Friday, October 31, 2014

Friday's Prospects -- full universe

Note: My automated analysis programs blew up overnight, and I had to limp along today with an analysis of a greatly shrunken analytical universe. I've rerun the entire process, and here are the "Prospects" results for the full analytical universe.  I ran the "Finalists" analytics and found none from the primary list made it to the  point where it warranted a full write-up. PG from the Innovators supplemental list has a bullish chart, and I'll do further analysis over the weekend.

On Thursday, Oct. 30:

Of 1,371 stocks and exchange-traded funds in my analytical universe, 53 broke beyond their 20-day price channels, 51 to the upside and two to the downside.

Eight symbols survived initial screening, all having broken out to the upside. Of those, four broke beyond their channels immediately after earnings were announced, all to the upside.

Two symbols appearing on my supplemental list of innovative companies give bull signals.

All from the primary list failed later analysis, and I plan no further work on the four survivors not subject to earnings release rules. I shall take a closer look at PG over the weekend.

Earnings season began Oct. 8 with the announcement by AA and runs about six weeks. 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
JNJ
PKI
TCBI
MYL

Bear
(none)
Innovators
(bull)
JNJ
PG


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
ODFL
APD
FLT
JCI
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, Oct. 31, 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.Tss

Friday's Outcomes: NTAP

I've closed my position in NTAP for a loss and updated my Oct. 2 analysis with details, including a discussion of a flaw in the trading rules that added needlessly to my loss. See "NTAP: An ambiguous bear play".

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 volatility trading rules 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 Finalist: JNJ

The New Jersey health-care products company Johnson & Johnson (JNJ) was the sole survivor from the early rounds of analysis. (See "Friday's Prospects".)

It confirmed Thursday's bull signal today by continuing to trade beyond the 20-day price channel. However, JNJ's chart isn't yet sufficiently bullish to support a trade.

The price peaked on Sept. 24 at $108.77. Today's high so far is $108.18, slightly short of a break beyond resistance.

Until that resistance level is pierced, and decisively so, JNJ can be interpreted as engaging in a counter-trend upward correction within a downtrend.

So I won't take the trade, and plan no further analysis from Thursday's market session.

-- Tim Bovee, Portland, Oregon, Oct. 31, 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 very short term volatility trading rules 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 - large cap

Note: I've done some troubleshooting on my analytical software, which blew up overnight. In the interest of timeliness I've produced this list on a smaller analytical universe of large-cap stocks only; 157 symbols compared to the 1,371 symbols in this week's full analytical universe. I'm doing a run on the full universe now. It won't be finished until after the closing bell, but I'll post it either after the close today or over the weekend.

On Thursday, Oct. 30:

Of 157 stocks in my analytical universe, nine broke beyond their 20-day price channels, all to the upside.

One symbol survived initial screening, having broken out to the upside.

I shall do further analysis on Friday, Oct. 31.

Earnings season began Oct. 8 with the announcement by AA and runs about six weeks. 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
JNJ

Bear
(none)
Innovators
(bull)
(not available)


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.

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, Oct. 31, 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.Tss

Friday's Prospects -- delayed

Update: I've fixed the system and in the interest of timeliness, produced a Prospects list from a smaller universe of stocks -- 157 large-cap companies, compared to the 1,371 symbols in this week's full universe. See "Friday's Prospects: large-cap only".

My stock analysis routine blew up overnight. As a result, Friday's Prospects will be delayed and in fact may not be ready prior to the closing bell.

I'm trouble-shooting the problem and shall produce a report when its possible, although it will most likely be for a smaller number of symbols than usual.

There are no volatility plays on earnings announcements in sight, so there is no joy there, either.

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, October 30, 2014

Thursday's Outcomes: COST

I analyzed COST as a potential bull play but declined to take the trade. See my reasoning in today's post, "COST: Rushing up the trend".

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 volatility trading rules 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.

COST: Rushing up the trend

Costco Wholesale Corp. (COST) runs stores that are amazing places: Huge warehouses filled with an equally huge selection of goods that vary little from country to country. It's an innovative company, the sort of corporate story that makes me want to trade it, and a chart that shows the stock price has been scrambling along the trend in a rush that leaves little chance for a pause.

The Chart

My main purpose in using Elliott wave analysis is to answer a single question: How far along is the trend? From this, I get a since of the relative likelihood of a correction.

The COST chart is a picture of exuberance. So strong has the uptrend been in 2009 that the corrections are all shallow and undiferentiated in magnitude. This is makes the analysis difficult.

Click on chart to enlarge.
COST 6 years 7 months weekly bars (left), 9 months daily bars right)

The count I chosen places COST in the final wave, 5 {+1} of wave 3 {+2}, the middle wave of the wave 3 {+2} rise from April 8.

I've chosen my analysis in a way so that the waves are balanced, but a slight change in my internal count would place COST in wave 5 {+2}, suggesting that a correction of yet higher degree is imminent. Middle waves, the 3rds, are far higher probability trades.

The difference is minimal. A correction of wave 3 {+2} takes back a portion of the rise from $110.36. A higher-degree correction means that wave 5 {+3} has ended, which in turn marks the end of the entire rise from $31.18 that began in march 2009.

There is a huge difference in correcting a rise from $110.36, the best case, and from $31.18, the worst case. In the best case, a shallow 38% correction might take the price down to $124. In the second case, a similar correction might drop the price to $94..

At this point, I shall write a brief description of the company, and then go to a decision. I know what I need to know.

The Company

Costo, headquartered in Issaquah, Washington, operates stores in eight countries, using large warehouse style displays and requiring membership of shoppers.

They're huge, and they have an astounding variety of merchandise.

An odd quirk: I've been to Costco stores in Oregon in the northwest United States and in Fukuoka, Japan in western Japan. Both look exactly alike, down to the products on sale. Despite the lack of any compromise with Japanese cultural sensibilities, people in Fukuoka flock to the store, standing in long lines to order inexpensive pizza and hot dogs from the in-store diner before heading to the checkout lanes with huge carts overflowing with stuff.

Costco appears on my supplemental list of innovative companies because of favorable mentions in the fascinating book whose 2nd edition was published earlier this year, Firms of Endearment.


Decision for My Account

I'm big on innovation and love Costco, but this trend is quite mature, whether I use the best case or worst case scenario, and I'm unwilling to take the risk of being caught in a huge correction with a  position that could be in my portfolio for months. I won't be opening a bull position in Costo.

A pity, really. I love corporate stories as much as the next private trader, but when it comes decision-making, at my trading desk the chart rules.

-- Tim Bovee, Portland, Oregon, Oct. 30, 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.

Thursday's Finalists: COST

The Washington-based global cut-rate retailer Costco Wholesale Corp. (COST) is the lone survivor of the early rounds of analysis. It appears on both my standard list and my supplement list of innovative companies. I'll be posting an analysis of COST as a potential bull play prior to the closing bell.

COST was one of three symbols in my analytical universe that have survived this far. The other two, also bull, signals have stumbled, however.

ULTA failed confirmation, and RTN, although confirming its signal, has an insufficiently bullish chart to justify a trade.

In addition to COST, a second symbol on my innovators list, DEO, made it past the early analysis but failed confirmation.

-- Tim Bovee, Portland, Oregon, Oct. 30, 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 very short term volatility trading rules 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, Oct. 29:

Of 1,371 stocks and exchange-traded funds in my analytical universe, 40 broke beyond their 20-day price channels, 36 to the upside and four to the downside.

Six symbols survived initial screening, all having broken out to the upside.  and one to the downside. Of those, three broke beyond their channels immediately after earnings were announced, all to the upside.

Two symbols appearing on my supplemental list of innovative companies give bull signals.

I shall do further analysis on Thursday, Oct. 30.

Earnings season began Oct. 8 with the announcement by AA and runs about six weeks. 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
ULTA
COST
RTN

Bear
(none)
Innovators
(bull)
COST
DEO


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
TQNT
X
SPW
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, Oct. 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.Tss

Wednesday, October 29, 2014

Wednesday's Outcomes: VALE

I analyzed VALE as a very short term volatility trade keyed to the company's earnings release but declined to take the trade. See "VALE: Volatility play".

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 volatility trading rules 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.

VALE: Volatility play

The Brazilian mining company Vale SA (VALE) publishes earnings prior to the opening bell on Thursday. [VALE on Wikipedia]

Implied volatility is lower than I like with this strategy. Also, even though VALE ranks among the 50 symbols having the greatest open interest on their Weeklys options, the distribution of interest makes it difficult to construct a viable position.

Volatility

Implied volatility stands at 40% and has been falling since its 56% peak attained on Oct. 16. The problem is, volatility has fallen too far for my taste. It stands in the 47th percentile of the run-up that culminated in mid-October. For a volatility play, I prefer that volatility be in the upper half of the range, the higher the better.

This is a major strike against using VALE for this strategy.

The Trade

VALE's options have open interest in the three and four figures on the Weeklys I would want to use in a building  position. But its all concentrated in calls at six strikes and puts at five strikes.

The reason is the price. VALE shares cost $10.64 each, which is quite low for an options-bearing stock. It tends to produce a concentration of open interest, and also a rapid drop off to zero of the lower figure in the bid/ask pair.

This makes it extremely difficult to build a complex options strategy and constitutes a second major strike against VALE.

Decision for My Acounrt

A trade isn't played under baseball rules. Two strikes, in this case, means that VALE is out. I won't try to build a very short term volatility trade with low volatility and, when building a position, one hand tied behind my back. I won't be making a volatility play on VALE.

-- Tim Bovee, Portland, Oregon, Oct. 29, 2014

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

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.

My method of scoring price and volatility responses to earnings, used in the "Chart" section, is the simplest imaginable. Looking at the four most recent earnings announcements, I give one point for a rising price or rising volatility in the week after the announcement, subtract a point to a falling price or volatility, and give a zero if the response is  sideways movement. I then add the four quarters together to produce separate scores for price and volatility, and then add the two to produce a combined score. 

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: VALE

None of the 13 symbols that survived my first round of analysis. (See "Wednesday's Prospects".)

All but one had charts that were insufficiently trending in the direction of the signal to support a trade. The one exception, FAZ, is a bear fund that moves inversely to the NASDAQ 100 index; this is not the sort of symbol that I ever trade, as there are better ways to be a contrarian.

I next turned to my list of innovators and ran into the same condition. Three survived the early rounds of analysis. All of these also had insufficiently bullish charts to support their signals. (Note that this is a correction from the initial version of the Prospects posting, wherein I omitted GE.)

By "insufficiently bullish" I mean that the price was below near-term resistance, meaning that the signal could have been part of a contrarian move within a counter-trend. That would be set up for a whipsaw. So I need to see that breakout beyond resistance before going any further.

One stock with liquid Weeklys options, the Brazilian mining company Vale SA (VALE), announces earnings prior to the opening bell on Thursday. I'll post an analysis today.

-- Tim Bovee, Portland, Oregon, Oct. 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. My very short term volatility trading rules 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, Oct. 28:

Of 1,371 stocks and exchange-traded funds in my analytical universe, 147 broke beyond their 20-day price channels, 137 to the upside and 10 to the downside.

Sixteen symbols survived initial screening, 13 having broken out to the upside and three to the downside. Of those, four broke beyond their channels immediately after earnings were announced, three to the upside and one to the downside.

Three symbols appearing on my supplemental list of innovative companies give bull signals.

I shall do further analysis on Wednesday, Oct. 29.

Earnings season began Oct. 8 with the announcement by AA and runs about six weeks. 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 the next market.


Bull
MAR
QLD
SNPS
PVTB
QQQ
BPOP
REM
XRT
SYK
ASBC

Bear
FAZ
PSQ
Innovators
(bull)
MAR
CAT
GE


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 confirmation two trading day, or the day after Reset Day, in the from of the price trading 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
SAVE
ST
MMC
Bear
TWTR


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, Oct. 29, 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

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Tuesday, October 28, 2014

Tuesday's Outcomes: FB, FDX

I opened a volatility play on FB keyed to earnings under my very short term rules. See today's analysis, including n update with details of the actual trade, "FB: Volatility play".

I analyzed FDX as a bull play under my shorter-term rules or, potentially, my longer-term rules but declined to open a position See today's post, "FDX: An aging trend".

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 volatility trading rules 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.

FDX: An aging trend

Fedex Inc. (FDX), like much of the market, has been on the rise since 2012, and like much of the market, its uptrend is wrinkled and gray haired, tottering down the street with a cane and a genial smile and a cackling "Howdy do" for all who pass.

The Chart

Elliott wave analysis shows FDX to be in the 3rd wave of its rise from the 2009 Great Recession low. I've labeled that wave as 3 {+2}. Internally, wave 3 {+2} is in the 5th and final wave of a trend for three degrees down, from wave 5 {+1} down to 5 {-1}.

The end of wave 5 {-1}, which began Oct. 15, will signal the beginning of a downtrend that will take back a portion of the rise since June 2012, which has more than doubled the price.

Click on chart to enlarge.
FDX 10 years weekly bars (left), 9 months daily bars (right)
Not all counter-trend corrections are the same, of course. A Flat -- a shallow correction in the Elliott terminology -- is not atypical of a 4th wave, and it would do far less damage than a steep Zig-Zag correction, which could easily take back half or two-thirds or even more of the price gains since 2012.

And although 4th waves tend to be Flats, Zig-Zags aren't unheard of, and I cannot assume either one at this point.

Good stock. Good company.  Fedex, headquartered in Memphis, Tennessee, is on my list of innovators as a result of it having won positive mention in the excellent book Firms of Endearment by Rajendra S. Sisodia, Jagdish N. Sheth and David B. Wolfe.

Innovative companies are interesting and can make good longer-term plays. But they don't necessarily make money. And they aren't immune from market forces.

In other words, even uptrends on the charts of innovators have their day and end, and the ensuing downtrend can devastate a position managed by a trader who is less than nimble, and sometimes be so swift that even Jack, of candlestick fame, couldn't get out in time.

At this point I'm cutting the analysis short. I know enough to make a decision.

Decision for My Account

I don't intend to open a bull position in FDX under my shorter-term rules. The series of 5th waves sitting hard atop the current trend and the potential magnitude of the coming wave 4 {+3} correction make the risk greater than I'm willing to assume.

-- Tim Bovee, Portland, Oregon, Oct. 28, 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.

FB: Volatility play

Update 11/10/2014: My iron condors traded for the last time on Friday, Nov. 7, and expired worthless the next day, Nov. 8.

FB remained within the boundaries of profitability during the entire 10-day lifespan of the position, losing a net of 6% over the period, or -218.8% annualized.

The iron condors produced a 100% yield on risk, or +3,650% annualized.

Update 10/28/2014: I've opened an iron condor on FB, as described below in the "Trade" section. There are nine trading days remaining until expiration.

The risk/reward ratio is high, at 8:1, as is not uncommon with wide iron condors. I'm swapping a high risk/reward ratio for greater odds in favor of success. The wisdom of that course of action will vary according to conditions on the chart. Given FB's high volatility in absolute terms, it seems to be a reasonable tradeoff.

The theory behind it is very much like the guiding motto of the Lunar settlers in Robert Heinlein's The Moon is a Harsh Mistress: TANSTAAFL -- There ain't no such thing as a free lunch. No where is this more true, in a precisely quantifiable way, than on the options market.

Facebook Inc. (FB) publishes earnings after the closing bell today, Oct. 28 in the midst of a volatility downtrend that has been underway for half a month. [FB in Wikipedia]

Volatility

Implied volatility stands at 43%, the 67th percentile of the prior rise, providing much room for continued decline in the falling trend that began Oct. 15 from 52%. The volatility chart shows the classic downward hook that is a prerequisite for my earnings plays.

Options are pricing in confidence that 68.2% of trades will fall between $75.93 and $85.61 over the next week, for a potential gain or loss of 6%, and between $78.57 and $82.97 over the next day.

Chart

FB has been in a major uptrend since September 2012, four months after it went public. The most recent upward leg of that trend began Oct. 15 and has set a higher high today.

Big picture, I count FB as being in the final leg of its rise, suggesting an increased likelihood that a reversal could be dramatic and devastating.

The most recent rise from Oct. 15 coincides precisely with the S&P 500. The difference is that while FB has attained a breakout high, the S&P 500 has not. That divergence gives me pause before coming down in favor of a post-earnings rise.

Moreover, the rise has been accompanied by falling volume, suggesting that the uptrend lacks credibility.

Volatility has consistently fallen immediately after each of the past four earnings announcements. The price has fallen after one announcement, risen after one and moved sideways after two. Although the current trend is up, I'm finding it difficult to pick a direction for this trade.

Earnings

Analysts expect Facebook's earnings to come in 60% higher than in the corresponding quarter a year earlier, although down slightly from the immediately prior quarter.

FB has surprised to the downside only once in the nine earnings announcements it has made since going public, in 2013. All other quarters surprised to the upside.

Trade

I intend to structure the position as a short iron condor, sold for a credit,  using Weeklys that expire Nov. 7. The short options will be $70 for the puts and $90 for the calls, setting a range of profitability at expiration of that is 5% above the range implied by options pricing and 8% below. This provides an excellent cushion.

The calls have a 91% probability of expiring out of the money for maximum profit, and the puts have an 89% probability.

Decision for My Account

The chart has a good look to it, and an iron condor is a sideways trade, which means I don't have to pick a direction. It's possible to construct a fairly wide range of profitability while getting a good return.

Having said that, FB has high implied volatility at 43%, which is nearly three times the 16% volatility of SPY, the exchange-traded fund that tracks the S&P 500.

The average true range is $2.12, meaning that the boundaries of the volatility range are four or five days worth of the ATR away from the current price.

So the earnings announcement could easily trigger a wider swing. But the iron condor structure will provide some cushion that may well allow me get out with minimum damage in the case of a wide movement.

I intend to open a position in FB under my very short term volatility trading rules prior to the closing bell today.


-- Tim Bovee, Portland, Oregon, Oct. 28, 2014

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

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.

My method of scoring price and volatility responses to earnings, used in the "Chart" section, is the simplest imaginable. Looking at the four most recent earnings announcements, I give one point for a rising price or rising volatility in the week after the announcement, subtract a point to a falling price or volatility, and give a zero if the response is  sideways movement. I then add the four quarters together to produce separate scores for price and volatility, and then add the two to produce a combined score. 

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.