Wednesday, August 31, 2016

Thursday's Prospects

Screening of the Wednesday, Aug. 31 markets identified five prospective trades out of the two datasets and four strategies that I'm using.

This week, for options trading, I reviewed nearly 500 symbols in my large-cap stocks and exchange-traded funds, and for share trading, I reviewed nearly 1,000 symbols of stocks and funds of all capitalizations. For both I reviewed more than 60 companies publishing earnings.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
signalsN/A0
earnings10
volatility0N/A
stochastic-rsiN/A3

I shall make final trading decisions on Thursday, Sept. 1.


Trump Revealed: An American Journey of Ambition, Ego, Money and Power
by Michael Kranish

Below are the candidates for analysis for each cell of the quadrant.

Wednesday's Outcomes

I analyzed KR as a potential volatility play using options but was unable to construct a position that met my standards.

I entered one small-lots shares position, EPI, and exited two, CLS and TSLX. See details in Wednesday's Small Lots.

By Tim Bovee, Portland, Oregon, Aug. 31, 2016



A Square Meal: A Culinary History of the Great Depression
by Jane Ziegelman

Wednesday's Small Lots

Only one of my 13 prospects triggered by the Stochastic-RSI indicator qualified for a shares trade using my small-lot strategy. I checked the other symbols during the day but all were sending bear signals.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
EPI58/31/201621.72rsi

I exited two positions:

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
CLS108/26/20168/31/201610.8210.70-0.12-1.12%-82%5rsi
TSLX68/29/20168/31/201618.3418.570.231.24%226%2rsi

By Tim Bovee, Portland, Oregon, Aug. 31, 2016



Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank
by John Tamny

KR Analysis

The Kroger Co. (KR), a grocery chain headquartered in Cincinnati, Ohio, has implied volatility above the 50th percentile of its annual range, qualifying it for further analysis

[KR in Wikipedia]

KR

I shall use the OCT series of options, which trades for the last time 51 days hence, on Oct. 21.

Ranges

Implied volatility stands at 19.7%, which is 1.4 times the VIX, a measure of volatility of the S&P 500 index. KR’s volatility stands in the 50th percentile of its annual range. The price used for analysis was $31.99.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper34.6337.27N/A
Lower29.3526.71N/A
Gain/loss±$2.64±$5.28
Implied volatility 1 and 2 standard deviations; central tendency earns move

The Trade

KR has been on a downward trend since November 2015.

Although it is ranked bearish by Zacks Investment Research, brokerages are rosier in their assessment, coming down at a 13% enthusiasm rating. Of 15 analysts, 53% have issued strong buy recommendations.

As it turns out KR is within sight of its next earnings announcement, scheduled for Sept. 9 before the opening bell. There is no indication of an earnings surprise looming.

KR has risen in price immediately after three of the last four earnings announcements.

Despite the bearish chart, there's enough bullish hopefulness to warrant a direction-neutral approach. However, the options grid, with a $2.50 gap between strike prices, isn't amenable to such an approach. The only reasonable construction, described below, produces a 6.8;1 risk/reward ratio, which is unacceptable under my standards.

Iron condor, short the $35 calls and long the $37.50 calls,
short the $27.50 puts and long the $25 puts,
sold for a credit and expiring Oct. 22.
Probability of expiring out-of-the-money

OCTStrikeOTM
Upper3582.8%
Lower27.589.5%

The next best construction is a bearish one, a vertical spread, which is much easier to build on a sketchy grid.

Bear call spread, short the $32.50 calls and long the $35 calls,
sold for a credit and expiring 
Oct. 22.
Probability of expiring out-of-the-money

OCTStrikeOTM
32.558.9%

The premium is $0.70, which is 28% of the width of the position’s wings.

The risk/reward ratio is 2.6:1, still a bit high for a vertical.

The zone of profit stretches 51 cents higher than the entry price, providing some cover in case of a bullish move.

Since the position would last through the earnings announcement, the history becomes important. The biggest immediate move after each of the past four earnings announcements was $2.85, and the average was $1.24. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.06.

Decision for My Account

A case can be made for entering a position on KR now, 10 days before earnings, in order to catch IV at a high level than would be the case later.

However, the sketchy options grid makes it impossible to gain sufficient coverage of a stock that has an ambiguous history in response to earnings. It's a chimera, part bull and part bear. The limited degree of profitability to the upside fails to even cover the central tendency, much less the average for the max.

For that reason, I am declining the trade but will revisit KR closer to earnings if implied volatility remains above the 50th percentile of its annual range.

-- Tim Bovee, Portland, Oregon, Aug. 31, 2016

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.


Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner 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

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.

Wednesday's Agenda

I have two prospects for options trades on my desk this morning. CRM, an earnings play, has implied volatility in the 275h percentile of its annual range and so fails to qualify.

KR, a volatility play, has IV in the 54th percentile and so does qualify for further analysis, which I shall post later today.

Turning to shares trades, the three price-channel breakouts --CFFN, GWB and NP -- all reversed and so, as whipsaws, merit no further action.

My Stochastic-RSI signals consist of eight corporate stocks and five exchange-traded fund. My goal is the trade two of the corporates and one fund.

None of the corporates qualify for a trade early in the trading session. I'll check them again later to see if there has been any improvement.

Of the funds, only EPI has a chart sufficiently bullish for my liking, and I shall place a trade this morning.

By Tim Bovee, Portland, Oregon, Aug. 31, 2016



Irrational Exuberance: Revised and Expanded Third Edition
by Robert J. Shiller

Tuesday, August 30, 2016

Wednesday's Prospects

Screening of the Tuesday, Aug. 30 markets identified 18 prospective trades out of the two datasets and four strategies that I'm using.

This week, for options trading, I reviewed nearly 500 symbols in my large-cap stocks and exchange-traded funds, and for share trading, I reviewed nearly 1,000 symbols of stocks and funds of all capitalizations. For both I reviewed more than 1,400 companies publishing earnings.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
signalsN/A3
earnings10
volatility1N/A
stochastic-rsiN/A13

I shall make final trading decisions on Wednesday, Aug. 31.


Reminiscences of a Stock Operator
by Edwin Lefevre


Below are the candidates for analysis for each cell of the quadrant.

Tuesday's Outcomes

Some small-lots shares exits late in the day in addition to the trades posted in Tuesday's Small Lots.

I exited three additional positions:

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
CR28/30/20168/30/201665.5665.06-0.50-0.77% -281%0rsi
SBLK238/29/20168/30/20164.264.21-0.05-1.19%-433%1earns
ZBRA18/29/20168/30/201670.9570.57-0.38-0.54%-197%1rsi

I exited CR the same day I entered the position on a Stochastic-RSI downturn.

By Tim Bovee, Portland, Oregon, Aug. 30, 2016



Supply and Demand Investing
by Clair Edward Leedom III

Tuesday's Small Lots

I entered to shares positions under my small-lots rules:

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
CR28/30/201665.56rsi
IVR78/30/201615.60rsi

I exited two positions:

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
CLD288/23/20168/30/20163.664.080.4210.29%537%7rsi
TSN18/26/20168/30/201675.7875.31-0.47-0.62%-57%4rsi

ENE was a listed as a prospect in Tuesday's Agenda, but it deteriorated rapidly and I shall not trade it today.

By Tim Bovee, Portland, Oregon, Aug. 30, 2016



he Business Blockchain: Promise, Practice, and Application of the Next Internet Technology
by William Mougayar

Tuesday's Agenda

Three of today's four prospects,  CR, EHE and IVR, continue to qualify as potential shares trades under my small-lots rules. See Tuesday's Prospects.

By Tim Bovee, Portland, Oregon, Aug. 30, 2016



Visual Guide to Elliott Wave Trading
by Wayne Gorman

Monday, August 29, 2016

Tuesday's Prospects

Screening of the Monday, Aug. 29 markets identified four prospective trades out of the two datasets and four strategies that I'm using.

This week, for options trading, I reviewed nearly 500 symbols in my large-cap stocks and exchange-traded funds, and for share trading, I reviewed nearly 1,000 symbols of stocks and funds of all capitalizations. For both I reviewed more than 1,400 companies publishing earnings.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
signalsN/A0
earnings00
volatility0N/A
stochastic-rsiN/A4

I shall make final trading decisions on Tuesday, Aug. 30.


Trading Binary Options: Strategies and Tactics
by Abe Cofnas


Below are the candidates for analysis.

Monday's Outcomes

I placed no other trades in addition to those listed in Monday's Small Lots, entering SBLK, TSLX and ZBRA and exiting CIGI and DTLK.

By Tim Bovee, Portland, Oregon, Aug. 29, 2016



Invisible Influence: The Hidden Forces that Shape Behavior
by Jonah Berger

Monday's Small Lots

I entered three shares positions today using my small-lots strategy.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
SBLK238/29/20164.26earns
TSLX68/29/201618.34rsi
ZBRA18/29/201670.95rsi

I exited two shares positions.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
CIGI28/24/20168/29/201643.4142.69-0.72-1.69%-123%5rsi
DTLK108/23/20168/29/201610.5110.18-0.33-3.24%-197%6rsi

By Tim Bovee, Portland, Oregon, Aug. 29, 2016



Power Scalper - Day Trade for a Living: Make Living Day Trading
by Jerome E. Bressert

Monday's Agenda

My prospects are all for shares trades using my small lots strategy.

I'll open a shares position on SBLK coinciding with an earnings announcement and chose two others based on their Stochastic-RSI indicator from the list posted Monday's Prospects.

By Tim Bovee, Portland, Oregon, Aug. 29, 2016



How Not to Be Wrong: The Power of Mathematical Thinking
by Jordan Ellenberg

Sunday, August 28, 2016

The Week Ahead: Jobs, Income, Outlays, Trade

A major input into the brains of small coterie that manages U.S. monetary policy will hit the markets on Friday: The employment situation figures will be released at 8:30 a.m. New York time.

A preview of the numbers from a major payroll company, the ADP employment report, will be published on Wednesday at 8:15 a.m.

Two other impactful reports are scheduled: Personal income and outlays on Monday and international trade on Friday, each 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. Friday.

Vendor performance, also called the deliveries times index, from the Institutes of Supply Management manufacturing survey at 10 a.m. Thursday.

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

Average weekly initial claims for unemployment from the jobless claims report at 8:30 a.m. Thursday.

Manufacturers' new orders for non-defense capital goods from the factory orders report at 10 a.m. Friday.




Trading Binary Options: Strategies and Tactics
by Abe Cofnas


Events arranged by day:

Monday: Personal income and outlays at 8:30 a.m. and the Dallas Federal Reserve manufacturing survey of conditions in Texas at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price index covering 20 metropolitan areas at 9 a.m. and consumer confidence at 10 a.m.

Wednesday:  The ADP employment report at 8:15 a.m., the Chicago Purchasing Managers index at 10 a.m. and petroleum inventories at 10:30 a.m.

Thursday: Motor vehicle sales throughout the day, jobless claims at 8:30 a.m., productivity and costs at 8:30 a.m., the Purchasing Managers Institute manufacturing index at 9:45 a.m., construction spending at 10 a.m. and the M2 money supply at 4:30 p.m.

Friday: The employment situation and international trade, each at 8:30 a.m., and factory orders at 10 a.m.

I also keep an eye on the Baltic Dry Index, updated daily, and the 5-year implied inflation rate based on U.S. Treasury yields, which presently stands at 1.35%, down two basis points from a week earlier.

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., settlement Thursday.
  • 6-month: Auction Monday 11:30 a.m., announcement Thursday 11 a.m., settlement Thursday.
Notes
  • 2-year: Settlement Wednesday.
  • 5-year: Settlement Wednesday.
  • 7-year: Settlement Wednesday.
Bonds
  • None.
TIPS
  • 5-year: Settlement Wednesday.
Fedsters

With the monetary policy version of Woodstock having now come to an end, the Fed glitterati returns to the speaking circuit.

Three Federal Open Market Committee members take to the podium during the week: Boston Fed Pres. Eric Rosengren and Chicago Fed Pres. Charles Evans on Wednesday and Cleveland Fed Pres. Loretta Mester on Thursday.

An FOMC alternate, Minneapolis Fed Pres. Neel Kashkari, speaks on Wednesday.

Richmond Fed Pres. Jeffrey Lacker, who holds no position on the FOMC this year, makes a public appearance on Friday.

Thought


Among the maxims on Lord Naoshige's wall there was this one: "Matters of great concern should be treated lightly." Master lttei commented, "Matters of small concern should be treated seriously." Among one's affairs there should not be more than two or three matters of what one could call great concern. If these are deliberated upon during ordinary times, they can be understood. Thinking about things previously and then handling them lightly when the time comes is what this is all about.

--Yamamoto Tsunetomo, Japanese samurai, "Hagakure" (1716)

-- Tim Bovee, Portland, Oregon, Aug. 28, 2016

References


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

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 Tim Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com
Post settings Labels Published on 7/24/16, 4:50 PM Pacific Daylight Time Permalink Location Options Send feedback

Saturday, August 27, 2016

Small Lots Strategy: Stock Picking

See "Small Lots Trading: A new strategy",  for a full explanation of the trading strategy.

My small-lots strategy, an experiment in leveraging the capability of doing short-term trades in small numbers of shares provided by no-fee brokerages such as Robinhood Markets, relies on selection of stocks that will go up for awhile, on exiting winning trades before they become losers, and exiting losing trades before they lose a lot

There is nothing more to it.

For such short-term trading the only tool available to me, as a private trader, is technical analysis, a plethora of techniques named through analogy (candlestick patterns), ego (Bollinger bands) and scientific-image (stochastic), or drawn from a bowl of alphabet soup (MACD, RSI).

The dirty little not-so-secret secret of technical analysis is that it often doesn't perform as promised. When I first started Private Trader six years ago, in May 2010, I spent years experimenting with technical analysis, and found all techniques to be wanting. In all cases, the proportion of false signals was so high that it made the technical analysis meaningless.

And indeed, a Google search of the phrase "technical analysis doesn't work" (in quotes in the search to require the exact phrase) called up about 1,340 results (or 2.4 million results without the quotes).

And yet here I am again, with my small lots experiment, using technical analysis, in the form of a tool called the Stochastic-RSI -- a portmanteau indicator that applies technical analysis to an analytical tool called the relative strength index.


Madness: Doing something time and time again in the expectation that it will produce a different result.


Trading for me ultimately is all about seeking an edge, something that will twist the odds in my favor. My present foray into technical analysis uses these characteristics to gain that edge:

1) The stock must be rated bullish (rank 1 or 2) by Zacks Investment Research.

2) The Stochastic-RSI must be in oversold territory, which I define as below 24.

3) The stock price on a daily chart spanning one year must be in an visually recognizable uptrend. (The human brain, one of the best pattern recognition systems on Earth, knows an uptrend when it sees it. I just look at the chart, longer term first and then last week, and trust my instincts.)

4) The Stochastic-RSI must be rising.

I've added the chart trend requirement to the mix (#3 in the list) for next week's trading. I use #1 and #2 to pick my selection of prospects before trading day. I'll make a final decision based on #3 and #4 on trading day.

Will it work?

Traders by definition are optimists, sometimes when optimism is a form of madness (see the definition of madness above).

When I was a school child I wrote a short story about a madman that ended, "I'm not crazy. I'm not crazy. I'm not crazy." If I can make technical analysis work in this experiment, then I shall have proven, to myself at least, that technical traders are at least as sane as everyone else in the markets.

Good trading, everyone!

By Tim Bovee, Portland, Oregon, Aug. 27, 2016



Technical Analysis Explained
by Martin Pring

Monday's Prospects

Screening of the Friday, Aug. 26 markets identified !# prospective trades out of the two datasets and four strategies that I'm using.

For options trading I review the approximately 500 symbols in my large-cap stocks and exchange-traded funds, and for share trading, I review approximately 950 symbols of stocks and funds of all capitalizations. For both I reviewed the companies publishing earnings, a number that varies wildly.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
signalsN/A0
earnings01
volatility0N/A
stochastic-rsiN/A10

I shall make final trading decisions on Monday, Aug. 29.


The Long Depression: Marxism and the Global Crisis of Capitalism
by Michael Roberts


Below are the candidates for analysis for each cell of the quadrant.

Friday, August 26, 2016

Friday's Outcomes, Update

I've updated Friday's Outcomes with my exit from SYF.


By Tim Bovee, Portland, Oregon, Aug. 26, 2016



Viking Economics: How the Scandinavians Got It Right--and How We Can, Too
by George Lakey

Friday's Outcomes

Updates with SYF exit.

I exited my options volatility play on SYF for a profit.

All of my other trading today was in shares under my small-lots strategy.

I entered two positions.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
CLS108/26/201610.82rsi
TSN18/26/201675.78rsi

I exited five positions that had proven to be whipsaws.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtactic
GALT508/24/20168/26/20162.031.73-0.30-17.34%-3165%2rsi
OHI38/25/20168/26/201636.6535.90-0.75-2.09%-763%1rsi
SREV198/24/20168/26/20165.205.05-0.15-2.97%-542%2rsi
STL68/25/20168/26/201617.2117.17-0.04-0.23%-85%1rsi
TTMI108/25/20168/26/201610.6010.46-0.14-1.34%-489%1rsi


By Tim Bovee, Portland, Oregon, Aug. 26, 2016



Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream
by Andy Stern