. It operates more than 600 stores globally, and also distributes its products to other retailers.

Analysts are generally optimistic about the company's prospects, collectively coming down with a 14% enthusiasm rating.

Ralph Lauren reports return on equity of 19%, with debt amounting to only 8% of equity.

Earnings tend to peak in the winter holiday quarter, occasionally in the prior autumn quarter. Peak quarter earnings were down in 2012 compared to 2011, but up in 2013.

There has been only one downside earnings surprise in the past three years, in 2013. All other quarters have surprised to the upside.

The earnings yield is 5.04%, compared to 2.54% for the 10-year U.S. Treasury notes, and company pays a dividend yielding 1.1% annualized at today's prices.

Growth estimates, combined with the dividend, implying a "fair" price of $118.46, making RL overvalued by 39%. I've marked this left on the left-hand chart in purple.

The stock is selling at 20 times earnings, and at a premium to sales. It takes $1.93 in shares to control a dollar in sales.

Institutions own 94% of shares.

Ralph Lauren next publishes earnings on Nov. 4, 2014. The stock goes ex-dividend in December for a quarterly payout of 45 cents per share.

Liquidity and Volatility

RL on average trades 980,000 shares a day and supports a remarkably wide selection of option strike prices spaced $5 apart, with open interest running to three figures near the money.

The front-month at-the-money bid/ask, spread on puts is 7.1%, compared to 0.4% for the most-traded symbol on the U.S. markets, the exchange-traded fund SPY.

Implied volatility stands at 20%, compared to 15% for the S&P 500, and has been rising from a low of 16% set on Sept. 12. The decline to that level began from a peak of 31% on Aug. 5.

Volatility now stands in the 29th percentile of that range, suggesting that the most successful trades will be long option spreads bought with a credit -- positive Theta, or time decay, is the technical term.

Options are pricing in confidence that 61.8% of trades will fall between $154.48 and $173.77 over the next month, for a potential gain or loss of 5.9%, and between $159.49 and $168.76 over the next week.

Contracts today are skewed toward puts, which are running 46% above their five-day average volume. Calls are running 6% below average.

Decision for My Account

It is a bearish chart, and there is nothing else in the picture that detracts from a bear play under my shorter-term rules. I intend to open a bear position in RL if it shows downward momentum in the half hour before the closing bell. If momentum falters, then I'll place it on the Watchlist for later action.

I'll structure the trade as a bear put spread expiring in January.

-- Tim Bovee, Portland, Oregon, Sept. 26, 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.


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.


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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Friday's Finalist: RL

The New York fashion house Ralph Lauren Corp. (RL) was the sole symbol to survive the first round of analysis, as a potential bear play, and it has also made it through the second round into the finals. (See "Friday's Prospects".)

RL confirmed Thursday's bear signal by trading below its 20-day price channel today. RL's options are liquid enough for use in constructing a bear position, with a bid/ask spread in the single digits. The chart is bearish, in line with the signal, and it has a neutral ranking from Zacks Investment Research, the service I use as a short cut for my fundamental analysis.

There's nothing to hate here at first glance. I intend to post a full analysis of RL prior to the closing bell.

-- Tim Bovee, Portland, Oregon, Sept. 26, 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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Friday's Prospects

On Thursday, Sept. 25:

Of 1,129 stocks and exchange-traded funds in my analytical universe, 73 broke beyond their 20-day price channels, four to the upside and 69 to the downside.

One symbol survived my initial screening, RL, having broken out to the downside. All but two of the symbols failed because their odds of a successful trade were even at best. The other symbol with acceptable odds, a bear signal on UPS, is within its 30-day earnings exclusion period.

No symbol survived screening as a potential bull play from my supplemental list of innovative companies.

I shall do further analysis of the surviving symbols on Friday, Sept. 26.

The next round of earnings will begin Oct. 8 with the announcement by AA. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
(none)

Bear
RL
Innovators
(bull)
(none)


First-round survivors: Earnings or dividend rules

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull
(none)
Bear
(none)


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Sept. 26, 2014

References

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

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.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.T

Thursday, September 25, 2014

Thursday's Finalists: Emptiness

A strange day. A day of emptiness.

Wednesday's markets produced only 19 bull and bear signals. Of them, only one symbol that made it past the first round of analysis: CJES. (See "Thursday's Prospects".)

The first round requires, at minimum, that over the past year, more than half of a stock's or fund's trades in the direction of the most recent signal have produced a profit. In other words, I'm looking for a greater than 50% success rate over the past 12 months.

CJES, a bull signal, has been successful 100% of the time with bull signals over the past year.

However, the day after the signal, the price dropped back into the 20-day price channel. That's a failure to confirm the signal, rendering it invalid.

My supplemental list of innovative companies produced no bull and bear signals for consideration in the first round of analysis.

So I have nothing to analyze today, much less trade.

I shall spend my newly discovered free time meditating on the great strength enjoyed by private traders: Our ability not to trade if there's nothing worth trading, unlike the professionals, who must trade to prove they're earning their paycheck.

-- Tim Bovee, Portland, Oregon, Sept. 25, 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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Thursday's Prospects

On Wednesday, Sept. 24:

Of 1,129 stocks and exchange-traded funds in my analytical universe, 19 broke beyond their 20-day price channels, eight to the upside and 11 to the downside.

One symbol survived my initial screening.

No symbol survived screening as a potential bull play from my supplemental list of innovative companies.

I shall do further analysis of the surviving symbols on Thursday, Sept. 25.

The next round of earnings will begin Oct. 8 with the announcement by AA. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
CJES

Bear
(none)
Innovators
(bull)
(none)


First-round survivors: Earnings or dividend rules

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull
(none)
Bear
(none)


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Sept. 25, 2014

References

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

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.

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

Creative Commons License

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Based on a work at www.timbovee.com.T

Wednesday, September 24, 2014

KRE: Upturn ahead

The SPDR KBW Regional Banking exchange-traded fund (KRE) fell on difficult times early in the year. Tuesday's bear signal only served to increase the pessimism.

However, the chart suggests that KRE's worst days are behind it, and indeed that it is poised for a significant upturn.

The Chart

KRE peaked in March at $42.79, ending wave 3 {+3}, an uptrend underway since 2011. It has since been in a  counter-trend correction.

The correction is taking the form of a triangle. In Elliott wave analysis (and traditional charting as well), a triangle is a sideways movement that eventually results in a sharp rise or fall from the apex.

Click on chart to enlarge.
KRE 10 years weekly bars (left), 3 years daily bars (right)
In this case, the price can be expected to bounce off of the lower triangle boundary, at about $38.10, marking the end of wave D, and then break beyond the upper boundary, which is now at about $40.40 in wave E, signaling that the triangle pattern in complete.

In other words, there's less than a percent of downside potential with this bear signal, and more than 5% to the upside.

This chart argues decisively against opening a bear position in KRE. This chart shows a whipsaw in the making.

Odds and Yields

KRE has completed two bear signals since the March peak, both of them successful but with small yields, as one would expect with a triangle. On average they yielded 0.9% over 43 days.

Decision for My Account

At this point I can cut the analysis short and go directly to a decision.

I won't open a bear position in KRE. The chart is too prone to whipsaws. I consider a directional trade at this point to be a certain loser at worst, and an inconsequential success at best.

Once the price reverses off of the lower boundary of the triangle, then the ensuing bull signal must be taken very seriously indeed.

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


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.


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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Wednesday's Finalists: SLXP, KRE

The North Carolina drug company Salix Pharmaceuticals (SLXP), with a bull signal, and the SPDR KBW Regional Banking exchange-traded fund (KRE), with a bear signal, have made it to the final stages of analysis.

Two others, both bear signals, made it past the initial rounds (see "Wednesday's Prospects") but upon closer examination, were found wanting.

ADT has option spreads that are too wide for me to use in constructing a bear position.

BBBY invalidated its bear signal immediately upon the opening bell. After announcing earnings, the price moved up sharply and gave a bull signal.

Of the two finalists, the bull signal, SLXP, has option spreads that are too wide for trading. Although options aren't an automatic disqualifier for potential bull plays, wide spreads mean that I can't build a leveraged position, which is my preference.

The fund KRE has a downtrending chart in line with a bull signal, and options that I can trade. I shall take a closer look at it prior to the closing bell.

-- Tim Bovee, Portland, Oregon, Sept. 24, 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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Wednesday's Prospects

On Tuesday, Sept. 23:

Of 1,129 stocks and exchange-traded funds in my analytical universe, 87 broke beyond their 20-day price channels, one to the upside and 86 to the downside.

Four symbols survived my initial screening, one having broken out to the upside and three to the downside. One of the symbols gave a signal coincident with an earnings announcement and so will be considered under the variant earnings rules.

No symbol survived screening as a potential bull play from my supplemental list of innovative companies.

I shall do further analysis of the surviving symbols on Wednesday, Sept. 24.

The next round of earnings will begin Oct. 8 with the announcement by AA. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
SLXP

Bear
ADT
KRE
Innovators
(bull)
(none)


First-round survivors: Earnings or dividend rules

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull
(none)
Bear
BBBY


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Sept. 24, 2014

References

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

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.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.T

Tuesday, September 23, 2014

Tuesday's Outcomes: RYL, INVN

I've opened a bear position on RYL. See the update to today's analysis, "RYL: Bearish on a homebuilder", for details.

I've removed INVN from the Roll Shelf. See the update to my Aug. 24 analysis, "INVN: A slice of the iWatch", for details and results.

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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

RYL: Bearish on a homebuilder

Update 11/24/2014: RYL has moved above the $38.80 high set on Sept. 17, a few days before I entered the position. It continued the downtrend that began last spring to a low of $30.33 on Oct. 13, and then reversed in a leg up that today confirmed a break above the prior high, thereby moving to an uptrend.

I had exited my bear position a week after the Oct. low, placing it on the Roll Shelf for possible re-entry if the price moved in my favor. It didn't, and with the move to an uptrend, I have moved RYL from the Roll Shelf and calculated results.

During the 27 day lifespan of my position, RYL's price declined by 2.4%, or 32.8% annualized. My options position produced a 3.9% loss on debit, or 52% annualized.

Click on chart to enlarge.
RYL 180 days 4 hour bar

Update 10/20/2014: RYL moved above its stop/loss point on Oct. 15, the day it went ex-dividend. Under my rules there is a five-day day break before confirmation. That day came on Friday, the exit signal was confirmed, and higher trading today gave a second confirmation.

So I've closed the position, even though I'm not at all persuaded that the stock has entered an uptrend. This is one of those cases where the old adage about following your trading rules defines success is a bit painful to endure. 

Note to self: Revisit trading rules with an eye toward a revision, given the fact that the market has gotten past the churning of its top and has entered a downtrend.

RYL remains below the upper boundary of the 10-day price channel, so it is eligible for a roll forward into a new position if it meet the criteria. I'll refrain from calculating profit or loss until no further rolls are possible.

Update 9/23/2014: I've opened a bear put spread on RYL, long the $36 put and short the $35 put and expiring Jan. 15. The leverage is 4:1. 

RYL is up intraday but stayed below its breakout level and its opening price of the day before. It set a lower high and lower low for the day, and that counts as a downtrend.

The Ryland Group Inc. (RYL) is a homebuilder and like everyone in the sector has seen a massive collapse in business followed by an optimistic recovery. The chart, however, suggests that happy days, far from being here again, may be taking a vacation.

The Chart
RYL hit its pre-recession peak earlier than most, $83.25 in 2005, and then tumbled, reaching its post-recession valley later than most, in October 2011.

Since that low, at $9.15, it has since traced a counter-trend recovery, hitting a high of $50.42 on May 20, 2013, before again pulling back to the downside.

Click on chart to enlarge.
RYL 10 years weekly bars (left), 16 months daily bars (right)
My count under Elliott wave analysis, places the 2011 low as the end of wave A {+3} to the downside.

RYL is present working its way through wave B {+3} to the upside, which is itself composed of three lettered waves -- a rising A {+2}, which produced the May 2013 high, a falling B {+2}, now underway, and to come, a rising C {+2}, which is likely to exceed the May 2013 high of $50.42, but to fall short of the 2005 high of $83.25.

Wave A {+2} lasted for nearly two years, and so wave B {+2}, if it is proportional, will carry the downtrend into 2015 before the next correction begins.

Internally, wave B {+2}, if it is typical, will work out as a three-wave sequence, or perhaps multiples of correction patterns. I've analyzed B {+2} internally as workings its way down its first wave, A {+1}, with three out of five waves of the base degree complete.

Odds and Yields

RYL has completed four bear signals since wave B {+2} began in May 2013. Three were successful, on average yielding 9.6% over 58 days. The one unsuccessful trade lost 9.1% over 18 days.

The half a percent win/lose yield spread is unimpressive, but the 3:1 odds in favor of success make up for the narrowness of the gap.

The Company

Ryland, headquartered in Westlake Village, California, builds homes and finances the mortgages. It ranks six among companies building new homes.

Stock analysts collectively give Ryland a negative 20% enthusiasm rating, a reading somewhat short of optimism in assessing the company's prospects.

The company reports return on equity of 19%, with debt amounting to 139% of equity.

Post-recession, Ryland returned to profitability in 2012 and since then has reported results that are all over the map, without a clear trend.

Earnings have surprised to the downside six times in the past 12 quarters; the rest have all surprised to the upside.

The company's earnings yield is 8.80%, compared to 2.54% on the 10-year U.S. Treasury notes, and dividends yield 0.34%.

Growth estimates, combined with the dividend, imply a "fair" price of $18.72 per share, suggesting that the stock is overvalued by 89%. I've marked that price on the left-hand chart in purple.

The stock is selling for 11 times earnings but at a sharp discount to sales. It takes 71 cents in shares to control a dollar in sales.

Institutions own nearly all of Ryland's shares.

Ryland next publishes earnings on Oct. 27. The stock goes ex-dividend on Oct. 10 for a quarterly payout of 3 cents per share.

Liquidity and Volatility

RYL on averages trades 1 million shares a day and supports a wide range of option strike prices spaced a dollar apart, with open interest running to three and four figures.

The front-month at-the-money bid/ask spread on puts is 7.4%, compared to 0.8% over the most-traded symbol on the U.S. markets, the exchange-traded fund SPY.

Implied volatility stands at 31% and has been in a zig-zagging downward trend for the past three years.

The most recent rise carried volatility from 32% in May to a peak of 37% in July.

Subsequently, volatility declined and now stands in the 33rd percentile of that range, a low level that suggests long option spreads bought with a debit and expiring in an out month would have the greatest chance of success.

In the decline from July, options are pricing in confidence that 68.2% of trades will fall between $32.23 and $38.65 over the next month, for a potential gain or loss of 9.1%, and between $33.90 and $36.98 over the next week. I've marked the monthly range implied by the present trend on the right-hand chart in blue.

There is very little contract activity today.

Decision for My Account

I intend to open a bear position in RYL, structuring it as a bear put spread, bought with a debit and expiring in January. If momentum falters in the last half hour of trading, then I'll add RYL to the Watchlist as a possible trade later.

-- Tim Bovee, Portland, Oregon, Sept. 23, 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.


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.


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.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.