Thursday, February 12, 2015

QQQ, CSX, KMX: Bull plays, shorter-term rules

The PowerShares Trust exchange-traded fund QQQ, which tracks the NASDAQ 100; the rail company CSX Corp. (CSX), headquartered in Jacksonville, Florida; and the used-car chain CarMax Inc., (KMX) which is on my list of innovative companies and which is headquartered in Richmond, Virginia, each broke above its 20-day price channel on Wednesday and confirmed the bull signal by trading still higher.

[QQQ, CSX, KMX in Wikipedia]



QQQ has been trending sideways since Dec. 1 and has not yet broken past the peak set on that date at the end of the prior rise, $106.25. The fund is within 50 cents of that breakout.

Until that breakout happens, the chart shows that the sideways trend is still in force, disallowing a directional trade.



CSX has been in a downward counter-trend correction since late November, and possibly has completed that work and is returning its uptrend. That assessment, based on an Elliott wave analysis, won't be certain until CSX breaks above the Nov. 25, 2014 peak of $37.99, about $1.30 away.

For this trade, I prefer to wait until the beak above $37.99.

Click on chart to enlarge.
CSX 4+ months daily bars



KMX peaked on Dec. 22, 2014 at $68.71 and then began a downward correction, which hit bottom on Feb. 2 at $60.83.

The bull signal came as the direction again reversed to the upside, touching a high so far today of $66.58. That's a bit less than $2 away from the December resistance, and I cannot call the stock uptrending until that level is breached.

Decision for My Account

There's a sameness about these charts, and indeed, about the market as a whole.

The market hit peak late last year, went into a correction, and now is coming back to the upside, but since the 2014 peak has not yet been exceeded, it is not yet uptrending.

The shorter-term rules are intended for trending stocks and funds. Therefore, I'm rejecting all three trades because they lack trends.

-- Tim Bovee, Portland, Oregon, Feb. 12, 2015


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".

The directional score is calculated as the sum of the following:
  • Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
  • Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
  • Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
  • Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
  • 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
  • One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.

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.


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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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