Tuesday's Prospects

Note: This report is being filed several hours late due to a processing problem, which has been resolved.

On Monday, Dec. 22:

Of 1,273 stocks and exchange-traded funds in my analytical universe, 21 broke beyond their 20-day price channels, 19 to the upside and twoto the downside.

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

No symbols appearing on my supplemental list of innovative companies gave bull signals.

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

I shall do further analysis on Tuesday, Dec. 23.

The next earnings season begins Jan. 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull RCPT AIV CSCO AMAT DEI

Bear (none)

Innovators (bull) (none)

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns (none)

Bear earns (none)

Bull ex-div (none)

Bear ex-div (none)

Potential trades under my Volatility Rules, keyed to events

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

Monday pm (none)

Tuesday am (none)

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Dec. 23, 2014

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss

Monday's Finalists

RHT, IYR and HRS made it to the finals among the nine symbols, all bull signals, that survived the final rounds of analysis. (See "Monday's Prospects".)

Six of the nine either failed confirmation or had momentum moving contrary the signal.

Of the remaining three, IYR and HRS have front-month at-the-money bid/ask spreads on calls in excess of 10%, moving them beyond what I'm willing to accept in a trade.

The last symbol standing, RHT, has low implied volatility relative to its most recent range, standing in the 12th percentile. My preferred trading strategy these days, option vertical spreads sold for a credit and expiring in the front month, requires implied volatility in the 60th percentile or higher.

So in the end, none of the three finalists made it past the post, and I intend no trades based on signals given in Friday's markets.

One symbol, WAG, met my criteria for consideration as a very short term play keyed to an earnings announcement. However, it failed to make the grade because it is non-trending, make it impossible to pick a direction. See my analysis, "WAG: Volatility play", posted earlier today.

-- Tim Bovee, Portland, Oregon, Dec. 22, 2014

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

WAG: Volatility play

The pharmacy retail chain Walgreen Co. (WAG), headquartered in Deerfield, Illinois, publishes earnings prior to the opening bell on Tuesday, Dec. 23. Implied volatility is in the 7th decile, but it is embedded within a sideways trend that makes it less weighty than might otherwise be the case; [WAG in Wikipedia]

Volatility

Implied volatility is in the 72rd percentile of the rise from 20% on Nov. 13 to 33% on Dec. 16. It is the second time volatility has tested the low 30s as it traces a sideways trend that began August 22.

Typically in this period of market history, volatility has traced a rise from August into November, followed by a short fall off. That pattern means that the rise to the peak carried volatility quite an impressive distance with true upside momentum..

Click on chart to enlarge.

WAG 6 months daily bars, with implied volatility

The WAG chart, by contrast, has had two truncated rises that fell well short of the major peak of the past six months: 43% on Aug. 1. The 72rd percentile in the range topping at 33% is calculated according to my normal way of analyzing such things, but it is overly high if I consider 43% to have been the true top.

It is a conflict of form over substance. Formally, 72nd percentile is correct. Substantially, maybe not.

 The one standard deviation range, encompassing 68.2% of trades, suggests a potential gain or loss of 5.1% in the 11 days until the options I'm considering expire. The two standard deviation range, covering 95% of trades, implies a 10.1% potential gain or loss

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	76.93	80.64	75.14
Lower	69.53	65.82	66.76

Implied volatility 1 and 2 standard deviations; chart support and resistance
The low on the chart range was attained during a sideways corruption on Dec. 9, and the high was marked on Dec. 12. A move above that high would imply a resumption of the uptrend. A decline below the low end of the range would suggest continuation of the downtrend.

The Trade

It is impossible from this chart for me to decide a direction for the trade.

Click on chart to enlarge.

WAG 15 days 15-minute bars

The rise up to $74.82 on Dec. 18 brought the price nearly back to its  Dec. 12 peak, which could argue for a sideways correction, suggesting a further rise lies ahead, However, it could also simply be a strong counter-trend recovery that will be followed by a downward plunge.

There is simply no way to choose among the two directions.

At this point, I need go no further in my analysis.

Decision for My Account

The traditional solution when faced with a non-directional chart is an iron condor, which can profit whether the price goes up or down. However, I'm not a fan of that construction. Along with the possibility of bidirectional profit comes the chance for bidirectional lost. A vertical spread as a profit cliff in only one direction. An iron condor has a cliff on either side.

So instead I shall take the safest possible course: I'm passing on the trade and won't be opening a position today u WAG.

-- Tim Bovee, Portland, Oregon, Dec. 22, 2014

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

My method of scoring price and volatility responses to earnings, used in the "Chart" section, is the simplest imaginable. Looking at the four most recent earnings announcements, I give one point for a rising price or rising volatility in the week after the announcement, subtract a point to a falling price or volatility, and give a zero if the response is  sideways movement. I then add the four quarters together to produce separate scores for price and volatility, and then add the two to produce a combined score. 

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

The Week Ahead: GDP, durables, income, spending, homes, Christmas

The Bureau of Economic Analysis makes a third estimate of 3rd quarter gross domestic product, completing the regular series of releases. A surprise change in the estimate will have a major impact on trading; a result little changed form the two prior estimates will be met with a yawn and a Meh!.

GDP will be published Tuesday at 8:30 a.m. New York time, concurrently with two other major economic reports: Durable goods orders and personal income and outlays.

Other potential market movers coming out during the week are existing home sales on Monday and its sibling, new home sales, on Tuesday, each at 10 a.m.

Thursday is the Christmas holiday celebration in New York, London and Sydney. All markets will be closed on those cities. Tokyo will be open for business. The exchanges close early on Wednesday, at 1 p.m.

Leading indicators (in descending order of importance):

Several reports have been moved from their normal release days because of Christmas.

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. Friday (moved from Thursday).

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

Average weekly initial jobless claims, at 8:30 a.m. Wednesday (moved from Thursday). 

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

Other items of interest:

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

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

Treasury Debt

Bills

• 4-week: Announcement Monday 11 a.m., auction Tuesday 11:30 a.m., settlement Wednesday
• 3-month: Auction Monday 11:30 a.m., announcement Wednesday 11 a.m.
• 6-month: Auction Monday 11:30 a.m., announcement Wednesday 11 a.m.

Notes

• 2-year: Auction Monday 1 p.m.
• 2-year floating rate: Auction Tuesday 11:30 a.m.
• 5-year: Auction Tuesday 1 p.m.
• 7-year: Auction Wednesday 11:30 a.m.

Fedsters

'twas the night before Christmas and all through the Marriner S. Eccles Building, not a Fedster was heard, not even a governor. All the Fed glitterati are silent for the week as they decorate their trees and stock up on eggnog.

Analytical universe

This week I shall be analyzing new bull and bear signals among 1,273 mid-cap and larger stocks and exchange-traded funds.

Trading calendar

By my rules for shorter-term trades, I'm trading January options and later for the short legs of vertical, diagonal and calendar spreads and covered calls, and for all legs of butterfly spreads and iron condors. I'm trading April options and later for single calls and puts as well as straddles. Shares, of course, are good at any time.

Good trading, and enjoy the holiday!

-- Tim Bovee, Portland, Oregon, Dec. 21, 2014

License



All content on Tim Bovee, Private Trader by Tim Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Monday's Prospects

On Friday, Dec. 19:

Of 1,273 stocks and exchange-traded funds in my analytical universe, 46 broke beyond their 20-day price channels, 43 to the upside and threee to the downside.

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

No symbols appearing on my supplemental list of innovative companies gave bull signals.

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

I shall do further analysis on Monday, Dec. 22.

The next earnings season begins Jan. 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull CHRW RHT EQIX IYR NEE APH UUP CCE HRS

Bear (none)

Innovators (bull) (none)

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns (none)

Bear earns (none)

Bull ex-div (none)

Bear ex-div (none)

Potential trades under my Volatility Rules, keyed to events

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

Monday pm (none)

Tuesday am WAG

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Dec. 21, 2014

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss

Saturday's Outcome: DG

My bull position in DG expired worth for maximum profit. See results in the update to my Dec. 3 analysis, "PVH, DG: Volatility plays".

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Friday's Finalists

Thursday was something of a Black Friday sale for stocks, as traders rushed into the store to buy, buy, buy, elbowing each other mercilessly and wrestling in the aisles over shares.

It's a far more interesting image that the prosaic truth of our times: Electrons zipped and zapped as they usually do, but it was very much a day when buy electrons outnumbered the sell electrons sufficiently to move the prices upward.

Eight symbols that gave signals in Thursday's trading, all to the bull side, made it past the early rounds of screening. They are KRFT, FLIR, EIGI, DTE, BRX, NWL, DVY and ACC. (See "Friday's Prospects").

Of the others,

• two failed confirmation: SHPG and SYK
• six confirmed but were moving counter to the signal in early trading: PEG, SWP, XPO, XLU, ALL and WM
• one was a fund designed to move counter to the market price: TZA

That left the eight finalists.

In the final rounds of analysis, my focus is heavily on the chart and the ability of the options grid to support a trade. 

The usual point of failure is insufficient open interest. I require that it be at a minimum in the three figures with enough strike prices covered to allow for construction of option spreads, a trade structure that gives me both leverage and the ability to define my maximum loss.

This crew did not disappoint my expectations. All but one had insufficient open interest.

The last symbol standing was KRFT, and it faced the difficult hurdle of meeting my needs for a specific trading tactic.

We are passing through a period of high volatility. The volatility implied by options prices is near the upper end of the historical range.

My minimum requirement is that implied volatility be in the 60th percentile or higher of the rise from the most recent major low to the most recent major high. I use the 6-month, daily bar chart for that purpose.

The high imposed volatility is a require for short option spreads. By "short" I don't mean bearish, but rather that I'm selling the spread in return for a premium rather than shelling out the money to buy it. My goal is to buy the spread back later for less money than I got, or, best case, to watch the spread expire without value, meaning that I get to keep all of the premium, for maximum profit.

It makes for a high-velocity trade -- in today, out in a few weeks -- that quickly frees up funds for the Next Big Thing.

KRFT''s implied volatility is below the 60th percentile, and so failed to make it past the post for further analysis.

I plan no trades off of the signals given during Thursday's markets.

I turn next to the three symbols from my innovators list that gave bull signals. For these stocks, my preference is trades under my longer-term rules. However, I've fully committed the funds set aside for that strategy and so am looking at them as potential shorter-term trades.

One, JWN, failed confirmation. The other two, MMM and PG, have implied volatility below the 60th percentile. No trade to be found here, either.

Of course, no trades is no tragedy, especially this close to Christmas and New Years. Especially for laggards like me, who haven't yet gotten all of their holiday greeting cards in the mail.

Enjoy the weekend!

-- Tim Bovee, Portland, Oregon, Dec. 19, 2014

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Friday's Prospects

On Thursday, Dec. 18:

Of 1,198 stocks and exchange-traded funds in my analytical universe, 69 broke beyond their 20-day price channels, 64 to the upside and five to the downside.

Nineteen symbols survived initial screening, 18 having broken out to the upside and one to the downside. Two of the bull signals occurred immediately after earnings announcements.

Three symbols appearing on my supplemental list of innovative companies gave bull signals.

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

I shall do further analysis on Friday, Dec. 19.

The next earnings season begins Jan. 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull SHPG PEG BWP XPO KRFT XLU FLIR EIGI ALL DTE SYK BRX WM NWL DVY ACC

Bear TZA

Innovators (bull) JWN MMM PG

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns GIS ACN

Bear earns (none)

Bull ex-div (none)

Bear ex-div (none)

Potential trades under my Volatility Rules, keyed to events

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

Today pm (none)

Tomorrow am (none)

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Dec. 19, 2014

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss

Thursday's Outcome: NKE

I opened a bear position in NKE keyed to earnings, with only minutes remaining until the closing bell. An extensive analysis of the end-of-day price movements with a fresh chart. See the update to today's post, "NKE: Volatility play".

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

NKE: Volatility play

Update 12/18/2014: NKE resumed a very near term uptrend late in the day, and I opened a bear position shortly before the closing bell, as described in the main analysis, below. 

The price tested her $96.79 level several times but was unable to sore  a persistent break above that level. 

At the time of the trade, the price had produced a lower low and a lower high, but not yet a still lower low. That counts as a potential downtrend, but it takes the third mark to make it the real deal. This points out the quandary of all late-day trader: The clock is ticking, and there is no time for a measured decision. 

Somestime in trading you've got to roll the hard six, and at this micro level, that is what I have attempted.

Click on chart to enlarge.

Nov. 18, 2014 pre-market to closing bell, 2-minute bars

After the trade, the price reversed and moved up to new heights, meaning that the dice turned against me in the final two minutes minute of trading. I'll find out tomorrow how well that correlates with the actual post-announcement price movements.

---

The sports-gear company Nike Inc. (NKE), headquartered in Beaverton, Oregon, publishes earnings after the closing bell today, Dec. 18. [NKE in Wikipedia]

High implied volatility, liquid options and the presence of weeklys in the options inventory make NKE a good candidate for trade keyed to a market response to the earnings announcement.

Volatility

Implied volatiity stands at 96%, which is in the 87th percentile of the rise that began Oct. 21 from 20% and peaked Dec. 16 at 31%. Volatility has declined a bit from that peak, anticipating its usual post-earnings decline.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	101.69	107.74	96.79
Lower	89.79	83.84	92.90

Implied volatility 1 and 2 standard deviations; chart support and resistance
I've calculated the standard deviation ranges based on the weeklys that I propose to trade. They are the JAN1 series, which expires Jan. 2.

The one standard deviation range, encompassing 68.2% of trades until expiration, suggests a potential 6.2% gain or loss, and the two standard deviations range, covering 95% of trades, suggests a 12.4% gain or loss.

The chart shows NKE in a decline from Nov. 28, the peak of a long-running rise. Since then the price has declined to a significant reversal to the upside on Dec. 17 that has retraced much of the final leg of the preceding decline.

Click on chart to enlarge.

NKE 15 days 15-minute bars

Today's trading early on hit a peak and fell. I judge NKE to be in a downtrend from that peak. A break above $96.79 will prove my opinion to be wrong, and a break below $92.90 will confirm the opinion.

The Trade

I shall construct the position as a bear call spread, using the JAN1 weeklys series.
.
Bear call spread, short the $99 calls and long the $101 calls sold for a credit and expiring Jan. 2 Probability of expiring out-of-the-money

JAN2	Strike	%
	99	70.81

The $99 strike leaves 2.2% of the one standard deviation range unprotected but protects all of the resistance-defined range on the chart,

The risk/reward ratio is 3.3:1.

Decision for My Account

The numbers argue for this trade. The one point of ambiguity, as always, is the trend. I shall wait until the half hour before the closing bell before a final decision on this trade. I'll take the trade if the price remains below $96.79. If it breaks above that level, then I won't make the trade.

-- Tim Bovee, Portland, Oregon, Dec. 18, 2014

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

My method of scoring price and volatility responses to earnings, used in the "Chart" section, is the simplest imaginable. Looking at the four most recent earnings announcements, I give one point for a rising price or rising volatility in the week after the announcement, subtract a point to a falling price or volatility, and give a zero if the response is  sideways movement. I then add the four quarters together to produce separate scores for price and volatility, and then add the two to produce a combined score. 

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Thursday's Finalists: NPSP, PAY, DRE, O, NKE, RHT, KMX

Four of the six symbols that gave trading signals on Wednesday, all to the bull side, have made it to the finals: NPSP, PAY, DRE and O. (See "Thursday's Prospects".)

One of the six, ZLTQ, failed confirmation, and another, NNN, while confirming the signal, showed strong contrarian momentum.

NPSP has a chart that is insufficiently bullish to support a trade.

PAY has a bullish chart but it is just short of a true breakout beyond resistance.

DRE and O have low open interest, making it impossible build a hedged, leveraged position out of options, and also have low implied volatility, barring me from my preferred strategy these days: options spreads sold for a credit and expiring in the front month, or earlier if weeklys are available.

No signals from Thursday's markets meet my criteria, and I plan no trade off of today's Prospects list.

Turning now to volatility plays keyed to earnings announcements, I see three possibilities: NKE and RHT, which publish earnings after the closing bell today, and KMX, which publishes before the opening bell on Friday.

All three have implied volatility that is in a high percentile of the range of the prior rise, KMX in the 90s, NKE in the 80s and RHT in the high 70s.

The volatility on all three has hooked downward from a recent peak, the ideal pattern for trades that rely on collapsing implied volatility following an earnings announcement.

All three have clear intra-day momentum of the past few days.

The only differentiation among the three lies in the options inventories. NKE has weeklys, allowing me to construct a trade that expires in 15 days, almost perfectly matching my preferred two-week lifespan.

RHT and KMX have monthly issues only; the best trade I can build from their inventories expires in 29 days, more than double the idea. lifespan.

That is enough to push NKE into the preferred position, and I shall post an analysis prior to the closing bell.

-- Tim Bovee, Portland, Oregon, Dec. 18, 2014

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Thursday's Prospects

On Wednesday, Dec. 17:

Of 1,198 stocks and exchange-traded funds in my analytical universe, 12 broke beyond their 20-day price channels, eight to the upside and four to the downside.

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

No symbols appearing on my supplemental list of innovative companies gave bull signals.

There are three prospects for trades keyed to earnings under my Volatility Rules.

I shall do further analysis on Thursday, Dec. 18.

The next earnings season begins Jan. 8 with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.

Bull NPSP PAY ZLTQ NNN DRE O

Bear (none)

Innovators (bull) (none)

First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns (none)

Bear earns (none)

Bull ex-div (none)

Bear ex-div (none)

Potential trades under my Volatility Rules, keyed to events

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

Today pm NKE RHT

Tomorrow am KMX

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Dec. 18, 2014

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss

Wednesday's Outcomes: ADBE, ORCL

I closed my bear position in ADBE for a loss in order to avoid exercise upon expiration at the end of the week. See the update to my Dec. 11 analysis, "ADBE: Volatility play".

I declined to open a bear position in ORCL keyed to the company's earnings announcement. See the update to today's analysis, "ORCL: Volatility play".

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.