Thursday, November 6, 2014

Thursday's Finalist: LM

Out of the nine survivors of the early stages of analysis listed in "Thursday's Prospects", I've set two aside for consideration on Friday because their signals came on the first trading day after earnings were announced, bringing them under my Reset Day rule.

Of the seven symbols remaining, all passed confirmation, continuing to trade today beyond their 20-day price channels. But six of them had charts that were insufficient to support the signal.

They had the "hook", something we've all been seeing a lot of over the past few months, as the market corrects and then makes a comeback that has yet to break beyond the most recent high. My interest is in stocks and funds that have broken past near-term resistance into new territory.

Only one symbol from Wednesday's markets passed that test, the Maryland-based asset and investment management company Legg-Mason  Inc. (LM), with a bull signal.

The most recent turning point was $52.09 in early October, in the midst of a sideways correction that began in June. LM broken beyond that level at the end of October.

Implied volatility is falling and is well off of its peak, so any trade would best be structured as a long options spread of some sort, bought with a debit and expiring in February or later.

LM's options grid for February has strike prices with open interest in the triple digits, but the strikes I would need to use in building a bullish position all have quite low open interest, too low to meet my preferences.

An alternative would be to play LM under my longer-term rules. And indeed, it closed the month above the 12-month moving average in December 2012, and hasn't looked south since.

However, the dividend yield is only 1.18% annualized at the current price, too low to justify tying up so much cash in a single unleveraged position.

If it were a growth stock with an innovative business plan and rising earnings, that might overcome the low dividend yield.

But as it stands, I've lost interest in LM as a trade due to both insufficient options liquidity and a low dividend, and I won't be doing further analysis or placing any other trades based on Monday's markets.

-- Tim Bovee, Portland, Oregon, Nov. 6, 2014


My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My very short term volatility trading rules 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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