On Monday, May 13:
Of 2,305 stocks and exchange-traded funds in this week's analytical universe, 36 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 28 to the upside and eight to the downside.
In addition, seven that are traded over the counter broke out, three to the upside and four to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Seven of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ALNY, ATML, MDAS, OZRK, PCYC, SNV and ZNGA.
Two of the over-the-counter symbols survived initial screening, both having broken out to the upside. They are AIRYY and RANJY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, May 14.
Monday, May 13, 2013
QLIK: Data for decisions
Update 6/12/2013: QLIK gave an exit signal today, trading below its 10-day price channel. I closed the position for a loss.
The stock declined by 0.1% from initial entry during the period I held the position. I added to the position three times, and the stock fell 3.8% from my basis.
I structured the position as hedged and leveraged short vertical option spreads, which had a negative 9.2% yield on risk.
Qlik Technologies Inc. (QLIK) has set its second consecutive higher high in an uptrend that began from $16.71 in mid-November 2012 and has carried up to a high Friday of $29.26. The uptrend confirmation coincided with a break above the 20-day price channel's upper boundary, $29.26, that sent a bull signal on the stock.
QLIK went public in July 2010, opening at $12. From there it rose to a high of $35.62 in July 2011 before embarking on the downtrend that ended last November and that was reversed by the present rise.
The stock has sent two bull signals since the current trend began, both of them successful, with an average return on 7%.
Qlik Technologies, headquartered in Radnor, Pennsylvania, defines itself as delivering "user-based business intelligence" to 28,000 customers in 100 countries. Its premier service is the QlikView Business Discovery Platform.
Qlik Tech doesn't use the term "data mining" in its short-form product description, but that seems to be what the software is all about -- aggregating data from a variety of sources and formats, analyzing it, and displaying the results in ways that businesses can use to support decision making.
Analysts are favorable to the company, giving it a 33% enthusiasm index, a degree of happy feeling unsupported by the financials. Qlik Tech reports a pathetic 1% return on equity. To balance that, the good news is that the company has no long-term debt.
Qlik Tech has had three losses out of the past 11 quarters, the worst being the most recent, the 1st quarter of 2013. It followed hard on the heels of the most profitable quarter, the 4th of 2012. The 4th has consistently been highest earner since Qlik Tech went public, and it has been accelerating .
Earnings have surprised to the upside five times, and to the downside six.
Institutions own nearly all of the shares, and the price has been bid up to quite a high level. It takes $6.20 in shares to control a dollar in sales. That tells me that QLIK is a hope-and-dreams stock at this point rather than a solid performer. It adds a speculative gloss to any position.
QLIK on average trades 1.9 million shares a day and supports a wide range of option strike prices, with open interest in the three- and four-figure range and a fairly narrow 4.6% spread on front-month at-the-money calls.
Implied volatility is high, at 49%, just below the midpoint of the six-month range. It has been trending sideways since late April.
Options are pricing in confidence that 68.2% of trades will fall between $24.77 and $32.97 over the next month, for a potential gain or loss of 14.2%, and between $26.90 and $30.84 over the next week.
Options are trading heavily, with puts having a slight edge at 182% over the five-day average volume, compared to 143% over overage for calls.
The fair-price zone on today's 30-minute chart runs from $28.23 to $28.72, encompassing 68.2% of transactions surrounding the most-traded price, $28.32. QLIK moved above the zone in the third hour of trading and remains there as I write, three hours before the closing bell.
Qlik Tech next publishes earnings on July 22.
Decision for my account: I'm not enthusiastic about the financials, but then, that's not how I trade. The chart is good and the high volatility provides a nice opportunity for profit. I'm opened a bull position in QLIK, structuring it as a vertical credit spread expiring in June, long the 27 put and short the 25 put. The position gives me a 9.2% cushion between my entry price and the break-even at expiration. The potential maximum yield is 21.6%.
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.
Disclaimer
The stock declined by 0.1% from initial entry during the period I held the position. I added to the position three times, and the stock fell 3.8% from my basis.
I structured the position as hedged and leveraged short vertical option spreads, which had a negative 9.2% yield on risk.
Qlik Technologies Inc. (QLIK) has set its second consecutive higher high in an uptrend that began from $16.71 in mid-November 2012 and has carried up to a high Friday of $29.26. The uptrend confirmation coincided with a break above the 20-day price channel's upper boundary, $29.26, that sent a bull signal on the stock.
QLIK went public in July 2010, opening at $12. From there it rose to a high of $35.62 in July 2011 before embarking on the downtrend that ended last November and that was reversed by the present rise.
The stock has sent two bull signals since the current trend began, both of them successful, with an average return on 7%.
Qlik Technologies, headquartered in Radnor, Pennsylvania, defines itself as delivering "user-based business intelligence" to 28,000 customers in 100 countries. Its premier service is the QlikView Business Discovery Platform.
Qlik Tech doesn't use the term "data mining" in its short-form product description, but that seems to be what the software is all about -- aggregating data from a variety of sources and formats, analyzing it, and displaying the results in ways that businesses can use to support decision making.
Analysts are favorable to the company, giving it a 33% enthusiasm index, a degree of happy feeling unsupported by the financials. Qlik Tech reports a pathetic 1% return on equity. To balance that, the good news is that the company has no long-term debt.
Qlik Tech has had three losses out of the past 11 quarters, the worst being the most recent, the 1st quarter of 2013. It followed hard on the heels of the most profitable quarter, the 4th of 2012. The 4th has consistently been highest earner since Qlik Tech went public, and it has been accelerating .
Earnings have surprised to the upside five times, and to the downside six.
Institutions own nearly all of the shares, and the price has been bid up to quite a high level. It takes $6.20 in shares to control a dollar in sales. That tells me that QLIK is a hope-and-dreams stock at this point rather than a solid performer. It adds a speculative gloss to any position.
QLIK on average trades 1.9 million shares a day and supports a wide range of option strike prices, with open interest in the three- and four-figure range and a fairly narrow 4.6% spread on front-month at-the-money calls.
Implied volatility is high, at 49%, just below the midpoint of the six-month range. It has been trending sideways since late April.
Options are pricing in confidence that 68.2% of trades will fall between $24.77 and $32.97 over the next month, for a potential gain or loss of 14.2%, and between $26.90 and $30.84 over the next week.
Options are trading heavily, with puts having a slight edge at 182% over the five-day average volume, compared to 143% over overage for calls.
The fair-price zone on today's 30-minute chart runs from $28.23 to $28.72, encompassing 68.2% of transactions surrounding the most-traded price, $28.32. QLIK moved above the zone in the third hour of trading and remains there as I write, three hours before the closing bell.
Qlik Tech next publishes earnings on July 22.
Decision for my account: I'm not enthusiastic about the financials, but then, that's not how I trade. The chart is good and the high volatility provides a nice opportunity for profit. I'm opened a bull position in QLIK, structuring it as a vertical credit spread expiring in June, long the 27 put and short the 25 put. The position gives me a 9.2% cushion between my entry price and the break-even at expiration. The potential maximum yield is 21.6%.
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.
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.
Sunday, May 12, 2013
The Week Ahead: Prices
Two inflation reports lead the data dance this week, accompanied by a grab bag of other important releases.
The producer price index, tracking what manufacturers get for their products, will be released at 8:30 a.m. Eastern on Wednesday. The PPI has been declining in importance for decades, as manufacturing in the United States declines.
Its value lies in its position as a prelude to the consumer price index, released Thursday at 8:30 a.m. The CPI tracks the price of a basket of goods surveyed by the Bureau of Labor Statistics. The basket is adjusted every two years to account for changes in consumer spending habits.
This is the index that informs political judgement of whether the Fed's loose money policy is about to reignite inflation. It also triggers cost-of-living adjustments for a variety of federal programs, including Social Security.
(The Federal Open Market Committee, I've read, tends to give greater credence to the inflation measure used in the calculating the gross domestic product. Like the CPI, the GDP deflator is based on a basket of goods, but the basket is adjusted twice as often to account for spending changes.)
President Obama and some Republicans have proposed switching the cost-of-living adjustment from the current index -- the CPI-U -- to the chained CPI -- the C-CPI-U. The latter changes its basket of good dynamically on the assumption that people change their spending habits when prices rise.
The chained CPI will also be reported on Thursday. In last month's report, the CPI-U stood 1.5% over the prior year, and C-CPI-U stood 1.4% above the year-ago figures. That 0.1% is the heart of a heated political debate because, small though the difference may be in a given month, over time, we're talking real money.
Other important reports scheduled during the week are retail sales on Monday and housing starts on Thursday, both at 8:30 a.m., industrial production on Wednesday at 9:15 a.m., and the Philadelphia Federal Reserve survey of conditions in the mid-Atlantic region, which stand as a proxy for the nation as a whole, on Thursday at 10 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 housing starts, at 8:30 a.m. Thursday.
The index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, on Friday at 9:55 a.m.
The index of leading indicators will be released Friday at 10 a.m. It aggregates the individual leading indicators into a single number.
Other reports of interest:
Monday: Business inventories at 10 a.m.
Tuesday: Import and export prices at 8:30 a.m.
Wednesday: The New York Fed's Empire States manufacturing survey at 8:30 a.m., Treasury's international capital report at 9 a.m., and petroleum inventories at 10:30 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Two Federal Open Market Committee members are speaking: Boston Fed Pres. Eric Rosengren and Fed Gov. Sarah Bloom Raskin, both on Thursday.
Three FOMC alternates are speaking: Philadelphia Fed Pres. Charles Plosser on Tuesday and Thursday, Dallas Fed Pres. Richard Fisher on Thursday and Minneapolis Fed Pres. Narayana Kocherlakota on Friday.
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,305 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. I've reduced my universe from last week to mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm trading June options for short vertical and butterfly spreads, iron condors and the short legs of covered calls and diagonals as well as August options for single calls and puts. Of course, shares are good at any time.
Good trading!
The producer price index, tracking what manufacturers get for their products, will be released at 8:30 a.m. Eastern on Wednesday. The PPI has been declining in importance for decades, as manufacturing in the United States declines.
Its value lies in its position as a prelude to the consumer price index, released Thursday at 8:30 a.m. The CPI tracks the price of a basket of goods surveyed by the Bureau of Labor Statistics. The basket is adjusted every two years to account for changes in consumer spending habits.
This is the index that informs political judgement of whether the Fed's loose money policy is about to reignite inflation. It also triggers cost-of-living adjustments for a variety of federal programs, including Social Security.
(The Federal Open Market Committee, I've read, tends to give greater credence to the inflation measure used in the calculating the gross domestic product. Like the CPI, the GDP deflator is based on a basket of goods, but the basket is adjusted twice as often to account for spending changes.)
President Obama and some Republicans have proposed switching the cost-of-living adjustment from the current index -- the CPI-U -- to the chained CPI -- the C-CPI-U. The latter changes its basket of good dynamically on the assumption that people change their spending habits when prices rise.
The chained CPI will also be reported on Thursday. In last month's report, the CPI-U stood 1.5% over the prior year, and C-CPI-U stood 1.4% above the year-ago figures. That 0.1% is the heart of a heated political debate because, small though the difference may be in a given month, over time, we're talking real money.
Other important reports scheduled during the week are retail sales on Monday and housing starts on Thursday, both at 8:30 a.m., industrial production on Wednesday at 9:15 a.m., and the Philadelphia Federal Reserve survey of conditions in the mid-Atlantic region, which stand as a proxy for the nation as a whole, on Thursday at 10 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 housing starts, at 8:30 a.m. Thursday.
The index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, on Friday at 9:55 a.m.
The index of leading indicators will be released Friday at 10 a.m. It aggregates the individual leading indicators into a single number.
Other reports of interest:
Monday: Business inventories at 10 a.m.
Tuesday: Import and export prices at 8:30 a.m.
Wednesday: The New York Fed's Empire States manufacturing survey at 8:30 a.m., Treasury's international capital report at 9 a.m., and petroleum inventories at 10:30 a.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Two Federal Open Market Committee members are speaking: Boston Fed Pres. Eric Rosengren and Fed Gov. Sarah Bloom Raskin, both on Thursday.
Three FOMC alternates are speaking: Philadelphia Fed Pres. Charles Plosser on Tuesday and Thursday, Dallas Fed Pres. Richard Fisher on Thursday and Minneapolis Fed Pres. Narayana Kocherlakota on Friday.
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,305 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. I've reduced my universe from last week to mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm trading June options for short vertical and butterfly spreads, iron condors and the short legs of covered calls and diagonals as well as August options for single calls and puts. Of course, shares are good at any time.
Good trading!
Saturday, May 11, 2013
Monday's Prospects
Updated 5/2/2013. Some exchange-traded funds were omitted from the earlier analysis. None of the ETFs survived my initial screening.
On Friday, May 10:
Of 2,305 stocks and exchange-traded funds in this week's analytical universe, 70 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 61 to the upside and nine to the downside.
In addition, four that are traded over the counter broke out, two in each direction.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Twelve of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are B, CACC, CAVM, CHKP, FCS, FIRE, FWLT, HRC, HUB/B, PIR, QLIK and TER.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, May 13.
On Friday, May 10:
Of 2,305 stocks and exchange-traded funds in this week's analytical universe, 70 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 61 to the upside and nine to the downside.
In addition, four that are traded over the counter broke out, two in each direction.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Twelve of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are B, CACC, CAVM, CHKP, FCS, FIRE, FWLT, HRC, HUB/B, PIR, QLIK and TER.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, May 13.
Friday, May 10, 2013
Friday: No Trade
Altogether, four symbols survived my initial screening last night. (See "Friday's Prospects".) I've done the second round of screening, and all have been found wanting.
The details:
Cirrus Logic Inc. (CRUS): The company has been in a slump for some time but it looking up with two weeks of sharp rises on the weekly chart that preserve a long-running uptrend intact. However, 85% of Cirrus' business comes from its role as a supplier to Apple (AAPL). Why not just trade AAPL instead?
CRUS has a good selection of options with sufficient open interest to trade. The remainder would need to be traded as shares.
Nielsen Holdings N.V. (NLSN) is in a weekly chart uptrend and has good strong historical odds in favor of success. However, its volatility is quite low, at 11%. If I could somehow construct an options position, I would find that attractive, because options spreads can earn money even if the stock doesn't move. But the open interest on NLSN's options is too low for my taste.
Sterling Financial Corp. (STSA) is in an uptrend on the weekly chart but has been running sideways for the past six months. The bull signal doesn't come with a major upside breakout, decreasing its attractiveness as an unhedged bull trade. It has quite good historical odds in favor of success.
China Southern Airlines Co. Ltd. (ZNH) is tracing a very large descending triangle on the daily chart, a pattern I've learned to avoid. More recently, it has been in a downtrend since late January. Bull trades since the triangle began have better than even odds of turning a profit. But still: Descending triangle! They give me claustrophobia.
That's the lot. None of them is awful, and my opinions are heavily influenced by my portfolio's need for hedged and leveraged positions built out of options.
So my decision: No 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.
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.
Disclaimer
The details:
Cirrus Logic Inc. (CRUS): The company has been in a slump for some time but it looking up with two weeks of sharp rises on the weekly chart that preserve a long-running uptrend intact. However, 85% of Cirrus' business comes from its role as a supplier to Apple (AAPL). Why not just trade AAPL instead?
CRUS has a good selection of options with sufficient open interest to trade. The remainder would need to be traded as shares.
Nielsen Holdings N.V. (NLSN) is in a weekly chart uptrend and has good strong historical odds in favor of success. However, its volatility is quite low, at 11%. If I could somehow construct an options position, I would find that attractive, because options spreads can earn money even if the stock doesn't move. But the open interest on NLSN's options is too low for my taste.
Sterling Financial Corp. (STSA) is in an uptrend on the weekly chart but has been running sideways for the past six months. The bull signal doesn't come with a major upside breakout, decreasing its attractiveness as an unhedged bull trade. It has quite good historical odds in favor of success.
China Southern Airlines Co. Ltd. (ZNH) is tracing a very large descending triangle on the daily chart, a pattern I've learned to avoid. More recently, it has been in a downtrend since late January. Bull trades since the triangle began have better than even odds of turning a profit. But still: Descending triangle! They give me claustrophobia.
That's the lot. None of them is awful, and my opinions are heavily influenced by my portfolio's need for hedged and leveraged positions built out of options.
So my decision: No 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.
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.
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, May 9, 2013
Friday's Prospects
On Thursday, May 9:
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 36 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 18 to the upside and 18 to the downside.
In addition, nine that are traded over the counter broke out, five to the upside and four to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Four of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are CRUS, NLSN, STSA and ZNH.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Friday, May 10.
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 36 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 18 to the upside and 18 to the downside.
In addition, nine that are traded over the counter broke out, five to the upside and four to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Four of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are CRUS, NLSN, STSA and ZNH.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Friday, May 10.
NSC: Bull chart, bad gossip
Update 6/7/2013: NSC gave an exit signal on May 23 and I exited on June 7. The share price lost 1.6% during the period I held the position. I added to the position several times, and my basis produced a 2.5% loss on shares. I built the position on vertical credit option spreads, which produced a 59.2% loss on risk.
Norfolk Southern Corp. (NSC) renewed its rise in an uptrend that began last November from $56.49, breaking above its 20-day price channel at $78.79 and pushing to today's high (so far) of $79.34. This is the second up week for the stock following a five-week sideways correction.
This is NSC's second bull signal since the uptrend began. The first yielded 19.9% over 80 days. Since the markets began their post-recession recovery in early 2009, NSC has completed 18 bull signals and was profitable in only eight, for only a 44% success rate and a very narrow win/lose yield spread of 1.6%.
It's a classic conundrum when dealing with the odds: Look at the nearer term with less data, or look at the longer term with more data, much of which is out of date and smells like moldy Roquefort cheese. Much as I love Roquefort, I'll stick with the newer data, at least for the sake of keeping the analytical ball rolling.
Norfolk Southern, based in Norfolk, Virginia, is a major rail player in eastern North America, operating over routes spanning 20,000 miles in 22 U.S. states, the District of Columbia and Ontario.
A bit less than half of its value is evenly split between intermodal freight (think containers) and coal haulage), with chemicals and farm products also playing important roles.
Norfolk Southern's CEO was sounding optimistic notes at the shareholder meeting this week: “I often tell people that we are running better on a sustained basis than I have ever seen in my career.”
The blogosphere, however, as is often the case, stuck to the low notes, with Motley Fool declaring NSC as an underperforming company whose management is blind to its problems.
Analyst enthusiasm comes in at goose eggs, with positive and "Meh!" assessments balancing each other perfectly.
Analytical opinion plays no role in my final trading decisions. I'm a numbers guy, first and foremost, and my numbers are on the charts. But I like to at least be aware when strong opinions are coming into play because they, inevitably, have some influence on how I view the numbers: Cup half full or half empty?
The financials numbers are on the full cup side, and by more than half. Norfolk Southern reports reutrn on equity of 18%. Long-term debt is running at 83% of equity, higher than I like.
The company has been profitable in each of the last 12 quarters. The peak quarter in 2011 exceeded its 2010 counterpart, and 2012 did the same compared to 2011. So while there is no quarter by quarter trend in earnings, case can be made that the big-picture direction is up.
All but one of the quarters produced an upside earnings surprise. The one outlier was a downside surprise.
Institutions own 615 of shares and the price has been bid up in a manner that belies the negativity surrounding coverage of this company. It takes $2.27 in shares to control a dollar in sales. Those numbers to me indicate a fair degree of upside sentiment has led traders to bid up the price.
NSC on average trades 1.9 million shares a day and supports a moderately wide selection of option strike prices, with open interest running to four and five figures. The front-month at-the-money bid/ask spread on calls is low, at 3.6%.
Implied volatility stands at 20% and has been declining since mid-April.
Options are pricing in confidence that 68.2% of trades will fall between $74.27 and $83.47 over the next month, for a potential gain or loss of 5.8%, and between $76.66 and $81.08 over the next week. Such low volatility often makes it difficult to construct a position with sufficient yield.
Trading is very active today in puts, with volume running two and a half times the five-day average. Calls are running at only a third of the average.
The fair-price zone on today's 30-minute chart runs from $78.94 to $79.30, encompassing 68.2% of transactions surrounding the most-traded price, $78.99. NSC traded above the most-traded price the first 2-1/2 hours of trading, and at that level since then. The pattern is one of a breakout running out of steam in the very short term.
Norfolk Southern next publishes earnings on July 22. The stock goes ex-dividend in early August, most likely, for a quarterly payout yielding 2.54% annualized at current prices.
Decision for my account: Despite the negative analytical opinion, I don't find anything to dislike in this stock. Good chart, good financials. The odds have some limitations, as I noted above, but they aren't a deal killer.
I've opened a bull position in NSC, structuring it as vertical credit option spreads expiring in June, short the $77.5 put and long the $75 put. The position has a potential maximum yield at expiration of 19.6%. The spreads provide a 2.8% cushion of profitability at expiration below 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.
Disclaimer
Norfolk Southern Corp. (NSC) renewed its rise in an uptrend that began last November from $56.49, breaking above its 20-day price channel at $78.79 and pushing to today's high (so far) of $79.34. This is the second up week for the stock following a five-week sideways correction.
This is NSC's second bull signal since the uptrend began. The first yielded 19.9% over 80 days. Since the markets began their post-recession recovery in early 2009, NSC has completed 18 bull signals and was profitable in only eight, for only a 44% success rate and a very narrow win/lose yield spread of 1.6%.
It's a classic conundrum when dealing with the odds: Look at the nearer term with less data, or look at the longer term with more data, much of which is out of date and smells like moldy Roquefort cheese. Much as I love Roquefort, I'll stick with the newer data, at least for the sake of keeping the analytical ball rolling.
Norfolk Southern, based in Norfolk, Virginia, is a major rail player in eastern North America, operating over routes spanning 20,000 miles in 22 U.S. states, the District of Columbia and Ontario.
A bit less than half of its value is evenly split between intermodal freight (think containers) and coal haulage), with chemicals and farm products also playing important roles.
Norfolk Southern's CEO was sounding optimistic notes at the shareholder meeting this week: “I often tell people that we are running better on a sustained basis than I have ever seen in my career.”
The blogosphere, however, as is often the case, stuck to the low notes, with Motley Fool declaring NSC as an underperforming company whose management is blind to its problems.
Analyst enthusiasm comes in at goose eggs, with positive and "Meh!" assessments balancing each other perfectly.
Analytical opinion plays no role in my final trading decisions. I'm a numbers guy, first and foremost, and my numbers are on the charts. But I like to at least be aware when strong opinions are coming into play because they, inevitably, have some influence on how I view the numbers: Cup half full or half empty?
The financials numbers are on the full cup side, and by more than half. Norfolk Southern reports reutrn on equity of 18%. Long-term debt is running at 83% of equity, higher than I like.
The company has been profitable in each of the last 12 quarters. The peak quarter in 2011 exceeded its 2010 counterpart, and 2012 did the same compared to 2011. So while there is no quarter by quarter trend in earnings, case can be made that the big-picture direction is up.
All but one of the quarters produced an upside earnings surprise. The one outlier was a downside surprise.
Institutions own 615 of shares and the price has been bid up in a manner that belies the negativity surrounding coverage of this company. It takes $2.27 in shares to control a dollar in sales. Those numbers to me indicate a fair degree of upside sentiment has led traders to bid up the price.
NSC on average trades 1.9 million shares a day and supports a moderately wide selection of option strike prices, with open interest running to four and five figures. The front-month at-the-money bid/ask spread on calls is low, at 3.6%.
Implied volatility stands at 20% and has been declining since mid-April.
Options are pricing in confidence that 68.2% of trades will fall between $74.27 and $83.47 over the next month, for a potential gain or loss of 5.8%, and between $76.66 and $81.08 over the next week. Such low volatility often makes it difficult to construct a position with sufficient yield.
Trading is very active today in puts, with volume running two and a half times the five-day average. Calls are running at only a third of the average.
The fair-price zone on today's 30-minute chart runs from $78.94 to $79.30, encompassing 68.2% of transactions surrounding the most-traded price, $78.99. NSC traded above the most-traded price the first 2-1/2 hours of trading, and at that level since then. The pattern is one of a breakout running out of steam in the very short term.
Norfolk Southern next publishes earnings on July 22. The stock goes ex-dividend in early August, most likely, for a quarterly payout yielding 2.54% annualized at current prices.
Decision for my account: Despite the negative analytical opinion, I don't find anything to dislike in this stock. Good chart, good financials. The odds have some limitations, as I noted above, but they aren't a deal killer.
I've opened a bull position in NSC, structuring it as vertical credit option spreads expiring in June, short the $77.5 put and long the $75 put. The position has a potential maximum yield at expiration of 19.6%. The spreads provide a 2.8% cushion of profitability at expiration below 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.
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, May 8, 2013
Thursday's Prospects
On Wednesday, May 8:
Of 2,299 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, 61 to the upside and six to the downside.
In addition, 21 that are traded over the counter broke out, 20 to the upside and one to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Ten of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ESC, JJSF, JPM, KEY, MSA, NSC, ROC, SAN, SEIC and SWC.
Six of the over-the-counter symbols survived initial screening, all having broken out to the upside. They are ALPMY, CABGY, CHOLY, MSBHY, MXCYY and UCBJF.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Thursday, May 9.
Of 2,299 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, 61 to the upside and six to the downside.
In addition, 21 that are traded over the counter broke out, 20 to the upside and one to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Ten of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are ESC, JJSF, JPM, KEY, MSA, NSC, ROC, SAN, SEIC and SWC.
Six of the over-the-counter symbols survived initial screening, all having broken out to the upside. They are ALPMY, CABGY, CHOLY, MSBHY, MXCYY and UCBJF.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Thursday, May 9.
HPQ bear position closed
I've exited my bear position in HPQ and have updated my initial entry posting with details. The close produced a small loss.
LYB: Bull signal falters
Update 5/9/2013: LYB remained below its breakout level through the close on May 8, negating the bull signal, and has continued to trade below that point today. So it has dropped off of my radar pending a fresh breakout.
Update 5/8/2013: The price has turned and dropped back into the price channel while I was analyzing. See the "Decision for my account" section below. I've run through the less liquid prospects and don't find anything that I like -- either the chart is flawed or the odds are insufficiently good. So, no trade today.
LyondellBasell Industries (LYB), when it gave a bull signal on Tuesday, was in the third day of a three day price run up after going ex-dividend following a three day price decline following earnings that beat the Street estimate by 7.1%.
Which, if you think about it, is a reversal of the natural order. Upside earnings surprises are more often rewarded, and ex-dividend dates normally cause a price decline.
Tuesday's break beyond the $62.88 upper boundary of the 20-day price channel was confirmed today as the stock traded still higher.
The breakout set a new higher high, moving above the peak of the previous leg up, which carried the price from $44.36 in mid-October 2012 up to $63.81 on March 14. The ensuing correction covered 13.2%., down to $55.41 on April 18, before retracing up to today's high (so far) of $64.57.
It's an excellent chart of an uptrending stock, the sort I like for bull plays.
This mark's the seventh bull signal given by LYB since its uptrend on the weekly chart began in October 2011. The six completed trades divided evenly between successes and failures, with the three wins producing an average yield of 19.1% and the others producing losses averaging 7.2%. The winners' yields, when adjusted for the success rate, come out to a score of 9.6%, and the win/loss yield spread is high, at 11.9%.
Since October 2010, when the company was listed on the NYSE after being acquired by a Dutch enterprise, LYB's eight completed bull signals have also split evenly, with the four winners yielding 24.4%, the losers losing 8.1%, the winners having a score of 12.2, and the win/loss spread coming in at 16.3%.
ETN and TWC, the other two highly liquid stocks on my prospects list, have better odds of winning than LYB.
However, I rejected TWC because although it broke beyond the price channel, it didn't exceed the prior swing high.
ETN also set a higher high, making it a viable prospect, but it's a technology company, and I'm over-extended in that hot sector. LYB is in basic materials, and I have no holdings there.
So, for reasons specific to my account, LYB is the stock I will consider today.
LyondellBasell is a trans-national chemical company that makes plastics. It has 58 manufacturing sites in 18 countries on five continents and sales in more than 100 countries. It is headquartered in Rotterdam, Netherlands and trades principally on the New York Stock Exchange.
Analysts like the company a lot, collectively giving it 57% enthusiasm rating, and the financials bolster that enthusiasm.
Return on equity is quite high, at 28%, and debt is fairly low, at 37% of equity. Some of the stricter fundamental analysts like to see debt at below 10% of equity, but with interest rates so low, I see debt as being much less of a problem. I mean, it's raining money that's almost free. So grab a bucket!
LyondellBasell has reported profits in each of the past 11 quarters, but without a particular trend. Nine of the quarters have surprised to the upside, and two to the downside.
Institutions own 78% of shares, and the price is below sales parity; it takes 82 cents in shares to control a dollar in sales.
LYB on average trades 4.5 million shares a day, a level of liquidity that allows for a wide selection of option strike prices with four-figure open interest. The bid/ask spread on front-month at-the-money calls is 6.1%.
Implied volatility stands at 31%, at the middle of the six-month range. It has been stair-stepping lower since mid-April.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $56.84 and $68.16, for a potential gain or loss of 9.1%, and between $59.78 and $65.22 over the next week.
Trading today in options is heavily to the call side, with volume running about 90% above the five-day average. Puts are trading at about average volume.
The fair-price zone on today's 30-minute chart runs from $62.72 to $63.50, encompassing 68.2% of transactions surrounding the most-traded price, $63.14. The stock began the day at the top of the zone and has dropped fairly steadily throughout the day. With two hours to go before the closing bell, LYB is trading below the fair-price zone.
LyondellBasell next publishes earnings on July 26. The stock's ex-dividend date is uncertain but possibly in late May. The quarterly payout yields 2.6% annualized at current prices.
Decision for my account: Well, this is ugly. LYB has turned and dropped below the breakout level. By my rules, I can't enter unless it moves above $63.27 today. After today, it would take a fresh breakout for me to consider it as a trade.
I like the stock and would take a bull position, structuring it as a vertical credit options spread expiring in June.
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.
Disclaimer
Update 5/8/2013: The price has turned and dropped back into the price channel while I was analyzing. See the "Decision for my account" section below. I've run through the less liquid prospects and don't find anything that I like -- either the chart is flawed or the odds are insufficiently good. So, no trade today.
LyondellBasell Industries (LYB), when it gave a bull signal on Tuesday, was in the third day of a three day price run up after going ex-dividend following a three day price decline following earnings that beat the Street estimate by 7.1%.
Which, if you think about it, is a reversal of the natural order. Upside earnings surprises are more often rewarded, and ex-dividend dates normally cause a price decline.
Tuesday's break beyond the $62.88 upper boundary of the 20-day price channel was confirmed today as the stock traded still higher.
The breakout set a new higher high, moving above the peak of the previous leg up, which carried the price from $44.36 in mid-October 2012 up to $63.81 on March 14. The ensuing correction covered 13.2%., down to $55.41 on April 18, before retracing up to today's high (so far) of $64.57.
It's an excellent chart of an uptrending stock, the sort I like for bull plays.
This mark's the seventh bull signal given by LYB since its uptrend on the weekly chart began in October 2011. The six completed trades divided evenly between successes and failures, with the three wins producing an average yield of 19.1% and the others producing losses averaging 7.2%. The winners' yields, when adjusted for the success rate, come out to a score of 9.6%, and the win/loss yield spread is high, at 11.9%.
Since October 2010, when the company was listed on the NYSE after being acquired by a Dutch enterprise, LYB's eight completed bull signals have also split evenly, with the four winners yielding 24.4%, the losers losing 8.1%, the winners having a score of 12.2, and the win/loss spread coming in at 16.3%.
ETN and TWC, the other two highly liquid stocks on my prospects list, have better odds of winning than LYB.
However, I rejected TWC because although it broke beyond the price channel, it didn't exceed the prior swing high.
ETN also set a higher high, making it a viable prospect, but it's a technology company, and I'm over-extended in that hot sector. LYB is in basic materials, and I have no holdings there.
So, for reasons specific to my account, LYB is the stock I will consider today.
LyondellBasell is a trans-national chemical company that makes plastics. It has 58 manufacturing sites in 18 countries on five continents and sales in more than 100 countries. It is headquartered in Rotterdam, Netherlands and trades principally on the New York Stock Exchange.
Analysts like the company a lot, collectively giving it 57% enthusiasm rating, and the financials bolster that enthusiasm.
Return on equity is quite high, at 28%, and debt is fairly low, at 37% of equity. Some of the stricter fundamental analysts like to see debt at below 10% of equity, but with interest rates so low, I see debt as being much less of a problem. I mean, it's raining money that's almost free. So grab a bucket!
LyondellBasell has reported profits in each of the past 11 quarters, but without a particular trend. Nine of the quarters have surprised to the upside, and two to the downside.
Institutions own 78% of shares, and the price is below sales parity; it takes 82 cents in shares to control a dollar in sales.
LYB on average trades 4.5 million shares a day, a level of liquidity that allows for a wide selection of option strike prices with four-figure open interest. The bid/ask spread on front-month at-the-money calls is 6.1%.
Implied volatility stands at 31%, at the middle of the six-month range. It has been stair-stepping lower since mid-April.
Options are pricing in confidence that 68.2% of trades over the next month will fall between $56.84 and $68.16, for a potential gain or loss of 9.1%, and between $59.78 and $65.22 over the next week.
Trading today in options is heavily to the call side, with volume running about 90% above the five-day average. Puts are trading at about average volume.
The fair-price zone on today's 30-minute chart runs from $62.72 to $63.50, encompassing 68.2% of transactions surrounding the most-traded price, $63.14. The stock began the day at the top of the zone and has dropped fairly steadily throughout the day. With two hours to go before the closing bell, LYB is trading below the fair-price zone.
LyondellBasell next publishes earnings on July 26. The stock's ex-dividend date is uncertain but possibly in late May. The quarterly payout yields 2.6% annualized at current prices.
Decision for my account: Well, this is ugly. LYB has turned and dropped below the breakout level. By my rules, I can't enter unless it moves above $63.27 today. After today, it would take a fresh breakout for me to consider it as a trade.
I like the stock and would take a bull position, structuring it as a vertical credit options spread expiring in June.
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.
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, May 7, 2013
Wednesday's Prospects
On Tuesday, May 7:
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 105 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 96 to the upside and nine to the downside.
In addition, four that are traded over the counter broke out, three to the upside and one to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Eighteen of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are BKU, CW, DRC, ETN, EVR, FTI, FUL, GBCI, GPC, HRS, LECO, LYB, PDCE, RYN, SAH, TNA, TWC and UHAL.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Wednesday, May 8.
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 105 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 96 to the upside and nine to the downside.
In addition, four that are traded over the counter broke out, three to the upside and one to the downside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Eighteen of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are BKU, CW, DRC, ETN, EVR, FTI, FUL, GBCI, GPC, HRS, LECO, LYB, PDCE, RYN, SAH, TNA, TWC and UHAL.
None of the over-the-counter symbols survived initial screening.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Wednesday, May 8.
MW: To close or not to close
I always feel a bit like Hamlet when it comes to exiting a losing position:
This was a fast move, one that went to "outrageous Losses" in 15 minutes without any news to explain the movement.
The position is made up on vertical credit spreads expiring May 19. I've found with such option spreads that it's often better to wait rather than act immediately upon a close signal.
In Monday's update I proposed a rather simple rule, based on very near term resistance, to determine when to close. I've since done some more work on an exit strategy and have decided to go with the tried and true:
The risk is my potential loss now versus my potential loss at expiration.
I used implied volatility on MW to calculate one standard deviation either side of the current price for the next week, a timespan that gets me close to expiration.
The one standard deviation calculation says that options are pricing in confidence that 68.2% of trades will fall between the two price boundaries, in this case, at the time of my calculation, $33.06 and $36.68.
Regular readers will recognize this method as a recurring element in the analyzes I do each day.
In the case of MW, those boundaries lie almost double the average range, the distance the stock has traversed on average over the past 20 days, from the current price.
The odds of the stock moving in either direction within that range are theoretically even over such a short period of time.
I next calculate my loss now and at expiration at the high boundary, and the same at the low boundary, and see how waiting for expiration worsens or improves my risk at those boundary prices.
Remember, it's a bear position.
If MW continues to rise (bad for bears) to the upper boundary, $36.68, my risk will worsen by 26%. If it falls to the lower boundary (good for bears), then my risk will improve my 82%.
Weighting the odds by the change in risk means that waiting puts the odds heavily in my favor, about 3:1, compared to closing now.
And so I shall wait, hanging on to MW until closer to expiration.
This way of analyzing isn't appropriate for all sorts of positions. Had I held short shares in MW, I would have closed immediately upon the exit signal. Same thing with long puts, which have pretty much unlimited risk.
But with vertical credit spreads, I have a defined maximum risk and also maximum reward. So I can work with mitigation without fearing a major impact on my resources.
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.
Disclaimer
To close or not to close, that is the question. Whether 'tis Nobler in the mind to sufferthe Slings and Arrows of outrageous Losses,Or to take Arms and sail the Sea for profits ...The Men's Wearhouse Inc. (MW) is such a stock, as I noted on Monday in an update to the original entry posting explaining why I wasn't closing my bear position right away upon the chart giving an exit signal.
This was a fast move, one that went to "outrageous Losses" in 15 minutes without any news to explain the movement.
The position is made up on vertical credit spreads expiring May 19. I've found with such option spreads that it's often better to wait rather than act immediately upon a close signal.
In Monday's update I proposed a rather simple rule, based on very near term resistance, to determine when to close. I've since done some more work on an exit strategy and have decided to go with the tried and true:
When in doubt, calculate the risk, the reward, and the odds, and Fortune will smile upon you.
The risk is my potential loss now versus my potential loss at expiration.
I used implied volatility on MW to calculate one standard deviation either side of the current price for the next week, a timespan that gets me close to expiration.
The one standard deviation calculation says that options are pricing in confidence that 68.2% of trades will fall between the two price boundaries, in this case, at the time of my calculation, $33.06 and $36.68.
Regular readers will recognize this method as a recurring element in the analyzes I do each day.
In the case of MW, those boundaries lie almost double the average range, the distance the stock has traversed on average over the past 20 days, from the current price.
The odds of the stock moving in either direction within that range are theoretically even over such a short period of time.
I next calculate my loss now and at expiration at the high boundary, and the same at the low boundary, and see how waiting for expiration worsens or improves my risk at those boundary prices.
Remember, it's a bear position.
If MW continues to rise (bad for bears) to the upper boundary, $36.68, my risk will worsen by 26%. If it falls to the lower boundary (good for bears), then my risk will improve my 82%.
Weighting the odds by the change in risk means that waiting puts the odds heavily in my favor, about 3:1, compared to closing now.
And so I shall wait, hanging on to MW until closer to expiration.
This way of analyzing isn't appropriate for all sorts of positions. Had I held short shares in MW, I would have closed immediately upon the exit signal. Same thing with long puts, which have pretty much unlimited risk.
But with vertical credit spreads, I have a defined maximum risk and also maximum reward. So I can work with mitigation without fearing a major impact on my resources.
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.
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.
TSO: Refinery bull signal
Update 6/12/2013: TSO has sent an exit signal, crossing below the 10-day price channel, and I've closed my position for a profit. The stock declined by 5.1% during the period I held the position. I added to the position three times, and the stock loss was 3% from my basis.
I constructed the position out of short vertical option spreads, which I bought back for a 2.4% profit on risk.
Tesoro Corp. (TSO) has sent a bull signal, breaking above its 20-day price channel boundary, $55.97, on Monday and giving confirmation by continuing to trade above that level today. The breakout came on the third day of a run-up that followed publication of 1st quarter earnings, which beat analysts' expectations by 3%.
This is the third week of an uptrend retracing a correction within a larger uptrend that began from $21.94 in June 2012. The stock hit a high of $59.90 on March 25 before correcting down to $47.98 on Aprl 17.
A break above the $59.90 level would signal resumption of the larger uptrend. A failure to do so would leave the broader uptrend in place but still correcting. A drop below $47.98 would allow the possibility that a downtrend was beginning.
This is TSO's 5th bull signal since the present uptrend began. The four completed breakouts have split evenly, two profitable and two loss-making.
The winners, however, had an average yield of $38.7%, compared to an average loss of 5.2% for the unprofitable trades. The resulting is a truly stunning 33.5% win/loss yield spread.
TSO has done less well over the longer term, with 20 completed bull signals since early 2009, when the broad markets began recovering from the post-recession crash. Only six of those were successful, however, with an average yield of 26.8%. The 14 unsuccessful trades lost 6.2% on average.
The odds -- the success rate -- is a measure of momentum, and I give more weight to momentum during the current trend than to historical movements. So while the poor showing from 2009 onward raises a cautionary flag, the somewhat better performance in this trend, and especially the large win/loss spread, argue in favor of taking the trade.
Tesoro, headquartered in San Antonio, Texas, refines and markets petroleum products in its seven refineries. It sells fuel and convenience products through 1,175 retail stations in 18 states under the names Tesoro, Shell and USA Gasoline.
Analysts are positive about TSO's prospects, collectively giving it a 38% enthusiasm rating. The financials buttress their enthusiasm. Tesoro reports return on equity of 21% and debt equal to 31% of equity.
Earnings have been spotty over the last 12 quarters, with losses reported in two quarters, a 2011 uptrend in earnings ending in a losing quarter, and the beginning from the 3rd quarter of 2012 of a downtrend in earnings that has continued through the most recent report this month.
Eight quarters have surprised to the upside, and four to the downside.
Institutional ownership is high, at 91% of shares, and the price is in the bargain basement. It takes only 24 cents in shares to control a dollar in sales.
TSO on average trades 3.5 million shares a day, sufficient to support a wide selection of option strike prices with open interest running as high as five figures for some front-month strikes. The front-month at-the-money bid/as spread for calls is low, at 2.9%.
Implied volatility is running at 47%, above the mid-point of the six-month range, and has been tracing something resembling an ascending triangle -- even highs and rising lows -- since late April.
Options are pricing in confidence that 68.2% of trades will fall between $50.30 and $65.96 during the next month, for a potential gain or loss of 13.5%, and between $54.37 and $61.89 over the next week.
Update: TSO gave an exit signal by trading below the 10-day price channel, and I've exited the position for a profit. The share price declined 5.1% from initial entry. I added to the position three times after entry, and my share basis is 3% below entry. The position was constructed as short vertical option spreads, providing both hedging and leverage. The spreads yielded a profit of 9.1% on risk.
Trading is heavier on the put side, with volume running more than double its five-day average. Calls are trading at a bit more than half of average volume.
The fair-price zone on today's 30-day chart runs from $57.75 to $58.35, encompassing 68.2% of transactions surrounding the most-traded price, $58.03.
The price has been trading within the zone for the all of the session, with the exception of a few short-lived forays beyond the boundaries. With 2-1/2 hours to go before the closing bell, TSO is trading just above the fair price zone.
Tesoro next publishes earnings on April 2. The stock goes ex-dividend on May 29 for a quarterly payout yielding 1.38% at current prices.
Decison for my account: The main sticking point is the even odds of success for the current trend, and the large win/loss spread overcomes that objection in my mind.
I've opened a bull position in TSO, structuring it as vertical credit spread expiring in June, short the $55 put and long the $50 put. The position has a potential maximum gain at expiration of 21% and a cushion between the entry price and the expiration breakeven point of 8.4%. Excellent numbers!
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.
Disclaimer
I constructed the position out of short vertical option spreads, which I bought back for a 2.4% profit on risk.
Tesoro Corp. (TSO) has sent a bull signal, breaking above its 20-day price channel boundary, $55.97, on Monday and giving confirmation by continuing to trade above that level today. The breakout came on the third day of a run-up that followed publication of 1st quarter earnings, which beat analysts' expectations by 3%.
This is the third week of an uptrend retracing a correction within a larger uptrend that began from $21.94 in June 2012. The stock hit a high of $59.90 on March 25 before correcting down to $47.98 on Aprl 17.
A break above the $59.90 level would signal resumption of the larger uptrend. A failure to do so would leave the broader uptrend in place but still correcting. A drop below $47.98 would allow the possibility that a downtrend was beginning.
This is TSO's 5th bull signal since the present uptrend began. The four completed breakouts have split evenly, two profitable and two loss-making.
The winners, however, had an average yield of $38.7%, compared to an average loss of 5.2% for the unprofitable trades. The resulting is a truly stunning 33.5% win/loss yield spread.
TSO has done less well over the longer term, with 20 completed bull signals since early 2009, when the broad markets began recovering from the post-recession crash. Only six of those were successful, however, with an average yield of 26.8%. The 14 unsuccessful trades lost 6.2% on average.
The odds -- the success rate -- is a measure of momentum, and I give more weight to momentum during the current trend than to historical movements. So while the poor showing from 2009 onward raises a cautionary flag, the somewhat better performance in this trend, and especially the large win/loss spread, argue in favor of taking the trade.
Tesoro, headquartered in San Antonio, Texas, refines and markets petroleum products in its seven refineries. It sells fuel and convenience products through 1,175 retail stations in 18 states under the names Tesoro, Shell and USA Gasoline.
Analysts are positive about TSO's prospects, collectively giving it a 38% enthusiasm rating. The financials buttress their enthusiasm. Tesoro reports return on equity of 21% and debt equal to 31% of equity.
Earnings have been spotty over the last 12 quarters, with losses reported in two quarters, a 2011 uptrend in earnings ending in a losing quarter, and the beginning from the 3rd quarter of 2012 of a downtrend in earnings that has continued through the most recent report this month.
Eight quarters have surprised to the upside, and four to the downside.
Institutional ownership is high, at 91% of shares, and the price is in the bargain basement. It takes only 24 cents in shares to control a dollar in sales.
TSO on average trades 3.5 million shares a day, sufficient to support a wide selection of option strike prices with open interest running as high as five figures for some front-month strikes. The front-month at-the-money bid/as spread for calls is low, at 2.9%.
Implied volatility is running at 47%, above the mid-point of the six-month range, and has been tracing something resembling an ascending triangle -- even highs and rising lows -- since late April.
Options are pricing in confidence that 68.2% of trades will fall between $50.30 and $65.96 during the next month, for a potential gain or loss of 13.5%, and between $54.37 and $61.89 over the next week.
Update: TSO gave an exit signal by trading below the 10-day price channel, and I've exited the position for a profit. The share price declined 5.1% from initial entry. I added to the position three times after entry, and my share basis is 3% below entry. The position was constructed as short vertical option spreads, providing both hedging and leverage. The spreads yielded a profit of 9.1% on risk.
Trading is heavier on the put side, with volume running more than double its five-day average. Calls are trading at a bit more than half of average volume.
The fair-price zone on today's 30-day chart runs from $57.75 to $58.35, encompassing 68.2% of transactions surrounding the most-traded price, $58.03.
The price has been trading within the zone for the all of the session, with the exception of a few short-lived forays beyond the boundaries. With 2-1/2 hours to go before the closing bell, TSO is trading just above the fair price zone.
Tesoro next publishes earnings on April 2. The stock goes ex-dividend on May 29 for a quarterly payout yielding 1.38% at current prices.
Decison for my account: The main sticking point is the even odds of success for the current trend, and the large win/loss spread overcomes that objection in my mind.
I've opened a bull position in TSO, structuring it as vertical credit spread expiring in June, short the $55 put and long the $50 put. The position has a potential maximum gain at expiration of 21% and a cushion between the entry price and the expiration breakeven point of 8.4%. Excellent numbers!
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.
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.
DFS position opened
I've opened the bull position in DFS discussed in Monday's posting, which I have updated with details. I had delayed entry for a day to allow the stock to go ex-dividend.
Monday, May 6, 2013
Tuesday's Prospects
On Monday, May 6:
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 52 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 44 to the upside and eight to the downside.
In addition, two that are traded over the counter broke out, both to the upside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Six of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are FIG, GWR, ITT, MDP, MGI and TSO.
One over-the-counter symbol survived initial screening, having broken out to the upside: HOWWY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, May 7.
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 52 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 44 to the upside and eight to the downside.
In addition, two that are traded over the counter broke out, both to the upside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Six of the major-exchange symbols survived my initial screening, all having broken out to the upside. They are FIG, GWR, ITT, MDP, MGI and TSO.
One over-the-counter symbol survived initial screening, having broken out to the upside: HOWWY.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Tuesday, May 7.
MW exit signal
Friday's 2.5% price rise on MW signaled that I should exit the bear position. However, I'm going for a strategic retreat rather than parachuting out. I've updated my entry post with details.
DFS: Credit-card bull signal
Update 6/21/2013: I've closed DFS for a small loss. A market break to the downside just before expiration moved the position from profitable to loss-making. The stock price rose 0.6% from my entry to my exit. I added to the position three times, and the stock at exit stood 1.5% below my basis.
I structured the position as vertical option spreads sold for a premium. The yield on risk was negative 1.1% -- a loss.
Update 5/7/2013: I had delayed entry into DFS until it went ex-dividend. It has, and I opened a bull position, structuring it as vertical credit spreads expiring in June, short the $46 puts and long the $42 puts. The maximum potential yield at expiration is $20.3%, and the position provides a 2.3% cushion between the entry price as the break-even price.
Discover Financial Systems (DFS) today confirmed a bull signal triggered Friday when it broke through the upper boundary, $45.61, of its 20-day price channel.
The stock has been in a major uptrend since June 2010, saw a major correction the last half of 2011, and resumed the uptrend in January 2012.
This is DFS's 7th breakout to the upside since the uptrend resumed. Of the six completed trades, half were successful for an average yield of 14.9%, and half failed, for an average loss of 5.4%.
The win score -- yield on winning trades adjusted by the success rate -- is an excellent 7.5%, and the spread between averaging yields on winning trades and losses on failures is a respectable 9.5%. Those numbers give DFS an edge for success, even with a 50% success rate.
Winners have had a slight edge since early 2009, when the broad markets began to recover from the post-recession crash. Of the 17 completed trades since then, nine were profitable for an average yield of 18.5% and eight failed for an average loss of 8.4%.
Discover Financial Services, headquartered in Riverwoods, Illinois, runs Discover credit cards, a business that accounts for more than two thirds of the company's market capitalization.
Analysts tend to love DFS's prospects, collectively coming down with a 50% enthusiasm rating. The company's financials no doubt fuel the love. Return on the equity is 25%, although the fact that debt is double equity leaves DFS stranded far from growth-stock territory.
Earnings rose steadily through 2010 and 2011 and then hit a very high plateau. DFS has surprised to the upside in 10 of the last 12 quarters, and to the downside in two.
Institutions own 88% of shares, a high level, and the price has been bid up to the point where it takes $2.89 in shares to control a dollar in sales.
DFS on average trades $5.1 million shares a day and supports a moderately broad selectoin of option strike prices, mainly with three-figure open interest and a 5.4% bid/ask spread on front-month at-the-money calls.
Implied volatility stands at 24%, near the floor of the six-month range. It has been moving sideways since late April.
Options are pricing in confidence that 68.2% of trades will fall between $42.76 and $49.18 over the next month, for a potential gain or loss of 7%, and between $44.43 and $47.51 over the next week.
Trading in options is heavy on the put side, at 2-1/2 times the five-day average volume, and calls are running at 3/4 average volume.
The fair-price zone on today's 30-minute chart runs from $45.79 to $46.17, encompassing 68.2% of transactions surrounding the most-traded price, $45.92. DFS started the day with a run to the upside in the first hour of trading, followed by a run to the downside. With 3-1/2 hours to go before the closing bell DFS is trading near the most-traded price.
Discover Financial Services next publishes earnings in July, most likely. The stock goes ex-dividend on May 7 for a quarterly payout yielding 1.74% annualized at current prices.
Decision for my account: I like DFS as a bull trade but want to wait until after it goes ex-dividend before entering. I'll look at it again on Tuesday or Wednesday, see if I still like the chart. The effect of the dividend is likely to be small, but I see no reason to add that complication, however slight, to 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.
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.
Disclaimer
I structured the position as vertical option spreads sold for a premium. The yield on risk was negative 1.1% -- a loss.
Update 5/7/2013: I had delayed entry into DFS until it went ex-dividend. It has, and I opened a bull position, structuring it as vertical credit spreads expiring in June, short the $46 puts and long the $42 puts. The maximum potential yield at expiration is $20.3%, and the position provides a 2.3% cushion between the entry price as the break-even price.
Discover Financial Systems (DFS) today confirmed a bull signal triggered Friday when it broke through the upper boundary, $45.61, of its 20-day price channel.
The stock has been in a major uptrend since June 2010, saw a major correction the last half of 2011, and resumed the uptrend in January 2012.
This is DFS's 7th breakout to the upside since the uptrend resumed. Of the six completed trades, half were successful for an average yield of 14.9%, and half failed, for an average loss of 5.4%.
The win score -- yield on winning trades adjusted by the success rate -- is an excellent 7.5%, and the spread between averaging yields on winning trades and losses on failures is a respectable 9.5%. Those numbers give DFS an edge for success, even with a 50% success rate.
Winners have had a slight edge since early 2009, when the broad markets began to recover from the post-recession crash. Of the 17 completed trades since then, nine were profitable for an average yield of 18.5% and eight failed for an average loss of 8.4%.
Discover Financial Services, headquartered in Riverwoods, Illinois, runs Discover credit cards, a business that accounts for more than two thirds of the company's market capitalization.
Analysts tend to love DFS's prospects, collectively coming down with a 50% enthusiasm rating. The company's financials no doubt fuel the love. Return on the equity is 25%, although the fact that debt is double equity leaves DFS stranded far from growth-stock territory.
Earnings rose steadily through 2010 and 2011 and then hit a very high plateau. DFS has surprised to the upside in 10 of the last 12 quarters, and to the downside in two.
Institutions own 88% of shares, a high level, and the price has been bid up to the point where it takes $2.89 in shares to control a dollar in sales.
DFS on average trades $5.1 million shares a day and supports a moderately broad selectoin of option strike prices, mainly with three-figure open interest and a 5.4% bid/ask spread on front-month at-the-money calls.
Implied volatility stands at 24%, near the floor of the six-month range. It has been moving sideways since late April.
Options are pricing in confidence that 68.2% of trades will fall between $42.76 and $49.18 over the next month, for a potential gain or loss of 7%, and between $44.43 and $47.51 over the next week.
Trading in options is heavy on the put side, at 2-1/2 times the five-day average volume, and calls are running at 3/4 average volume.
The fair-price zone on today's 30-minute chart runs from $45.79 to $46.17, encompassing 68.2% of transactions surrounding the most-traded price, $45.92. DFS started the day with a run to the upside in the first hour of trading, followed by a run to the downside. With 3-1/2 hours to go before the closing bell DFS is trading near the most-traded price.
Discover Financial Services next publishes earnings in July, most likely. The stock goes ex-dividend on May 7 for a quarterly payout yielding 1.74% annualized at current prices.
Decision for my account: I like DFS as a bull trade but want to wait until after it goes ex-dividend before entering. I'll look at it again on Tuesday or Wednesday, see if I still like the chart. The effect of the dividend is likely to be small, but I see no reason to add that complication, however slight, to 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.
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.
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.
Saturday, May 4, 2013
Monday's Prospects
On Friday, May 3:
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 132 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 115 to the upside and 17 to the downside.
In addition, eight that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Thirteen of the major-exchange symbols survived my initial screening, 12 having broken out to the upside. They are BERY, BKD, CNO, DFS, EPAY, FINL, GPI, KFN, RVBD, TRLA, TRS and VMC. One broke out to the downside: FAZ.
One over-the-counter symbol survived initial screening, having broken out to the upside: DDAIF.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, May 6.
Of 2,299 stocks and exchange-traded funds in this week's analytical universe, 132 that are traded on the major American stock exchanges broke beyond their 20-day price channels, 115 to the upside and 17 to the downside.
In addition, eight that are traded over the counter broke out, all to the upside.
The symbols I'm analyzing are mid- and large-cap stocks that are covered by analysts, as well as selected exchange-traded funds.
Thirteen of the major-exchange symbols survived my initial screening, 12 having broken out to the upside. They are BERY, BKD, CNO, DFS, EPAY, FINL, GPI, KFN, RVBD, TRLA, TRS and VMC. One broke out to the downside: FAZ.
One over-the-counter symbol survived initial screening, having broken out to the upside: DDAIF.
I'll do further analysis on the survivors that confirm their signals by trading beyond their breakout levels on Monday, May 6.
The Week Ahead: Chairman Ben, and the Sound of Silence
Fed Chairman Bernanke gives the keynote address as the Chicago Federal Reserve Bank's conference on bank structure and competition. He is scheduled to speak Friday at 9:30 a.m. Eastern. Click here for full information on the conference.
Otherwise... the sound of silence, at least when it comes to major economic reports. There simply aren't any scheduled.
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.
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:
Wednesday: Petroleum inventories at 10:30 a.m.
Friday: The Treasury budget -- think federal deficit -- at 2 p.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Chairman Ben isn't the only money policy maker to be speaking during the week.
Two Federal Open Market Committee members are speaking. They are Fed Gov. Jeremey Stein on Wednesday and Kansas City Fed Pres. Esther George on Friday.
An FOMC alternate, Philadelphia Fed Pres. Charles Plosser, delivers a speech on Thursday.
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,299 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. I've reduced my universe from last week to mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm allowed to trade June options for the short legs of vertical spreads and August options for single calls and puts and for straddles. Of course, shares are good at any time.
Good trading!
Otherwise... the sound of silence, at least when it comes to major economic reports. There simply aren't any scheduled.
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.
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:
Wednesday: Petroleum inventories at 10:30 a.m.
Friday: The Treasury budget -- think federal deficit -- at 2 p.m.
I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.
Fedsters
Chairman Ben isn't the only money policy maker to be speaking during the week.
Two Federal Open Market Committee members are speaking. They are Fed Gov. Jeremey Stein on Wednesday and Kansas City Fed Pres. Esther George on Friday.
An FOMC alternate, Philadelphia Fed Pres. Charles Plosser, delivers a speech on Thursday.
Analytical universe
This week I'll be analyzing new bull and bear signals among 2,299 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. I've reduced my universe from last week to mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.
Trading calendar
By my rules, I'm allowed to trade June options for the short legs of vertical spreads and August options for single calls and puts and for straddles. Of course, shares are good at any time.
Good trading!
Friday, May 3, 2013
CP: A railroad bull play
Update 6/7/2013: CP gave an exit signal on June 4 and I closed the position on June 7. Shares gained 1% from initial entry to exit. I added to the position several times, and the loss on my overall basis was 0.9%. I structured the position as vertical credit option spreads, which sustained a 1.7% loss on risk.
Canadian Pacific Railway Ltd. (CP) broke above its 20-day price channel on Thursday and confirmed the bull signal the next day by trading above the $125.22 breakout level.
The signal comes amid a correction within an uptrend that began in October 2011 from $44.98 and carried the price up to a high of $130.81 on March 28. From that point the uptrend faltered in a four-day slide that carried the price down to $115.60, followed by a sideways trend.
Today's continuation of the breakout is the first move above that sideways trend, suggesting renewed buying interest that will test the pre-correction high, which lies 4.5% above the breakout level.
This is CP's ninth breakout to the upside since the present uptrend began. The eight completed trades split evenly between successes and failures, with winners yielding 13% on average and failures losing 5.2% on average.
Despite the even odds, the win score -- the yield on successful trades adjusted by the 50% success rate -- is 6.5%, well above my 5% minimum preference. And the win/lose yield spread is 7.8%, which is quite good.
Over the longer term, the period from January 2009, around the time that the broad markets began recovering from the post-recession crash, CP has performed poorly, with only a 40.9% success rate and a 3.6% winning score. The win/lose yield spread is 4.6%.
That's all to say that CP is doing much better now that it was.
Canadian Pacific, headquartered in Calgary, Alberta, operates trains on 14,7000 miles of track in primarily in Canada, but also in the U.S. Midwest and Northeast regions.
Despite CP's stellar chart, analysts really dislike the company's prospects, collectively giving it a negative 57% enthusiasm rating. "Hate" might be too strong a word to describe their sentiments, but they certainly are curbing their enthusiasm.
Canadian Pacific reports return on equity of 16% with a fairly high level of debt amounting to 84% of equity.
Looking at the last 12 quarters: CP has been profitable throughout the period but without a trend to the profit change. Nine quarters have shown upside earnings surprises, and three have surprised to the downside.
Institutions own 75% of shares, and the price has been bid up so that it takes $3.81 in shares to control a dollar in sales.
CP on average trades 899,000 shares a day and has a moderately wide selection of option strike prices with open interest running to three figures and a front-month at-the-money bid/ask spread on calls of 9.8%, which is a bit high.
Implied volatility is running at 25% and has been moving sideways with a slight downward bias since late April.
Options are pricing in confidence that 68.2% of trades will fall between $117.65 and $136.13 over the next month, for a potential gain or loss of 7.3%, and between $122.45 and $131.33 over the next week.
Options are mainly trading toward the bull side, with calls running at 3% above their five-day average volume, compared to 40% of average for puts.
The fair-price zone on today's 30-minute chart runs from $126.62 to $128.32, encompassing 68.2% of trades surrounding the most-traded price, $127.28. The price moved above the zone in the first hour of trading but retreated to below the zone in the subsequent hour. With 2-1/2 hours before the closing bell, CP is trading within the zone but below the most-traded price.
Canadian Pacific next publishes earnings on July 26.
Decision for my account: I like the chart, a lot. The odds are a bit lacking, but the score and win/lose yield spread helps make up for it. The 4.5% space between the breakout level and the previous swing high provides some easy money room for the price to fluctuate in before it hits major resistance.
I've opened a bull position on CP, structuring it as a vertical credit spread of options expiring in June, short the $125 put and long the $120 put. Ths provides a potential maximum yield of 23% and a 2.9% downside cushion between the entry price and the breakeven point 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.
Disclaimer
Canadian Pacific Railway Ltd. (CP) broke above its 20-day price channel on Thursday and confirmed the bull signal the next day by trading above the $125.22 breakout level.
The signal comes amid a correction within an uptrend that began in October 2011 from $44.98 and carried the price up to a high of $130.81 on March 28. From that point the uptrend faltered in a four-day slide that carried the price down to $115.60, followed by a sideways trend.
Today's continuation of the breakout is the first move above that sideways trend, suggesting renewed buying interest that will test the pre-correction high, which lies 4.5% above the breakout level.
This is CP's ninth breakout to the upside since the present uptrend began. The eight completed trades split evenly between successes and failures, with winners yielding 13% on average and failures losing 5.2% on average.
Despite the even odds, the win score -- the yield on successful trades adjusted by the 50% success rate -- is 6.5%, well above my 5% minimum preference. And the win/lose yield spread is 7.8%, which is quite good.
Over the longer term, the period from January 2009, around the time that the broad markets began recovering from the post-recession crash, CP has performed poorly, with only a 40.9% success rate and a 3.6% winning score. The win/lose yield spread is 4.6%.
That's all to say that CP is doing much better now that it was.
Canadian Pacific, headquartered in Calgary, Alberta, operates trains on 14,7000 miles of track in primarily in Canada, but also in the U.S. Midwest and Northeast regions.
Despite CP's stellar chart, analysts really dislike the company's prospects, collectively giving it a negative 57% enthusiasm rating. "Hate" might be too strong a word to describe their sentiments, but they certainly are curbing their enthusiasm.
Canadian Pacific reports return on equity of 16% with a fairly high level of debt amounting to 84% of equity.
Looking at the last 12 quarters: CP has been profitable throughout the period but without a trend to the profit change. Nine quarters have shown upside earnings surprises, and three have surprised to the downside.
Institutions own 75% of shares, and the price has been bid up so that it takes $3.81 in shares to control a dollar in sales.
CP on average trades 899,000 shares a day and has a moderately wide selection of option strike prices with open interest running to three figures and a front-month at-the-money bid/ask spread on calls of 9.8%, which is a bit high.
Implied volatility is running at 25% and has been moving sideways with a slight downward bias since late April.
Options are pricing in confidence that 68.2% of trades will fall between $117.65 and $136.13 over the next month, for a potential gain or loss of 7.3%, and between $122.45 and $131.33 over the next week.
Options are mainly trading toward the bull side, with calls running at 3% above their five-day average volume, compared to 40% of average for puts.
The fair-price zone on today's 30-minute chart runs from $126.62 to $128.32, encompassing 68.2% of trades surrounding the most-traded price, $127.28. The price moved above the zone in the first hour of trading but retreated to below the zone in the subsequent hour. With 2-1/2 hours before the closing bell, CP is trading within the zone but below the most-traded price.
Canadian Pacific next publishes earnings on July 26.
Decision for my account: I like the chart, a lot. The odds are a bit lacking, but the score and win/lose yield spread helps make up for it. The 4.5% space between the breakout level and the previous swing high provides some easy money room for the price to fluctuate in before it hits major resistance.
I've opened a bull position on CP, structuring it as a vertical credit spread of options expiring in June, short the $125 put and long the $120 put. Ths provides a potential maximum yield of 23% and a 2.9% downside cushion between the entry price and the breakeven point 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.
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.
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