GDX: Trends within trends

Update 8/29/2013: GDX fell below its 10-day price channel, a signal to close the position. After the break, it rose intraday and I was able to exit for a small loss. 

The shares never really followed through on their bull signal of Aug. 16, instead trading sideways. The decline began two days ago on Aug. 27, as the possibility of American intervention in Syria appeared to grow less imminent.

The position was structured as short vertical options spreads expiring Sept. 20 and sold for credit. Often in such cases I'll wait before closing a position. But the potential for loss was more than the potential for gain, so based on that risk/reward calculation, I gritted my teeth and swallowed the bitter pill.

During the 14 days I held the position, the shares declined by 1.5%, which works out to down 39.5% annualized.

This was one of those rare instances where the options outperformed the shares. The yield on risk of the vertical spreads was negative 0.8%, or negative 19.8% annualized. 

The Market Vectors Gold Miners exchange-traded fund (GDX), a favored vehicle for gold bugs, broke above its 20-day price channel on Wednesday and confirmed the bull signal today by trading above the breakout level and even, briefly, touching a new high, $28.90.

All vehicles for gold have been in a strong downtrend since September 2011, with the most recent leg down having begun in September 2012 from $55.25. The declined hit bottom at $22.56 on June 26 and reversed.

This is the second bull signal from GDX since the downtrend reversed. The first, on July 22, reversed two days later and signaled an exit for a 7.7% loss on Aug. 5.

The problem with gold is that it has been on the slide for so long, no one can believe that it may indeed be on the rise again, me among them. I nearly relegated GDX to a "Thursday: No Trade" posting, so unlikely the idea of an upside breakout in gold appear to be.

GDX was the lone symbol to survive my initial screening last night. (See "Thursday's Prospects".) I also penciled in a second symbol, GOOG, for further consideration because of its size and impact. However, the GOOG bear signal is so contrary to the stock's uptrend that I've turned away from it for now.

But back to gold.

GDX 90  days 1-hour bar

The question, as always for a trader, is how much fuel is left to power the present trend.

Elliott wave analysis counts GDX as being in a corrective zig-zag to the upside, running contrary to the broader downtrend. A zig-zag is three waves and the chart shows GDX has completed the first two.

The final wave, C, is composed of five sub-waves. I count two waves completed and a third underway.

By the rules, wave 3 cannot be the shorter than both wave 1  and wave 5. Wave 1 is $4.09 in length, and wave 3 started from $27.05, so either wave 3 will reach $31.15 at a minimum, or wave 5 will be shorter than wave 3.

In any event, wave 3 will be followed by a wave 4 correction and then a final push to new trend high in wave 5.

Those facts suggest to me that there is 2.4% potential to the upside, at a minimum, from today's close.

No guarantees, of course. Elliott wave counting is notoriously ambiguous. My count differs from the count on gold by the leading company of Elliotticians, who see less upside potential.

That's a long way of saying that it's possible to make bullish money even during a downtrend, as long as the trader understands the relative time levels of the two trends. Nothing stands alone in the markets. Every trend is part of a greater trend and envelopes a lesser trend.

The Gold Miners ETF is a composite of the largest gold mining companies, with a quarter of the fund's holdings in two: Goldcorp Inc. (GG) and Barrick Gold Corp. (ABX).

GDX on average trades 40 million shares a day and supports a truly awesome selection of option strike prices, many having open interest in the five figures. The options grid is a speculator's dream.

Implied volatility stands at 25%, at the top of the six-month range after a rise that began Aug. 12.

Options are pricing in confidence that 68.2% of trades will fall between $26.88 and $30.98 over the next month, for a potential gain or loss of 7.1%, and between $27.95 and $29.91 over the next week.

Trading today is close to normal, with calls running 7% above the five-day average volume and puts at 78% of average.

The fair-price zone on today's 30-minute chart runs from $28.42 to $28.90, encompassing 68.2% of transactions surrounding the most-traded price, $28.62. The price opened in the lower portion of the zone and stayed there for the first two hours of trading before pushing above the zone ceiling.

The Gold Miners ETF goes ex-dividend in December for an annual payout yielding 1.59% at today's prices.

Decision for my account: I like this trade, mainly based on the Elliott wave count. 

I've opened a bull position in GDX, structuring it as a vertical options spread expiring in September and sold for credit. The position is fairly low leverage, at 2:1. The maximum profit at expiration is 24%. The position provides a 9% hedge, meaning it is profitable if the price falls to 9% below entry at expiration.


References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. 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. 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. 

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.

Closed: AN, EFX and SBUX

I've closed three positions for losses after receiving signals to do so in early trading, and have updated their initial entry pages with details.

The three symbols are AN, EFX and SBUX.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

Thursday's Prospects

On Wednesday, Aug. 14:

Of 2,325 stocks and exchange-traded funds in this week's analytical universe, 55 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 12 to the upside and 43 to the downside.

Six symbols traded over the counter broke out, four to the upside and two to the downside.

Within my analytical universe, 2.6% of symbols gave bull or bear signals, down from 3.1% the prior trading day.

The ratio of bull to bear signals is 1:2.8, little changed from 1.2.6 the prior trading day, showing the market had a bearish bias.

One symbol traded on the major exchanges survived my initial screening, GDX to the upside. However, there is one breakout, GOOG to the downside, that, while failing part of the screening, is of sufficient interest for me to leave it in the mix for further consideration.

No symbol traded over the counter survived my initial screening.

I shall do further analysis on Thursday, Aug. 15.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

KW: Squaring the circle

Update 9/3/2013: KW fell below its 10-day price channel on Sept. 3, producing a signal to close my bull position, which was structured as long shares. I closed the position for a loss of 1.7% over the 20 days I held it, or a negative 31.1% annualized.

In my entry analysis, below, I identified two questions posed by the chart. 

To the first, "[h]as the price found a new plateau", the answer was "yes". KW went nowhere from the day I bought it. 

To the second, "how much potential lies ahead until [a plateau] is found", the answer was, "not much".

My analysis correctly identified the risks, and the risks came true.

It is worth noting that had KW's liquidity allowed me to structure the trade as a short vertical options spread sold for credit, the position would have turned a profit. 

The downside of long shares, or long options for that matter, is that they make no money when the share price goes nowhere. With short vertical bull spreads, a sideways trend is nearly as good as an uptrend.

Kennedy-Wilson Holdings Inc. (KW) marched above its 20-day price channel on Tuesday and continued the rise to higher levels today.

KW has been in an uptrend since it began trading in March 2010 and has tended to show sharp bursts of upward acceleration to plateaus that sustained sideways movements for months at a time.

The present rise, which began in November 2012 from $11.83, is the longest sustained upswing on the chart. With two major corrections, it has carried the price to an all-time high (so far) today of $18.62.

The KW chart poses two questions: Has the price found a new plateau, and if not, how much potential lies ahead until it is found?

From May the argument could well have been made that a new plateau was in place. The breakout of the last two days seems to negate the argument. Of course, if the price drops back tomorrow, then the plateau will remain in place and we'll all backdate our predictions.

KW 3 years 2-day bars

The Elliott wave count shows a clear impulse wave from November 2012, with wave 3 having begun in late July from $17.17.

The trend channel suggests potential up to the mid-$20 range.

The wave structure suggests a target of at least $22.59, based on this reasoning:

• Wave 3 cannot be shorter than both wave 1 and wave 5. 
• Wave 3 is usually the longest of the three. 
• Wave 1 was $5.41 long. 
• Therefore, wave 3 must be longer than $5.41, unless the future wave 5 comes in still longer.

In any case, the chart shows room to rise.

This is KW's third bull signal since the present rise began in November 2012. Both of the two completed signals were successful, with an average profit of 11.8% over 44 days.

KW was among six symbols that survived initial screening last night. (See "Wednesday's Prospects".)

Three failed confirmation: DLPH, FR and INFY.

WFT's chart showed the breakout to be a counter-trend rally. The stock was attractive because of its fine options grid, but I'm a trend follower so I don't do counter.

CEA was low liquidity and so was my last choice.

Kennedy-Wilson, headquartered in Beverly Hills, California, provides a wide range of property services to institutional investors, financial institutions, pension funds and developers, and also invests in real estate on its own account.

The services include property and asset management, brokerage and marketing in the United States, Britain, Ireland and Japan.

Fewer than a handful of analysts follow KW, but they all love it.

But.

KW reports return on equity of negative 0.25%, with debt equivalent to 69% of equity. These would be deal breakers in themselves if I were looking for a company that would grow over the long term. (Which of course is not how I trade, but still, many do, and I think numbers like that tend to keep them away.)

Earnings have been in the cellar more often than not over the 12 quarters. the last profit was the 4th quarter of 2011, and before that, back in 2010.

True, earnings have risen the last two quarters, establishing the bare bones of a trend, and the last two quarters have seen upside earnings surprises. But still, it's a fairly awful record that would draw scorn from the usually affable lips of a fundamentals trader like Warren Buffett.

But.

Institutions, which have smart analysts and buckets of algorithms, own 61% of shares. And the price of the stock has been bid up to stratospheric levels; it takes $14.10 in shares to control a dollar of sales.

Frankly, trying to reconcile the chart and the fundamentals of this potential trade is like squaring the circle: Impossible. So I won't try and shall leave them hanging in their incongruity.

KW on average trades $215,000 shares per day, support a small selection of option strike prices with open interest in the double digits. I need triple digits on options I trade, so any play on KW will be as long shares. This won't allow me the benefits of leverage and hedging.

Implied volatility stands at 23%, near the bottom of the six-month range. It is a decline from yesterday's upward spike to 30%.

Options are pricing in confidence that 68.2% of trades will fall between $17.28 and $19.62 over the next month, for a potential gain or loss of 6.3%, and between $17.89 and $19.01 over the next week.

Traders are fairly inactive, with volume on calls running at 28% of the five-day average, and on puts, at 11%.

The fair-price zone on today's 30-minute chart runs from $18.41 to $18.51, encompassing 68.2% of transactions surrounding the most-traded price, $18.44. KW opened bellow the zone, moved to the top within the first 90 minutes and then swiftly dropped to the most-traded level, where it remains with 90 minutes to go before the closing bell.

KW next publishes earnings on Nov. 7. the stock goes ex-dividend in September for a quarterly payout yielding 1.52% annualized at today's prices.

Decision for my account: This stock forces a technical trader to be honest about his methods. 

Love the chart, love the odds, hate the financials.

So do I allow the fundamentals -- the anti-technical analysis -- to override what I consider to be my guiding principle in trading, that the charts show all a trader really needs to know in making a decision?

Or, looking at it another way, am I willing to put my money where my mouth is?

Short answer: Yes. It's a great chart. I'll play. 

I've opened a bull position in KW, structuring it as long shares. Given the stocks tendency to plateau, I'll exit quickly, even without a signal, if the price drops back within the channel.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. 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. 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. 

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.

Wednesday's Prospects

On Tuesday, Aug. 13:

Of 2,325 stocks and exchange-traded funds in this week's analytical universe, 62 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 15 to the upside and 47 to the downside.

Nine symbols traded over the counter broke out, five to the upside and four to the downside.

Within my analytical universe, 3.1% of symbols gave bull or bear signals, up from 2.1% the prior trading day.

The ratio of bull to bear signals is 1:2.6, compared to 1:1.1 the prior trading day, the first day with a bearish bias since Aug. 7. The three intervening days were neutral.

Six symbols traded on the major exchanges survived my initial screening, five to the upside and one to the downside. The upside symbols were CEA, DLPH, INFY, KW and WFT, and the downside signal, from FR.

No symbol traded over the counter survived my initial screening.

I shall do further analysis of the surviving symbols on Wednesday, Aug. 14.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

MMS: Obamacare exchanges plus

Maximus Inc. (MMS) broke above its 20-day price channel on Friday and is continuing the rise into a second day. The bull signal was triggered by an earnings announcement that hit the expected target spot on.

The breakout comes as MMS strives to recover from an correction from April peak of $40.69. The price is trading about 50 cents below that level, and a break above would signal the uptrend from October 2012 was continuing.

The correction bottomed at $34.65 in early July. If I assume strong resistance at the peak, then I can postulate only 1.1% more easy sailing to the upside before the headwinds kick in.

My Elliott wave count suggests that the peak will indeed be a significant barrier, with a fairly stomach-churning C-wave falling below the A-wave terminus, $34.65, lying ahead.

MMS 180 days 2-hour bars

Elliott wave counts are notoriously ambiguous, and the lower the stock's liquidity, the greater the ambiguity. So I bring a degree of skepticism to that analysis -- it's more of a caution than a deal killer.

This is the first bull signal since the correction began in April, so there are no odds to be calculated. 

It is the second bull signal since the most recent uptrend began, in October 2012. the first one produced a 22.8% profit over 109 days. So historically, at least, when MMS is on the rise, it's quite consistent in hewing to the trend.

However, that may say little about what is happening on the chart now.

A persistent break above $40.69 will confirm that the correction is over, and a decline below $34.65 will confirm that the correction is still underway.

MMS is one of six symbols under consideration. See "Tuesday's Prospects" and "Monday's Prospects (one day late)" for details of the initial screening.

Three symbols failed confirmation by moving back within their 20-day price channels: AEE, BRFS and TRS.

I rejected CRHKY as too illiquid because of extremely low volume.

The remaining symbol, BAP, was a contender for further analysis. However, its rating by the market analysis company Zacks was bearish, contrary to the bullish breakout. As an anti-contrarian, I prefer trades where the chart trend and the Zacks assessment are aligned.

Maximus Inc., headquartered in the Washington, D.C. suburb Reston, Virginia, provides business process services to government health and  human services agencies.  They provide the software infrastructure that governments need to make their programs run efficiently.

Among other things, that means they'll help states set up a Health Insurance Exchange as mandated by the Affordable Health Care Act in the United States. Maximus also provides services to agencies in Australia, Canada, Saudi Arabia and the U.K.

The handful of analysts covering MMS collectively come down with an 83% enthusiasm rating.

The company reports return on equity of 22% with no long-term debt. Earnings this year are running ahead of what they were last year but there's no strong trend. The company has produced 11 upside earnings surprises the last 12 quarters, and one to the downside back in 2012.

Institutions own nearly all of the company's shares, and the price has been bid up to where it takes $2.16 in shares to control a dollar in sales.

MMS on average trades 425,000 shares a day, sufficient to support a small selection of option strike prices with no open interest to speak of. 

The options are way too illiquid to meet my standards, so any position I would open in MMS would be as long shares, meaning I wold lose opportunities for leverage and hedging. That makes any trade less attractive.

Implied volatility stands at 31%, near the bottom of the six-month range. Volatility has been fluctuating wildly since early July and from Monday began a steep decline from the 80% level, signalling a massive change in traders' assessment of MMS' prospects.

Options are pricing in confidence that 68.2% of trades will fall between $36.71 and $43.83 over the next month, for a potential gain or loss of 8.8%, and between $38.56 and $41.98 over the next week.

Puts today are trading like gangbusters, at nearly three times the average five-day volume. Calls are running at only 17% of average volume.

Today's fair-price zone on the 30-minute chart runs from $39.51 to $40.16, encompassing 68.2% of transactions surrounding the most-traded price, $39.73. MMS opened this morning at the floor of the zone and has risen steadily. With three-and-a-half hours left to trade it stands above the zone ceiling.

Maximus next publishes earnings on Nov. 11. The stock goes ex-dividend in November for a quarterly payout yielding 0.45% annualized at today's prices.

Decison for my account: From the implied volatility activity and the options volume, it seems to me that there's a tremendous bull-bear battle going on for MMS. Traders can't reach a viable consensus.

So, as always, when in doubt, go to the chart. Traders have good reason to hold divided opinions. The chart will remain ambiguous until $49.69 level is pierced or the stock reverses down to $34.65, the terminus of wave A.

With only 1% to go before the prior peak, it costs me little in lost profit to wait and see, and could well cost me a lot in losses if I jump in before the chart resolves itself.

I'm not taking the MMS trade today. I'll keep an eye on it and will reconsider a trade if the price rises persistently above $40.69.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. 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. 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. 

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.

Tuesday's Prospects

On Monday, Aug. 12:

Of 2,325 stocks and exchange-traded funds in this week's analytical universe, 46 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 21 to the upside and 25 to the downside.

Three symbols traded over the counter broke out, two to the upside and one to the downside.

Within my analytical universe, 2.1% of symbols gave bull or bear signals, down from 2.3% the prior trading day.

The ratio of bull to bear signals is 1:1.1, compared to 1:1.5 the prior trading day, suggesting the markets are neutral.

Four symbols traded on the major exchanges survived my initial screening, three to the upside and one to the downside. The upside signals were from BAP, BRFS and TRS, and the downside signal, from AEE.

No symbol traded over the counter survived my initial screening.

I shall do further analysis of the surviving symbols on Tuesday, Aug. 13.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

Monday's Prospects (one day late)

Note: "Monday's Prospects" was delayed because of a data-processing mishap, which has been corrected. Here it is, a day late.

On Friday, Aug. 9:

Of 2,325 stocks and exchange-traded funds in this week's analytical universe, 44 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 12 to the upside and 32 to the downside.

Ten symbols traded over the counter broke out, all to the upside.

Within my analytical universe, 2.3% of symbols gave bull or bear signals, down from 2.9% the prior trading day.

The ratio of bull to bear signals is 1:1.5, the same as the prior trading day, suggesting the markets are neutral.

Two symbols traded on the major exchanges survived my initial screening, ARM and MMS, both to the upside.

One symbol traded over the counter survived my initial screening, CRHKY, to the upside.

I shall do further analysis of the surviving symbols on Monday, Aug. 12.

Second phase analysis:

ARM's move was as a result of an earnings announcement. In trading on Monday it failed to persist above the post-earnings high and so failed to confirm the breakout. (I will, however, keep an eye on it for a day or two.)

MMS confirmed its breakout.

CRHKY also broke out upon an earnings announcement, and confirmed the breakout on Monday.

I'll put MMS and CRHKY in the mix, along with Monday's symbols that survive initial screening, for consideration on Tuesday.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

The Week Ahead: Inflation? Deflation?

Reporting this week is lead by two inflation reports and statistics for retail sales, industrial production and housing starts.

The producer price index will be released Wednesday at 8:30 a.m. New York time, followed by the consumer price index on Thursday at the same time. The producer figure focuses on costs at the back end of the trail that brings products to market, and the consumer stats on the final stage.

Inflation plays a key role in the current debate over fiscal policy. One side fears the Federal Reserve economic stimulus programs will lead to runaway inflation, perhaps like that of the 1970s. The other fears disinflation -- falling prices that eliminate incentives to buy -- poses the greater risk.

These reports will ultimately provide the answer.

The other majors, although of lesser importance, also deserve a look.

Retail sales is out Tuesday at 8:30 a.m., industrial production Thursday at 9:15 a.m. and housing starts Friday 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 S&P 500 index, reported continually during market hours.

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

Building permits for new private homes from the housing starts report at 8:30 a.m. Friday.

The index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, Friday at 9:55 a.m.

Other reports of interest:

Monday: The Treasury budget, including the latest deficit figures, at 2 p.m.

Tuesday: Import and export prices at 8:30 a.m. and business inventories at 10 a.m.

Wednesday: Petroleum inventories at 10:30 a.m.

Thursday: The Empire State manufacturing survey of business conditions in New York at 8:30 a.m., the Treasury international capital report at 9 a.m., and the Home Builders' housing market index and the Philadelphia Fed survey, both at 10 a.m.

Friday: Productivity and costs at 8:30 a.m.

Fedsters

One member of the Federal Open Market Committee has announced a speaking engagement: St. Louis Fed Pres. James Bullard, on Wednesday.

Analytical universe

This week I'll be analyzing new bull and bear signals among 2,325 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.

Trading calendar

By my rules, I'm trading September options for the short legs of covered calls and vertical and diagonal spreads, calendar and butterfly spreads, and iron condors, and November options for single calls and puts. Of course, shares are good at any time.

Good trading!

Monday's Prospects Delayed

"Monday's Prospects" won't be posted in time for Monday's trading session to a data processing failure.

CVI: Energy bear play

Update 10/29/2013: CVI on Oct. 16 moved above its 10-day price channel while sitting on the shelf waiting for a roll into a third bearish position, structured as short options spreads. That signal means that the possibility of a roll is off the table and it's time to do a reckoning.

My CVI holding was initially a short vertical options spread expiring in September and that was rolled into another one expiring in October.

During the periods I held open positions, the shares lost 0.6% over 30 days (split into two periods). That's -7.1% annualized.

The options spreads, which profit when the stock goes down, produced a 32.1% yield on risk, or 392.9% annualized. A tidy profit for 30 days work.

---

CVR Energy Inc. (CVI) broke below its 20-day price channel on Thursday, continuing a downtrend that began May 28 from $72.32. It has since the peak fallen 41.2% to Friday's low (so far) of $42.52.

The breakout coincided with the stock going ex-dividend for a 7.03% payout annualized. My rules require a further breakout below the ex-dividend day low, and CVI met that requirement.

The fall followed a spectacular seven-fold rise from $10.12 in November 2011.

This is the second downside breakout since the peak. The previous bear signal yielded a 13.9% profit over 22 days.

It is the sixth bear signal since the uptrend began in November 2011. Three of the completed signals were profitable, for an average gain of 9.1% over 25 days, compared to two unsuccessful trades that lost 8.3% over 15 days.

CVI 90 days 2-hour bars

The question is whether the present decline still has gravity or whether the correction is nearing an end. Friday's decline below the previous lower low seems to resolve the question in favor of further decline.

Moreover, Elliott wave analysis shows a wave down followed by a sideways correction and then the beginnings of a third wave down, the sort of pattern seen in a downtrend.

The first wave is $29.03 long, and under Elliott wave theory the third wave cannot be the shortest, suggesting the possibility at least the the third wave will terminate at $19.72 or lower.

It is also possible that the sideways trend continues in force, which would lead to more churning in the $44 to $49 range or thereabouts.

Elliott wave counts contain a high degree of ambiguity because of the fractal nature of the analysis -- waves within waves. I never treat them as conclusive; only as an analytical framework that suggests future possibilities.

CVI was among three symbols that survived my initial screening. (See "Friday's Prospects".) XXIA had options that lacked sufficient open interest for my taste, and HYPMY has volume under 1,000, making it far too illiquid than I prefer.

CVR Energy, headquartered in the Houston suburb Sugar Land, Texas, is an indy petroleum refiner and marketer of fuels as well as nitrogen fertilizers. 

It is followed by only a handful of analysts, who all place the company in the negative column.

The financials tell a much more optimistic story: Return on equity of 35% with debt amounting to only 33% of equity.

Earnings the last 12 quarters have been all over the place, with 2012 seeing quarterly peaks and 2013 seeing a retreat from those peaks.

Institutions own 98% of shares and the stock is in the bargain bin; it takes only 43 cents in shares to control a dollar in sales.

CVI on average trades 615,000 shares a day, sufficient to support a moderate selection of option strike prices with open interesting running to two and three figures.

The front-month at-the money bid/ask spread is 14.6%, on the high side but not out of line for such a stock trading under a million shares daily.

Implied volatility stands at 43%, near the bottom of the six-month range.

Options are pricing in confidence that 68.2% of shares will fall between $37.39 and $47.89 over the next month, for a potential gain or loss of 12.3%, and between $40.12 and $45.16 over the next week.

Trading in options today is running more than double the five-day average volume for puts, and 67% of average for calls.

The fair-price zone on today's 30-minute chart runs from $42.61 to $43.68, encompassing 68.2% of trades surrounding the most-traded price, $42.87. The price opened above the zone and has fallen steadily to the zone floor.

CVI next publishes earnings on Nov. 4. The stock goes ex-dividend in November for a quarterly payout yielding 7.03% annualized at today's prices.

Decision for my account: I've opened a bear position in CVI, structuring it as vertical option spreads expiring in September and sold for credit, short the $43 call and long the $45.50 call.

Because of CVI's volatility, the position provides high leverage of 7.2:1 with the maximum potential profit at expiration of 43%. The position provides a 3.1% cushion of profitability at expiration above the entry price.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. 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. 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. 

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.

Friday's Prospects

On Thursday, Aug. 8:

Of 2,326 stocks and exchange-traded funds in this week's analytical universe, 61 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 22 to the upside and 39 to the downside.

Six symbols traded over the counter broke out, five to the upside and one to the downside.

Within my analytical universe, 2.9% of symbols gave bull or bear signals, down from 5.1% the prior trading day.

The ratio of bull to bear signals is 1:1.5, returning the markets to neutrality after two days of bearish bias.

Two symbols traded on the major exchanges survived my initial screening, XXIA to the upside and CVI to the downside.

One symbol traded over the counter survived my initial screening, HYPMY to the upside.

I shall do further analysis of the surviving symbols on Friday, Aug. 9.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

Thursday's Prospects

On Wednesday, Aug. 7:

Of 2,326 stocks and exchange-traded funds in this week's analytical universe, 112 that are traded on the major American stock exchanges broke beyond their 20-day price channels, six to the upside and 106 to the downside.

Six symbols traded over the counter broke out, two to the upside and four to the downside.

Within my analytical universe, 5.1% of symbols gave bull or bear signals, up from 4% the prior trading day.

The ratio of bull to bear signals is 1:13.8, the strongest bearish bias since June 24, when the ratio was 1:26.2.

No symbols traded on the major exchanges or over the counter survived my initial screening.

I shall do further analysis of the surviving symbols on Thursday, Aug. 8.

No survivors, no further analysis, no new positions on Thursday.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

Wednesday: No Trade

Eight symbols survived my first round of screening last night. (See "Wednesday's Prospects").

Of those, five failed confirmation by moving back within their price channels: AVG, EXC, LPLA, MU and NGD.

Three have trends that fail to match the direction of the signal: LPL, VLO and VRTX.

I won't be doing further analysis on these symbols and plan to open no new positions today.

References


My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

Wednesday's Prospects

On Tuesday, Aug. 6:

Of 2,326 stocks and exchange-traded funds in this week's analytical universe, 88 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 15 to the upside and 73 to the downside.

Seven symbols traded over the counter broke out, four to the upside and three to the downside.

The five highest-volume symbols to break out are MU, AEO, VLO, AUY and XCO.

Within my analytical universe, 4% of symbols gave bull or bear signals, up from 1.9% the prior trading day.

The ratio of bull to bear signals is 1:4, making Tuesday the first day with a bearish bias since July 30, when the ratio was 1:2.6.

Eight symbols traded on the major exchanges survived my initial screening, five having broken out to the upside and three to the downside. The upside breakouts are AVG, LPL, LPLA, MU and VLO. The downside symbols are EXC, NGD and VRTX

No over-the-counter symbols survived my initial screening.

I shall do further analysis of the surviving symbols on Wednesday, Aug. 7.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

FIS: Money processing bull signal

Update 8/1/2013: FIS broke below it's 10-day price channel today, signalling the position must be closed. 

The position was structured as long shares. It lost 1.5% over 15 days, or a 35.3% loss annualized.

Fidelity National Information Services (FIS) broke above its 20-day price channel on Monday and confirmed the bull signal by moving still higher on Tuesday, breaking past the 55-day price channel. The 20-day and 55-day channels are the breakout levels used by the classic Turtle Trading method.

The rise breaks free of a sideways oscillation since May 28, with a ceiling of $45.95 and a floor of $42.09.

The rise, if persistent, will continue an uptrend dating back to October 2011. The May 28 peak was an all-time high for FIS, and today's breakout returns the chart to blue-sky status.

FIS 90 days 2-hour bars

This is the eighth bull signal of the uptrend. The seven prior produced four successful trades with an average yield of 17.5% over 74 days. The three unsuccessful trades on average lost 3.9% over 14 days. The results give FIS an excellent 13.6% win/lose yield spread.

The question, of course, is whether there is still room for further rise on the FIS chart. Elliott wave analysis suggests that there is. I count the correction from the $49.95 peak as being a downside zig-zag correction followed by three waves up, with the third wave still unfolding.

The third wave that I've labelled on the chart must be longer than the first wave to comply with the rules of Elliott wave counting. The third comes in at $5.47 long, and the first at $3.34, so the count works.

The fact that today's move exceeded the prior peak suggests that the structure is indeed a five-wave uptrend rather than an extended correction.

FIS was among three symbols that survived initial screening. (See "Tuesday's Prospects".) The other two, CAG and UHS, fell back within their 20-day price channels and so failed confirmation.

Fidelity National Information Services, headquartered in Jacksonville, Florida, provides systems for payment processing and for banking. Basically, they provide infrastructure for money, the technology that manages the electronic flow of bits that constitute money in our age. (Sorry, gold bugs!)

Fidelity provides service to more than 14,000 organizations globally.

Analysts collectively give FIS a negative 21% enthusiasm rating, something less than a ringing endorsement.

The company reports return on equity of 11% with debt amounting to 69% of equity. These numbers are OK but not something to get excited about.

Earnings were somewhat volatile in 2010 and 2011 but from 2012 have stabilized, showing no trend in either direction. Of the last six quarters, five have produced upside earnings surprises and one has surprised to the downside.

Institutions own 85% of shares and the price has been bid up. It takes $2.24 in shares to control a dollar in sales.

FIS on average trades 1.6 million shares a day. The options have insufficient liquidity to meet my trading needs, so its shares or nothing with FIS according to my preferences.

Implied volatility stands at 18%, in the lower half of the six-month range. It has been falling since the end of July.

Options are pricing in confidence that 68.2% of trades will fall between $43.78 and $48.66 over the next month, for a potential gain or loss of 5.3%, and between $45.05 and $47.39 over the next week.

Options trading today is slow, with calls at 46% of five-day average volume and puts at a mere 7% of average.

Today's fair-price zone runs from $45.82 to $46.21, encompassing 68.2% of trades surrounding the most-traded price, $46.12. FIS opened the day below the zone and has since moved up to the upper boundary.

Fidelity National Information Services next publishes earnings on Oct. 30. The stock goes ex-dividend on Sept. 12 for a quarterly payout yielding 1.9% annualized at today's prices.

Decision for my account: The one thing not to like about FIS is the low volatility, but it's not so low as to be a deal killer.

I've opened a bull position in FIS, structuring it as long shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. 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. 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. 

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.

Tuesday's Prospects

On Monday, Aug. 5:

Of 2,326 stocks and exchange-traded funds in this week's analytical universe, 41 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 14 to the upside and 27 to the downside.

Three symbols traded over the counter broke out, all to the upside.

The five highest-volume symbols to break out are ARNA, TEVA, NVDA, CAG and TYC.

Within my analytical universe, 1.9% of symbols gave bull or bear signals, down from 3% the prior trading day.

The ratio of bull to bear signals is 1:1.6, unchanged the prior trading day. The markets continue to have a neutral bias.

Three symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are CAG, FIS and UHS.

No over-the-counter symbols survived my initial screening.

I shall do further analysis of the surviving symbols on Tuesday, Aug. 6.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

Monday: No Trade

Two symbols survived my initial screening of bull and bear signals from Friday's trading. (See "Monday's Prospects" for details.) They are DNKN and FMX, both having broken out to the upside.

Both, however, failed confirmation in trading on Monday. They fell back within their 20-day price channels and show no signs of breaking back above.

So, under my rules, I won't be doing further analysis on either symbol.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

Monday's Prospects

On Friday, Aug. 2:

Of 2,326 stocks and exchange-traded funds in this week's analytical universe, 67 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 24 to the upside and 43 to the downside.

Three symbols traded over the counter broke out, all to the upside.

The five highest-volume symbols to break out are DELL, AIG, ANR, ONNN and LRY.

Within my analytical universe, 3% of symbols gave bull or bear signals, down from 4.5% the prior trading day.

The ratio of bull to bear signals is 1:1.6, compared with 2.5:1 the prior trading day, a drop back into neutral bias.

Two symbols traded on the major exchanges survived my initial screening, both having broken out to the upside. They are DNKN and FMX.

No over-the-counter symbols survived my initial screening.

I shall do further analysis of the surviving symbols on Monday, Aug. 5.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

The Week Ahead: International Trade

A slow week for econ reporting, led by international trade, on Tuesday at 8:30 a.m. New York Time.

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

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

Other reports of interest:

Monday: Institute of Supply Management non-manufacturing index at 10 a.m.

Wednesday: Petroleum inventories at 10:30 a.m.

Fedsters

One member of the Federal Open Market Committee has announced a speaking engagement: Chicago Fed Pres. Charles Evans, on Tuesday

FOMC alternates speaking are Dallas Fed Pres. Richard Fisher on Monday and Dallas Fed Pres. Charles Plosser and Cleveland Fed Pres. Sandra Pianalto on Wednesday

Analytical universe

This week I'll be analyzing new bull and bear signals among 2,326 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. My universe is selected from mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.

Trading calendar

By my rules, I'm trading September options for the short legs of vertical spreads and November options for single calls and puts. Of course, shares are good at any time.

Good trading!

SBUX opened

I've opened a bull position in SBUX and updated my analysis with details of the trade.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

Monday: No Trade

Five symbols survived my initial screening, all having broken out to the upside. Each can quickly be disposed of as not worth a further look.

The most liquid, LUV, has a negative win/lose yield spread on even odds of a winning or losing trade since its present trend began in April 2012. I like the yields to be in my favor if the odds aren't.

Two symbols have historical odds in favor of unsuccessful trades. The success rate for GWW is 40%, and for GIII, 29%. It's a preference that I go against if the chart has a redeeming feature that shows things might well be changing. There are no such features on these two charts.

IHS and GHL are both in upside corrections within bear trends, and arguably near the top of the corrections. My opinion would change for IHS if it traded above $118.93, and for GHL, above $61.99.

No trade today.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

Friday's (Monday's) Prospects

I'm trading from East Asia this week, and the time difference with New York adds a day to the interval between breakout and the placing of a trade. This has played hob with the titling of recurring posts, such as Prospects and No Trade. The hybrid titling in this post is my solution: I would trade on the first day in the title if I were stateside, but my first trading opportunity while traveling will be on the second day, in parentheses. I'll be back in the United States from Monday, Aug. 5, and my trading schedule will return to normal.


On Thursday, Aug. 1:

Of 2,334 stocks and exchange-traded funds in this week's analytical universe, 97 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 68 to the upside and 29 to the downside.

Seven symbols traded over the counter broke out, six to the upside and one to the downside.

The five highest-volume symbols to break out are ATML, NWSA, LYG, LUV and TRN.

Within my analytical universe, 4.5% of symbols gave bull or bear signals, up from 2.7% the prior trading day.

The ratio of bull to bear signals is 2.5:1, compared with 1:1.4 the prior trading day, the first bullish bias since July 23.

Five symbols traded on the major exchanges survived my initial screening, all having broken out to the upside. They are GHL, GIII, GWW, IHS and LUV.

No over-the-counter symbols survived my initial screening.

I shall do further analysis of the surviving symbol over the weekend for a potential trade on Monday, Aug. 5.

The symbols I'm analyzing are mid- and large-cap stocks having analyst coverage, as well as selected exchange-traded funds. I screened them for...

• the odds of a successful trades in the direction of the breakout since the present uptrend began on the S&P 500 weekly chart, on Oct. 4, 2011,
• a yield adjusted by those odds of 5% or greater,
• and absence of an earnings announcement within the next 30 days. 

For bear signals, I also screened to ensure the ability to do a trade, either because of the presence of options whatever their open interest or sufficient volume to allow for the short sale of shares.

My cut-off point for bullish bias is a ratio of bull to bear signals of 2:1 or greater, and for bearish bias, 1:2 or smaller, rounded to the nearest whole number.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based 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 decision decisions for his or her own account, and take responsibility for the consequences.

s

AN: Triangle lore

Update 8/15/2013: AN moved below its stop/loss level in early trading, signalling closure of the position. I closed it immediately after the 30-minute waiting period required by my rules, since the position was structured as long shares and so no mitigation was available.

The symbol lost 4.2% during the 13 days the position was open.

In retrospect, a better course of action would have been to abandon my normal exit rules and to get out when it became clear that the triangle breakout was not persisting, perhaps on Aug. 6, at $48.35, thereby reducing the lost to 1.8%.

Autonation Inc. (AN) rose sharply above its 20-day price channel on Thursday, confirming a bull signal given more tentatively the prior day. The stock closed 3.1% over the prior day's close after reaching an all-time high of $49.40.

The AN weekly chart over the last fie years shows a tendency toward sideways corrections ending in a consistent rise to a new plateau.

The last rise ended in October 2012 at $48.56, setting a ceiling on a correction lasting until Thursday's confirmation. The sideways movement's low was $38.31 in December 2012, but the price has remained above 40 ever since.

This is AN's fifth bull signal since the October 2012 peak. Only one of the four completed breakouts was profitable, yielding 3.4% over 14 days. The remaining three had an average loss of 5% over 33 days.

The resulting win/lose yield spread is an abysmal 1.6%.

AN 2-years 2-day bar

AN has traced an ascending triangle in the present correction, a pattern that suggests continuation to the upside once the price breaks decisively above the upper line. The price target, according to the lore, can be expected to be the width of the base above the breakout level. The based is $10.25 wide, the triangle breakout is from $48.56, and so the price target is $59.81.

I don't entirely buy triangle lore -- it just seems to neat by half. Chart patterns, like much in the markets, are Tinker Bell structures. If only enough traders believe, they will come true.

In Elliott wave terms, the correction is a triangle that completed its five-wave run in June -- unless it is extending, which certainly happens in wave counting.

The bottom line is that thee is no way to know for sure that the correction is complete. The best I can do as a trader is to trust that my trading rules will get me out with minimal losses if it turns out that AN is correcting further.

Volume has been high on the breakout and confirmation days, buttressing the case that the breakout is real and not a head fake.

If the correction is over, then the uninspiring historical results from trades won't matter.

Autonation, headquartered in Fort Lauderdale, Florida, sells cars in the United States from 258 new vehicle franchises, mainly in the Sun Belt. It also sells used cars, repair and maintenance services, and financing.

No one buys a car if they believe they might be laid off, so Autonation's success is intimately tied to the economic recovery, which seems to be increasingly shaky. Analysts might well be thinking of that when they rate AN. Their collective opinion comes down to a negative 82% enthusiasm rating.

Even so, the company has been making money. Return on equity is 19%. Debt is equal to equity, a high level in my book.

Earnings have risen in most of the 2 quarters I'm looking at, and all but two -- the most recent being the 3rd quarter of 2012 -- has produced an upside earnings surprise.

Institutions own 63% of shares and the price us cheap. It takes only 35 cents in shares to control a dollar in sales.

AN on average trades 805,000 shares a day, sufficient to support a moderate selection of option strike prices. Open interest, however, runs to the two- and three-figure range, and it might not be possible to structure an option trades with sufficient liquidity to meet my preferences.

Also, the bid/ask spread on front-month at-the-money calls is 9.1%, on the high end.

All in all, if I trade AN, I'll give preference to shares rather than trying to pry a leveraged position out of this options grid.

Implied volatility stands at 19% and has been falling since mid-June. Options are pricing in confidence that 68.2% of trades will fall between $46.57 and $51.95 over the next month, for a potential gain or loss of 5.5%, and between $47.97 and $50.55 over the next week.

Options trading was running hot on Thursday, with calls at nearly four times their five-day average volume and puts at more than double the average.

The fair-price zone on Thursday's 30-minute chart ran from $48.62 to $49.38, encompassing 68.2% of trades surrounding the most-traded price, $49.16. The price opened below the zone and closed near the top.

AN next publishes earnings on Oct. 21.

Decision for my account: The logic of the trade relies solely on the triangle pattern. Has it broken out or not? The chart shows a breakout, and therefore in all honesty there is nothing to stop me from making this trade, except fear of being wrong. Fear, I've found, is a weak basis for trading decisions.

I intend to open a position in AN on Friday if it continues to show momentum, structuring it as long shares.

References

My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

At several points in my analysis I use the number 68.2%. 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. 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. 

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.