Tuesday, March 31, 2015

Wednesday's Prospects

On Tuesday, March 31:

Of 2,463 stocks and exchange-traded funds in my analytical universe, 35 broke beyond their 20-day price channels, 17 to the upside and 18 to the downside.

Five symbols survived initial screening, four having broken out to the upside and one to the downside.

No symbols appearing on my supplemental list of innovative companies gave bull signals and also met my earnings announcement rules.

There is one prospect for a trade keyed to earnings under my Volatility Rules.

I shall do further analysis on Wednesday, April 1.

The next earnings season begins April 8 with the announcement by AA and runs 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. The rule doesn't apply to trades under my Volatility Rules.

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
TREX
BR
TUMI
XOP

Bear
THRX
Innovators
(bull)
(none)


First-round survivors: Special handling

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 earns
(none)
Bear earns
(none)
Bull ex-div
(none)
Bear ex-div
(none)


Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Wednesday pm
MU
Thursday am
(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, March 31, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

Tuesday's Outcomes

I closed my position in TWTR a bit more than two days prior to expiration. See results in the update to my analysis, "TWTR: Iron condor, volatility rules".

I opened a short-term position in MON. See the analysis "MON: Iron condor, volatility rules".

I analyzed EA but declined to take the trade. See "EA: Iron condor, volatility rules".

-- Tim Bovee, Portland, Oregon, March 31, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

EA: Iron condor, volatility rules

The came software company Electronic Arts Inc. (EA), headquartered in Redwood City, California, broke above its 20-day price channel on Monday. Despite pulling back the next day, it remained above the breakout level, confirming the bull signal.

EA has Weeklys among its options inventories, and I shall trade the APR2 series of options, which trades for the last time 10 days hence, on April 10.

[EA in Wikipedia]

EA

The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Ranges

Click on chart to enlarge.
EA at 11:00 a.m. New York time, 30 days hourly bars
Implied volatility stands at 34%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. EA’s volatility stands at the top percentile of its most recent rise.

The chart range is significantly narrower than the one standard deviation range.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper62.4265.7860.21
Lower55.7052.3454.09
Gain/loss5.7%11.4%
Implied volatility 1 and 2 standard deviations; chart support and resistanc

The Trade

EA's chart is ambiguous as to direction. True, it gave a bull signal, but the immediate retracement was significant. So I shall attempt a direction neutral structure for the position.

Iron condor short the $62 calls and long the $61 calls,
short the $55 puts and long the $54 puts
sold for a credit and expiring April 11
Probability of expiring out-of-the-money

APR2Strike%
Upper6176.9
Lower5589.0

The proposed trade above covers all of the chart range while leaving $1.42 of the one standard deviation range outside of the zone of profitability.

The risk/reward ratio stands at 3.3:1, a high level for an iron condor. Generally, the iron condor structure tends toward parity.

Decision for My Account

I dislike the high level of the risk/reward ratio and so shall pass on this trade. EA publishes earnings on May 5, so I'll have another shot at it then.

-- Tim Bovee, Portland, Oregon, March 31, 2015

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".

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.



Alerts


Two social media feeds provide notification whenever something new is posted.

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.

Tuesday's Finalists

Of the nine symbols under consideration today, three failed confirmation by moving back within their 20-day price channels: TRS, PRO and EEFT. (See "Tuesday's Finalists" for the early rounds of screening.)

Four lack sufficient liquidity in their options grids to support the leveraged and hedged trades that I prefer: MUSA, THOR, TJX and FCE.A.

That leaves NTES and EA as the finalists

NTES lacks Weeklys in its options inventory. That would require me to open a position that would likely last into earnings season, which begins next week. I'd prefer not to tie up the funds.

EA does have Weeklys and otherwise meets my criteria. I'll analyze it today as a very short term volatility play.

One symbol qualified as a potential trade coinciding with the earnings announcement. I posted an analysis this morning: "MON: Iron condor, volatility rules".

-- Tim Bovee, Portland, Oregon, March 31, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

MON: Iron condor, volatility rules

Update 4/1/2015: MON rose sharply on today after earnings were announced to just above the boundary of profitability. With contracts trading for the last time tomorrow, I closed while I still could count on having a market.

Shares rose by 2.6% over the one day lifespan of the position, or a 957% annual rate. My iron condors produced a -5.1% loss on debit, for a -1,8948% annual rate.

The agro-tech research and production company Monsanto Co. (MON), headquartered in Creve Coeur, Missouri, publishes earnings on Wednesday, April 1, before the opening bell.

MON has Weeklys among its options inventories, and I shall trade the APR1 series of options, which trades for the last time two days hence, on April 2.

[MON in Wikipedia]

MON

The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Ranges

Click on chart to enlarge.
MON at 10:02 a.m. New York time, 30 days hourly bars
Implied volatility stands at 26%, which is 1.7 times the VIX, a measure of volatility of the S&P 500 index. MON’s volatility stands in the 75th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper114.74116,87114.56
Lower110.46108.33111.16
Gain/loss1.9%8.5%
Implied volatility 1 and 2 standard deviations; chart support and resistance

The Trade

My proposed trade covers all of the chart range and nearly all of the one standard deviation range. The probabilities are a bit weak on the lower side, but not to a huge extent.

Iron condor short the $115 calls and long the $117 calls,
short the $110 puts and long the $108 puts
sold for a credit and expiring April 4
Probability of expiring out-of-the-money

APR1Strike%
Upper11573.3
Lower11068.2

The risk/reward ratio stands at 1.5:1. The premium is 79 cents (41 cents for the calls and 38 cents for the puts) with the stock trading at $112.49.

Decision for My Account

I opened a position in MON as described above.

-- Tim Bovee, Portland, Oregon, March 31, 2015

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".

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.



Alerts


Two social media feeds provide notification whenever something new is posted.

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.

Monday, March 30, 2015

Tuesday's Prospects

On Monday, March 30:

Of 2,463 stocks and exchange-traded funds in my analytical universe, 50 broke beyond their 20-day price channels, 44 to the upside and six to the downside.

Nine symbols survived initial screening, all having broken out to the upside.

No symbols appearing on my supplemental list of innovative companies gave bull signals and also met my earnings announcement rules.

There is one prospect for a trade keyed to earnings under my Volatility Rules.

I shall do further analysis on Tuesday, March 31.

The next earnings season begins April 8 with the announcement by AA and runs 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. The rule doesn't apply to trades under my Volatility Rules.

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
MUSA
EA
THOR
TRS
NTES
PRO
EEFT
TJX
FCE/A

Bear
(none)
Innovators
(bull)
(none)


First-round survivors: Special handling

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 earns
(none)
Bear earns
(none)
Bull ex-div
(none)
Bear ex-div
(none)


Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Tuesday pm
(none)
Wednesday am
MON


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, March 30, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

Monday's Finalists

Both of the symbols from the main list under consideration today passed confirmation. They gave bull signals on Friday. A third symbol, SJM from my list of innovative companies, failed to confirm its bull signal. (See "Monday's Prospects" for the early rounds of screening.)

One of the symbols that made it to the finals, VRNT, has options that are too illiquid for the leveraged and hedged trades that I favor. The other, CAG, lacks Weeklys in its options inventory, making it unsuitable for the very short term trades that I'm doing these days.

So while both would merit a further look under other circumstances, I shall give them a pass today and instead spend my time looking at ways to extend my very short term volatility rules to a greater range of conditions. That research could produce some paper trades but nothing where money is at risk.

-- Tim Bovee, Portland, Oregon, March 30, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

Sunday, March 29, 2015

The Week Ahead: Jobs, income, outlays, manufacturing, trade

U.S. markets will be closed on Friday for the Christians' Good Friday holiday. Markets in London, Tokyo and Sydney will be open for business.

The U.S. Government will issue a major economic report on Friday while the exchanges are closed, a puzzling anomaly that dates back to a slower and more genteel era in market history.

The employment report on Friday at 8:30 a.m. New York time will give money policy makers and traders something to ponder as the Federal Reserve continues its snail-like progress toward higher interest rates. The report, which includes the headline-generating unemployment rate, will be given a sneak preview by the ADP employment report, issued by a leading payroll company on Wednesday at 9:15 a.m.

Other potential market-movers during the week: Personal income and outlays on Monday at 8:30 a.m., the Institute of Supply Management manufacturing survey on Wednesday at 10 a.m. and international trade on Thursday at 8:30 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, or the deliveries times index, from the ISM manufacturing survey at 10 a.m. on Wednesday.

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

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

Manufacturers' new orders for non-defense capital goods from the factory orders report, at 10 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 index at 9 a.m., tracking conditions in 20 metropolitan areas,  the Chicago Purchasing Managers Institute survey 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.

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

Treasury Debt

Bills

  • 4-week: Announcement Monday 11 a.m., auction Tuesday 11:30 a.m., settlement Thursday.
  • 3-month: Auction Monday 11:30 a.m., announcement Thursday 11 a.m.
  • 6-month: Auction Monday 11:30 a.m., announcement Thursday 11 a.m.
  • 52-week: Auction Tuesday 11:30 a.m., settlement Thursday.
Notes
  • 2-year: Settlement Tuesday.
  • 3-year: Announcement Thursday.
  • 5-year: Settlement Tuesday.
  • 7-year: Settlement Tuesday.
  • 10-year: Announcement Thursday.
Bonds
  • 30-year: Announcement Thursday.
TIPS
  • 10-year: Settlement Tuesday.
Fedsters

Federal Reserve Vice Chairman Stanley Fischer delivers a speech on monetary policy Monday at 7:15 p.m. to a Fed conference in Stone Mountain, Georgia. His title: "Nonbank Financial Intermediation, Financial Stability, and the Road Forward".

Federal Reserve Chair Janet Yellen makes brief welcoming remarks remarks on Wednesday at 8:40 a.m. to the Fed's Community Development Research Conference in Washington.

Yellen and Fischer are members of the Federal Open Market Committee.

Other FOMC members taking to the podium: Richmond Fed Gov. Jeffrey Lacker on Tuesday and Fed Gov. Lael BrainardAtlanta Fed Pres. Dennis Lockhart and San Francisco Fed Pres. John Williams on Wednesday

FOMC alternates at the mike: Cleveland Fed Pres. Loretta Mester on Tuesday and St. Louis Fed Pres. James Bullard on Friday.

Others among the Fed glitterati taking to the speaking circuit: Kansas City Fed Pres. Esther George on Tuesday and Minneapolis Fed Pres. Narayana Kocherlakota on Friday.

Analytical universe

This week I shall be analyzing new bull and bear signals among 2,463 stocks and exchange-traded funds.

Trading calendar

By my rules for shorter-term trades, I'm trading April 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 July 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, March 29, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on
 the classic Turtle Trading rules, which can be read here.

Alerts



Two social media feeds provide notification whenever something new is posted.



License

Creative Commons License

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's Paper Trade Outcomes

I've been placing a series of paper trades as part of a project to explore ways of expanding application of my very-short-term volatility rules to situations other than earnings announcements. See "Expanding the volatility strategy" for a description of the project.

I've set the methodology so that I allow the paper trades to expire, at which point each position either produces maximum profit if it expires out of the money or is assigned if it expires in the money. 

For the Weeklys expiring Saturday, March 28, I placed seven paper trades on four symbols. I've updated the analyses with results. The discusson below contains links to the analyses.

I opened paper iron condors on AAL on two separate days. Both expired for maximum profit. See the first AAL analysis  and second AAL analysis.

A directional vertical spread on IWM expired for maximum profit.

An iron condor on TSLA was assigned for a loss.

I did three simultaneous paper trades on YHOO: A directional vertical spread was assigned and two iron condors (analysis here) had split results, one expiring for maximum profit and one being assigned for a loss.

Bottom line: Seven positions, five of them producing maximum profit, for a 71% success rate.

From that I reach a tentative conclusion that my volatility rules can be applied successfully without an earnings announcement or some other event causing implied volatility to collapse.


-- Tim Bovee, Portland, Oregon, March 29, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

Saturday, March 28, 2015

Monday's Prospects

On Friday, March 27:

Of 2,463 stocks and exchange-traded funds in my analytical universe, 31 broke beyond their 20-day price channels, 15 to the upside and 16 to the downside.

Two symbols survived initial screening, both having broken out to the upside.

One symbol appearing on my supplemental list of innovative companies gave a bull signal and also met my earnings announcement rules.

There are no prospects for trades keyed to earnings under my Volatility Rules.

I shall do further analysis on Monday, March 30.

The next earnings season begins April 8 with the announcement by AA and runs 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. The rule doesn't apply to trades under my Volatility Rules.

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
VRNT
CAG

Bear
(none)
Innovators
(bull)
SJM


First-round survivors: Special handling

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 earns
(none)
Bear earns
(none)
Bull ex-div
(none)
Bear ex-div
(none)


Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Monday pm
(none)
Tuesday am
(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, March 28, 2015

References

My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which 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.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 s ss'ss

Friday, March 27, 2015

Paper Trade: HD

I'm continuing my paper-trade studies of ways to expand application of my volatility rules with a somewhat different way of choosing prospective trades. See "Testing: Expanding the volatility strategy" for a description of my testing project.

In the Prospects list that I post each day (such as today's "Friday's Prospects", I screen for symbols that have good historical odds of making a profit after a trading signal. For this study, I'm turning that method on its head, selecting potential trades from among those with the worst odds of success.

For direction neutral trades, such as iron condors, that makes sense. By definition, a failed signal means that the price moved back in the opposite direction in what amounts to a sideways move.

Today I'll analyze HD, which dropped below its 20-day price channel on Thursday and reversed sharply to the upside the next day, failing confirmation.

When it comes to bear signals HD has to count as a big loser: Four signals in the past year, none of them profitable. That makes it a perfect candidate for a direction neutral iron condor position.

HD has Weeklys among its options inventories, and I shall use the APR1 series of options, which trades for the last time on April 3, six days hence.

HD - paper trade

The goal of my paper trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

Range

Click on chart to enlarge.
HD at 1:30 p.m. New York time, 30 days hourly bars
Implied volatility stands at 21%, in the 75th percentile of the most recent rise, at 1.4 times the VIX, the indicator that tracks the volatility of the S&P 500.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper116.88119.97117.99
Lower110.70107.61111.58
Gain/loss2.7%5.4%
Implied volatility 1 and 2 standard deviations; chart support and resistance

The Trade

Given the trend on the chart, I'm aiming for an iron condor the covers the chart range.

Iron condor short the $115 calls and long the $117 calls,
short the $111 puts and long the $109 puts
sold for a credit and expiring April 8
Probability of expiring out-of-the-money

FEBStrike%
Upper11566.8
Lower11181.7

The structure above assumes that the downward momentum that triggered the bear signal is exhausted. Another approach would be to hedge against that assumption being wrong by lowering the short put to 110 or perhaps even 109. However, I judge that that course would increase the risk/reward ratio unacceptably.

The risk/reward ratio on the trade as I built it stands at 2:1. The premium is 63 cents (33 cents on calls and 30 cents on puts) with shares going at $113.90.

Decision for My Account

Implied volatility is on the low side, not even double the VIX. This cuts into the premium The best coverage I could get to the upside leaves $1.25 of the top part of the one standard deviation range outside the zone of profit. There is no resistance point at that level on the chart.

On the other hand, there's a 67% chance of expiring profitably to the upside, and an overwhelming 82% chance to the downside, which are good odds either way.

This is a paper trade for research. No cash is at risk. If I were considering a trade for money, I would take this one if HD reversed course intra-day and dropped a bit, signifying that the reversal from the bear signal has lost momentum.



-- Tim Bovee, Portland, Oregon, March 27, 2015

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".

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.



Alerts


Two social media feeds provide notification whenever something new is posted.

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.