Thursday, September 11, 2014

Thursday's Finalists: RCPT, HUN, USO, CLNE, EBAY

Five symbols have reached the finals out of the 17 that made it past the earlier rounds for consideration today. (See "Thursday's Prospects".)

They are the California pharmaceutical house Receptos Inc. (RCPT), the Utah chemical company Huntsman Corp. (HUN), and the crude oil commodity fund USO from the mid-/large-cap list; the California natural gas fuel for vehicles provider Clean Energy Fuels Corp. (CLNE) from the small-cap list; and the California e-commerce and online auction company eBay Inc. (EBAY) from the large-cap bear play supplemental list.

Of the others, two failed confirmation, IRWD and WMGI.

Eight had charts that were insufficiently robust in the direction of the signal to meet my needs: NPSP, ZMH, PAY, PACW, HII, LOGM, CVT and AIRI.

Two, having broken out to the downside, lack sufficient open interest on their options for use in construction a bearish position: SNH and RXII.

Turning now to the five finalists...

All except USO are ranked neutral by Zacks Investment Research, the service I use to for insight into the fundamentals and Street opinion. USO is unranked by Zacks. All have three-year charts that seem to be in line with their trading signals. So no help there.

RCPT, HUN and CLNE have low liquidity options. They can't be used to construct leveraged and hedged positions. That lack isn't an automatic deal killer, but leverage provides a higher potential for profit and hedging lowers the potential for loss. I prefer to have those capabilities where possible.

That being so, I set RCPT, HUN and CLNE aside.

That leaves USO and EBAY.

A commodity play like USO always gets my attention. My holdings are always so heavy on corporate equity, I appreciate the chance add some diversity by adding another sort of trade to my portfolio.

A household name, and one from the tech world, always gets my attention. By definition, such companies have high visibility and are doing new and risky things. Both add to volatility, and as I never tire of saying, volatility is the mother of profit.

I turn back to the charts and note that neither USO nor EBAY has fallen into new territory. They're above major resistance on the three-year chart.

Next, I turn to the longer-term context. No chart exists in isolation.

Click on chart to enlarge.
USO 6 years monthly bars (left), EBAY 18 years monthly bars (right)
The six-year chart on USO, which is as far back as the fund goes, shows that it has been trending sideways within a fairly narrow range since July 2012, with most monthly extremes staying within a $30 to $40 range.

That clarifies the decision. USO isn't a trade for me until it breaks beyond that range.

The 18-year chart on EBAY shows that the price has been whipsawing sideways since January 2013. with most monthly extremes staying with a $50 to $58 range. The analysts chit-chat presently blames the price decline on the presumption that the new Apple Pay system will cut heavily into EBAY's business. The chart suggests something else at work.

At any rate, the chart for EBAY leads me to the same decision: No trade until it breaks beyond the range.

I won't be doing any fresh analysis today, nor will I be contemplating trades off of Wednesday's market action.

-- Tim Bovee, Portland, Oregon, Sept. 11, 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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