Cove Reflections

A Method for using Options

Cove Reflections — Mon, 20 Sep 2010 18:14:00 GMT

My method for using options

http://traderscove.com/viewtopic.php?f=12

by Bender24 » Tue Sep 07, 2010 11:53 pm

Tiki asked me to write a brief summary of how I trade. I’ve never been a blogger, so here goes nothing…..

First, a little bit about me. I think it’s always good to understand where people come from in order to see their points of view. I bought my first stock, thanks to the influence/help of my father, at the age of about 7. He showed me an estimation of what I would have at retirement if I put away 2K every year into a Roth IRA (back then the limit was 2K). When I saw that the result was several million, he had my attention. He always taught me that the goal in investing is to buy low and sell high, and that time was on your side when you’re young. The more you invest in your early years, the better you are in the long run. Fast forward to today, I’m 33, and doing okay for myself. I have a very stable job as a military officer, and am able to put away roughly 35% of my take home into investing for either Roth IRA, TSP, or fun “trading” money. A bit of my positions are weighted in mutual funds, because I’m in it for the long haul. However, I have several stock positions, and I’d be happy to explain what I do.

Be advised, I’m a Mechanical Engineering major, so I have no formal education in financial planning/management. I’m also not a daytrader. Because of my job I can’t stare at the computer screen scooping up shares on downticks, or monitoring stocks on watchlists for volume. Just like I was taught, I’m in it for the long haul, and I’ve learned that sometimes winning takes patience. Okay, here’s what I do with majority of my current holdings.

First off, I’m terrible at determining enter and exit prices. However, I love looking at 3, 6, 12 month charts to get an idea (short, med, long) what the overall feeling that the market has for the stock. I’ll even glance at the 3 year, and 5 year charts as well to see possible potential. Also, those charts help me to determine what the stock is doing. Is it channeling, where is the resistance, support? Then my most important question, does the stock have options? If yes, and if I like the chart, company, sector, etc, I buy.

All my buys are at about 1K, which turns out to be a little less than 1% of my portfolio, so I’m not risking a whole lot. I also buy in 100 share increments, to help set up any potential option plays. Also, I’m normally buying stocks at around $10 or less. If the company is at a high stock price, but I like it, I’ll still buy in 1K increments, but I’ll go in slow, buy dips, average in, whatever you want to call it, to get to 100 shares.

Okay, now that I’m in, I’ll take a step back and look at the long term charts. I’ll ask myself some questions. Where can this thing go? Where was it? And most importantly, what are the support/resistance? If there’s a channel, I’ll sell (or write) covered call for my entire position at or above the resistance. I want the strike price to be higher than my avg cost basis (buy low sell high). I’ll try to do some charting to see how far out I need to go as far as a timeframe. Sometimes it’s just a month or two, sometimes it’s six to nine. Patience.

I’ll also look at the support and I’ll ask myself this: if stock XYZ is trading at $4, boy wouldn’t I love to buy more shares of it at $2.50? Well, that’s when writing puts comes into play. So in this case, since I love buying $1K worth of stuff, I’d sell (write) 4 puts contracts at $2.50 strike price, meaning that I may be forced to buy 400 shares of XYZ at $2.50. But wait, that’s what I’d want to do right? Buy low sell high, remember?

Writing Calls
Advantage – If the stock fails to rise above the strike price in the given time, you keep the premium. Also, when the option expires worthless, you aren’t charged a commission fee for the worthless option (takes that fee out of the equation). This can be used to average your cost basis down in case the stock doesn’t move in the time that you thought it would. Also, this, in my mind, acts as a major dividend, IMO. My mindset when I own a position is this: If I’m going to hold onto a stock for several months, then I want someone to pay me for owning it. This is why I’ll write calls.

Disadvantage – You can miss out on a huge upside if the stock goes supernova. It’s happened to me before. Look at ABK, and CIGX. I sold ABK covered calls at $1 strike, and CIGX at $2 strike, both expire next month (old trade a few months ago). Bad news, I’ll miss out on further upside. Good news, I’ll be up over 50% on both holdings when it’s all said and done, not bad for owning them less than a year.

Solution – If you want to not miss out on upside, but still want to “get paid” for owning the stock, write half of your position, let the other half ride if the stock takes off.

Writing Puts
Advantage – Bullish outlook. Again, I want to buy low, and I want someone to pay me for trying to buy at a lower price, best of both worlds. I’ll look at it this way, if the strike price is $2.50, and the contract is would sell for .30 each, then if I have to buy the stock, I’d actually pay $2.20 for the stock, because I keep the premium.

Disadvantage – Well, if the stock goes to zero, you’re stuck with buying it at that strike price (less received premium). It can happen. Also, you have to have the amount of money standing by in your account ready to purchase the stock, in case it gets assigned (unless you have a margin account).

Solution – Write puts for fundamentally solid companies that aren’t going away anytime soon.

Okay, so I can’t stare at a computer everyday, and the overall goal is buying low, selling high. Writing options can give you this, but it takes time. Options decay over time, and patience will win in the end. I recently sold DPTR. I owned it for 6 months, wrote calls and puts, sold it last month for +46% gain. SCLN, also a 6 month hold, sold last month, +34%. ABK, will get called away at $1 strike next month, will be +48% in 4 months. Sure, all of those stocks went up, but look at S, trading sideways, owned for 9 months, currently up 18%. Again, I’m terrible at picking entry points, but I’ve been able to break even on positions that I’m in the red in on the stock, just takes time.

Hope this helps give people an idea on how you can trade (more like invest) when you are away from a computer due to other commitments during the day. I try to take a step back, look at the long term, find support, resistances, and if need be, get paid for owning stock, or taking a risk to buy it lower! To put it in baseball terms, I may not hit homeruns, but I do okay hitting doubles and triples. Good luck. Remember, I’m thinking big picture/long term…..

Bender24: Posts: 14; Joined: Fri Aug 13, 2010 12:49 pm

Float Runner Short-- DG FastChannel, Inc

Cove Reflections — Sat, 04 Sep 2010 23:09:00 GMT

DGIT [NASD]
DG FastChannel, Inc.
Services \| Business Services \| USA

Posted on the Forum "Pincher Plays" on 9/01 Click Here to Follow Thread

Early, immature Pincher begnning to setup that has some interesting and overall short-term dynamics in play:

Bullish Factors:
1. Bullish TA (see annotated Money Flow chart below; Click Here for Live Version )
2. Bullish TOR and Float Analysis to create a Short Squeeze environment (presented below)
3. Bullish Options Acty in terms of volume and call:put ratio
4. Positive News WRT considerable Share buyback authorization ( Read News )

Negative Factors:
1. Short Interest > 18% and Float Analysis suggests a possible 3-5% increase this period (presented below)
2. Fundamental Decay given the lowering of Q and Full Year Guidance (
Case Laid Out Very Well Here )
3.Insider Selling-- althoughsporadic, consistant (and August is somewhat suspicious to the timing of guidance SEC Form 4 Filings )

Neutral Factor: Lower Float = Higher Volatility. Currently Bears have a lock, but may have over-reached.

Options Option : Sept $17.50 Calls (Expire at close Friday, September 17, 2010):
9/3 Last: 0.35
Volume: 315
Open Interest: 2,046
Rho: 0.00
Vega: 0.01
Theta: -0.02
Gamma: 0.16
Delta: 0.29
Implied Volatility: 65%

Short Interest:
Assume 8/31 report will show an increase Short Interest equivalent to the avg of the last 5 reports (Short Interest Trend = 21.67%
Short Projected = 5.749M
Short % of Float Projected = 21.95%

Float Analysis:
TOR: 22.03% (desired above 3%)
Reported Float: 26,190,000
8MA: 5,770,000
WF: 18,671,720
EF: 48,882,563
%EF of Reported: **186.65% (desired above 30%. **When the Effective Float is > 100% of the Reported Float, there is an equity issue-- Naked Shorts or Dilution are the typical culprits.)
Short Interest: 18.08%%
Short Ratio: 3.80 (desired above 3)

Day TOR: 9.66%
Day Volume: 2,530,000

2010 Daytrader Calendar

tagthatstock — Sat, 15 May 2010 23:44:00 GMT

Float Analysis and Identifying a Short Condition

Cove Reflections — Thu, 25 Mar 2010 23:29:00 GMT

Float Analysis – Understanding the “health” of the publicly traded share supply in relationship to the demand is very beneficial in both terms of volatility (rate of change) and size. If the float of a company is very small and sees an upsurge in volume, it is prone to extreme volatility given an almost certain supply and demand imbalance. This has extremely attractive points for traders as well as not so attractive ones.

1. Float

What Does Float Mean?
The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.

Investopedia explains Float
For example, a company may have 10 million outstanding shares, but only seven million are trading on the stock market. Therefore, this company's float would be seven million.

Stocks with small floats of less than seven million shares tend to be a lot more volatile than others.

So float size is an important dynamic that some traders seek out purposefully to exploit the volatility. Another dynamic is the number of shares traded in relationship to the size of the float.

2. Thinly Traded

What Does Thinly Traded Mean?
An asset that cannot easily be sold or exchanged for cash without a substantial change in price. Thinly-traded securities in the financial markets are exchanged in low volumes and often have a limited number of interested buyers and sellers, which can often lead to volatile changes in price when a transaction does occur.

Also known as illiquid.

Investopedia explains Thinly Traded
The stock prices of small unknown publically traded companies are deemed to be thinly traded. The lack of ready buyers and sellers generally leads to large discrepancies between the asking price and the bidding price. Thinly-traded securities are usually more risky than liquid assets because a small number of market participants can have such a large impact on the price.

Float Turnover (TOR) = the average volume over X periods divided by the Reported Float.

The working theory is that a perfectly balanced float will typically run through a "cycle" in 3 months. Given that, a healthy Float (balance) is achieved when the daily session trades around 1% or monthly approximately 30% (21 trading days).

Thinly Traded Stocks: (daily % < 1 of the Reported Float) are prone to increased volatility because of the supply/demand imbalance.

On the one side a quick price spike can be achieved when volume suddenly surges as demand sees a rapid (perhaps even unexpected) increase.

On the other side however is volume sustainment-- if the volume wanes the supply/demand relationship imbalance "flips," the price is susceptible to a precipitous decline and may become more difficult to sell depending on the number of shares owned.

Float Runner Setup: This setup attempts to find stocks that have an increased supply/demand relationship that signals a higher probability for a sharper increase in a stock's share price over a shorter period of time.
Can be used in conjunction with the Standard or Pincher Setup
Additional setup that attempts to take advantage of a significant Short Ratio against a fundamental counter-propellant

Recognizing changes in Short Positions

Amex Short Interest

Nasdaq Short Interest

NYSE Short interest (via Nasdaq)

Change in Money Flow indicators (CMF & MFI short period over/under long), shift in money momentum (ChiOsc) and volume wane and reversal (PVO)

Example 1:

Example 2:

Screening for Stocks -- Fundamental Analysis

Cove Reflections — Thu, 04 Mar 2010 22:47:00 GMT

Introduction to Fundamental Screening: No matter if you are an Investor or a Swing, Momentum or Day Trader, finding a good group of Stocks to place in a Portfolio of Potentials is very beneficial for most and well worth the effort.

Resources:

1. Investopedia University

2. Morningstar Classroom

3. Finviz Screener Help

Basic fundamental data points and ratios:

A. Market Capitalization

What Does Market Capitalization Mean?
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.

Frequently referred to as "market cap".

Investopedia explains Market Capitalization
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).

Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.

The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are:

Large Cap: $10 billion plus and include the companies with the largest market capitalization.
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion

Categorization of companies by capitalization

Traditionally, companies are divided into large-cap, mid-cap, and small-cap. Recently people have added 'micro-cap' and 'nano-cap'. People have rules of thumb to determine category from market capitalization. These need to be adjusted over time due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950 but it is not very large now), and they may be different for different countries. A rule of thumb may look like:^[3]

Mega-cap: Over $200 billion
Large-cap: $10 billion–$200 billion
Mid-cap: $2 billion–$10 billion
Small-cap: $300 million–$2 billion
Micro-cap: $50 million-$300 million^[4]
Nano-cap: Below $50 million

Different numbers are used by different indexes; there is no official definition of or general agreement about the exact cutoffs. They also may be done by percentiles rather than fixed cutoffs.

B. Style Box

What Does Style Box Mean?
Created by Morningstar, a style box is designed to visually represent the investment characteristics of fixed-income (bond), domestic equity (stock) and international equity (stock) securities and their respective mutual funds. A style box is a valuable tool for investors to use to determine the asset allocation and risk-return structures of their portfolios and/or how a security fits into their investing criteria. There are slightly different style boxes used for equity and fixed-income funds.

Investopedia explains Style Box
For stock funds (domestic and international), the horizontal axis of the style box is divided into three investment style categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market-capitalization) indicators: large, medium and small.

For bonds and bond funds, the horizontal axis is divided into three maturity categories: short-term, intermediate-term, and long-term. The vertical axis is divided into three credit-quality categories: high, medium and low (BB-C).

Investors can use a style box to put together mutual fund portfolio and visually see the results as a total picture. For example, an investor looking for a relatively safe stock fund would seek out one categorized as a large-cap value fund. If that same investor is willing to accept more risk for the opportunity of a greater return, he/she might select a fund in the small-cap growth category. Putting dollar values on the fund selections in the same and/or differing category squares will readily reflect the risk-return parameters of the whole portfolio.

C. Growth Stock

What Does Growth Stock Mean?
Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.

Also known as a "glamor stock".

Investopedia explains Growth Stock
A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.

Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.

D. Value Stock

What Does Value Stock Mean?
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.

Investopedia explains Value Stock
A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter.

E. Growth At A Reasonable Price - GARP

What Does Growth At A Reasonable Price - GARP Mean?
An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding companies that have very high valuations (value investing). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low price/earnings (P/E) multiples in normal market conditions.

Investopedia explains Growth At A Reasonable Price - GARP
GARP investing was popularized by legendary Fidelity manager Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the price/earnings growth (PEG) ratio. The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.

In a bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors, but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.

F. Terms:

1. Exchange: The stock exchange on which a company is listed. All stocks listed on: National Association of Securities Dealers Automated Quotation (NASDAQ), New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) are available.

2. Index: A stock's membership in a major stock exchange index such as Dow Jones Industrial or S&P 500. The stock indices track the performance various segments of the market.

3. Sector: Companies are divided into several groups - sectors - according to their business activities.

4. Industry: Companies in a common sector are further divided by products and services into smaller groups - industries.

G. Ratios:

1. P/E: A popular valuation ratio of a company's current share price compared to its per-share earnings (trailing twelve months). Low P/E value indicates a stock is relatively cheap compared to its earnings. For instance, a P/E value of 15 means that the current price equals the sum of 15-year earnings per share. The average level varies across the market. Therefore, P/E value should be compared per sector or industry.

P/E = Current Market Price / Earnings Per Share (EPS)
P/E = Average Common Stock Price / Net Income Per Share
EPS = (Net Income - Dividends On Preferred Stock) / Average Outstanding Shares

2. Forward P/E: A measure of the price-to-earnings ratio using forecasted earnings for the P/E calculation for the next fiscal year. If the earnings are expected to grow in the future, the forward P/E will be lower than the current P/E.

Forward P/E = Current Market Price / Forceasted Earnings Per Share

3. PEG: A ratio used to determine a stock's value while taking into account the earnings' growth. PEG is used to measure a stock's valuation (P/E) against its projected 3-5 year growth rate. It is favored by many over the price/earnings ratio because it also takes growth into account. A lower PEG ratio indicates that a stock is undervalued.

PEG = (P/E) / Annual EPS Growth

4. P/S: A ratio that reflects the value placed on sales by the market. It is calculated by dividing the current closing price of the stock by the dollar-sales value per share. The ratio is often used to value unprofitable companies.

P/S = Current Market Price / Total Revenues Per Share

5. P/B: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is either undervalued or something is fundamentally wrong with the company.

P/B = Current Market Price / (Total Assets - Total Liabilities)
P/B = Current Marker Price / (Total Common Equity / Total Common Shares Outstanding)
Book Value = (Total Assets - Total Liabilities) = Share Holder's Equity

6. Price/Cash: A ratio used to compare a stock's market value to its cash assets. It is calculated by dividing the current closing price of the stock by the latest quarter's cash per share.

P/C = Current Market Price / Cash per Share

7. Price/Free Cash Flow: A valuation metric that compares a company's market price to its level of annual free cash flow.

P/FCF = Current Market Price / Cash Flow per Share

8. Return on Assets: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.

ROA = Annual Earnings / Total Assets

9. Return on Equity: A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. Calculated as Net Income / Shareholder's Equity.

ROE = Annual Net Income / Share Holder's Equity
ROE = Annual Net Income / Book Value
ROE = Annual Net Income / (Total Assets - Total Liabilities)

10. Return on Investment: Performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment.

ROI = (Gain from Investment - Cost of Investment) / Cost of Investment.

11. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as Current Assets / Current Liabilities.

Current Ratio = Current Assets / Current Liabilities

12. Quick Ratio: An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Calculated as (Current Assets - Inventories) / Current Liabilities.

Quick Ratio = (Current Assets - Inventories) / Current Liabilities

13. Long Term Debt/Equity: A measure of a company's financial leverage calculated by dividing its long term debt by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

LT Debt/Equity = Long Term Debt / (Share Holder's Equity)
LT Debt/Equity = Long Term Debt / (Total Assets - Total Liabilities)
LT Debt/Equity = Long Term Debt / (Book Value)

14. Debt/Equity: A measure of a company's financial leverage calculated by dividing its liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Debt/Equity = Current Liabilities / (Share Holder's Equity)
Debt/Equity = Current Liabilities / (Total Assets - Total Liabilities)
Debt/Equity = Current Liabilities / (Book Value)

Fundamental Trend of The Market: typical -vs- current

Screeners:

Morningstar: Stock Selector

1. Presets: Preset Screeners
2. Weighing/Scoring: Score Integration

Finviz: Stock Screener

Momentum Indicators-- Technical Analysis

Cove Reflections — Sun, 14 Feb 2010 06:03:00 GMT

It's all about the MOMO... if not the key dynamic that attracts a trader-- surely in the top 3 -- momentum is highly desirable. It can be seen as somewhat analogous to sailing-- momentum is the wind at your back...

Taken from Stockcharts.com: Generally speaking, momentum measures the rate-of-change of a security's price. As the price of a security rises, price momentum increases. The faster the security rises (the greater the period-over-period price change), the larger the increase in momentum. Once this rise begins to slow, momentum will also slow. As a security begins to trade flat, momentum starts to actually decline from previous high levels.

Thus the wind-- direction and intensity or lack thereof are sought after by Technical Analysts routinely...

Momentum indicators are considered "leading"-- also from Stockcharts.com:

Leading Indicators: As their name implies, leading indicators are designed to lead price movements. Most represent a form of price momentum over a fixed look-back period, which is the number of periods used to calculate the indicator. For example, a 20-day Stochastic Oscillator would use the past 20 days of price action (about a month) in its calculation. All prior price action would be ignored.

Benefits and Drawbacks of Leading Indicators: There are clearly many benefits to using leading indicators. Early signaling for entry and exit is the main benefit. Leading indicators generate more signals and allow more opportunities to trade. Early signals can also act to forewarn against a potential strength or weakness. Because they generate more signals, leading indicators are best used in trading markets. These indicators can be used in trending markets, but usually with the major trend, not against it. In a market trending up, the best use is to help identify oversold conditions for buying opportunities. In a market that is trending down, leading indicators can help identify overbought situations for selling opportunities.

With early signals comes the prospect of higher returns and with higher returns comes the reality of greater risk. More signals and earlier signals mean that the chances of false signals and whipsaws increase. False signals will increase the potential for losses. Whipsaws can generate commissions that can eat away profits and test trading stamina.

Momentum Indicators:

Aroon
Commodity Channel Index (CCI)
Rate of Change (ROC)
Relative Strength Index (RSI)
Stochastics (%K, %D)
StochRSI
TRIX
Ultimate Oscillator (ULT)
Williams %R (Wm%R)

We will look at Aroon, Relative Strength Index (RSI), Stochastics (%K, %D), and Williams %R (Wm%R)

1. Aroon

2. Relative Strength Index (RSI)

3. Stochastic Oscillator (Fast, Slow, and Full)

4. Williams %R

Examples:

REXX [NASD]

Rex Energy Corporation

Basic Materials - Oil & Gas Drilling & Exploration - USA

APWR [NASD]

A-Power Energy Generation Systems, Ltd.

Utilities - Electric Utilities - China

Equity Use -- Fundamental Analysis

Cove Reflections — Thu, 04 Feb 2010 08:25:00 GMT

A Public Company's tap into Equity appears to be on the rise given current credit market conditions.

It should come as no surprise to traders/investors that companies will from time to time use their equity to further their goals. It is expected-- and in many cases desired -- for keeping companies afloat and/or moving them forward...

However, there is no denying the "pain" that comes from the dilution (fundamentally) and float "bloat" (technically).

Given that the use must exist and the accompanying pain must be tolerated to trade, what makes the best use to satisfy both company and trader/investor?

In general terms, to get a basic understanding of the "vehicles," let's break them down into 3 main categories:

1. Offering (Public and Registered)
--Quick (and in some cases sharp) share price drop . Pain is then over
--Company sold (desired) –vs- Investor Sold (useless)
--Shares immediately (in terms of weeks) to retail—then assume “normal” behavior
--Shortest definitive influential period—all “standard”
--Bump/Blip

2. Private Placement (Private and not registered)
--Blunt Pain – queasy period – pain returns
--Size of Offering w/ or w/o accompanying warrants determines pain threshold
--Shares to “Qualified Investors”—could be “pledged" or go to 2ndary market—eventually (6 month waiting period if unregistered) enter retail—then assume normal behavior
--Prolonged influential period --Choppy Zone but can predict relatively "safe" area

3. Convertibles (Private where conversions may be either registered or not)
--Blunt to Quick – then Chronic Blunt with aperiodic Sharp episodes
--Shares –vs- Notes/Debentures (include the crossbreed SEDA in this category)
--Shares upon conversion—could be “pledged" or go to 2ndary market—eventually (6 month waiting period if unregistered) enter retail—then assume normal* behavior
--Open-ended influential period proportional to conversion feature w/ “floorless” effectively creating infinity*
--Continuing Spiral (* for ruthless financiers, a typical cycle of shorting; converting; pumping & selling will eventually kill the company but drive enormous profits for the financier)

Example #1

REXX [NASD]

Rex Energy Corporation

Basic Materials - Oil & Gas Drilling & Exploration - USA

Example #2

APWR [NASD]

A-Power Energy Generation Systems, Ltd.

Utilities - Electric Utilities - China

Example #3

OCNF [NASD]

OceanFreight, Inc.

Services - Shipping - Greece

Introduction to Money Flow-- Technical Analysis

Cove Reflections — Sat, 30 Jan 2010 23:09:00 GMT

Momentum and Trending Indicators are extremely useful to help gauge the direction and strength of a stock movement. However,trading activity at its core is the ongoing battle over share supply and demand.

Given the onset of the financial crunch, it appears that more companies are choosing to tap into their equity more frequently.More so now, but even under “normal” conditions, Money Flow (or Volume)Indicators play a role in helping to understand that buying/selling relationship.

The following are the basics of charting Money Flow indicators and how to utilize them to spot irregularities in buying and selling pressures.

Daily Chart Indicators:

On Balance Volume (OBV): OBV is a simple indicator that adds a period's volume when the close is up and subtracts the period's volume when the close is down. Accumulative total of the volume additions and subtractions forms the OBV line. This line can then be compared with the price chart of the underlying security to look for divergence or confirmation.

Accumulation/Distribution Line (A/D): A momentum indicator that relates price changes with volume. It relates the closing price to the range of prices (High to Low). The closer the close is to the high, the more volume is added to the cumulative total.

Chaikin Oscillator (ChiOsc): This is a moving average of the A/D. It is created by subtracting a 10period exponential moving average of the accumulation/distribution line from a 3 period exponential average of it.

Chaikin Money Flow (CMF): An oscillator that helps signal if a stock is undergoing accumulation or distribution. It is calculated from the daily readings of the A/D.The CMF is unlike a momentum oscillator in that it is not influenced by the daily price change. Instead, the indicator focuses on the location of the close relative to the range for the period (daily or weekly).

Money Flow Index (MFI): A volume-weighted momentum indicator that measures the strength of money flowing in and out of a security. It compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend.

Intraday Chart Indicators:

Volume+: The Volume+ indicator identifies by colored bars when the trading volume contributed to a gain in price and when the trading volume was associated with a loss in price. The colors are labeled in the legend above the indicator. In addition to the color coding, the Volume+ indicator displays a symbol's50-day average volume as a reference point.

Money Flow: The Money Flow indicator attempts to measure the amount of money buying a stock vs. the amount of money selling a stock. It does this by assuming that when a stock closes higher than its open, all volume associated with that trading period results from buyers. It further assumes that when a stock closes lower than its open, all volume associated withthat trading period results from sellers. Although these assumptions are overly simplistic, money flow can be a useful indicator when analyzing the general buying and selling pressure on a stock.

Volume Accumulation: The Volume Accumulation indicator, is a modification of the traditional OBV indicator. Instead of assigning all the period's volume to either buyers or sellers, the Volume Accumulator uses a proportional amount of volume based on the relationship between the closing price and its intra-period mean price. In effect, the indicator is measuring shades of gray that traditional volume indicators like OBV miss.However, if prices close at the period's high or low, all volume forthat period will be assigned accordingly, regardless of the relationship to the intra-period mean price.Movement of the oscillator above the zero line measures buying pressure, while movement below the zero line measures selling pressure.

General Term:

Divergence: A situation that occurs when two lines on a chart move in opposite directions vertically. There are two kinds of divergences: positive and negative. A positive divergence occurs when the indicator moves higher while the stock is declining. A negative divergence occurs when the indicator moves lower while the stock is rising.

Whipsaw: A whipsaw occurs when a buy or sell signal is reversed in a short time. Volatile markets and sensitive indicators can cause whipsaws.

Notes: CMF and A/C line represent retail buying/sentiment— when the overall trend is down you can interpret it as Retail Buyers beginning to lose faith in the movement.

ChiOsc and MFI represent Sellers affect on “normal” trading. When they are providing more supply than the demand can handle (MFI), money momentum is degraded/stopped (ChiOsc). ChiOsc will tell you when the run is losing momentum and MFI will tell you when the demand fades but the sellers remain. When the ChiOsc collapses along with a down trending MFI against flat or uptrending OBV, A/D and CMF, it can be interpreted as retailers trying to "catch a falling knife."

Given that, for momentum generated runs, the emphasis is placed on the average price to qualify/quantify supply/demand battles. Both CMF and MFI are tracked in multiple periods-- 3 periods for short-term trying to quantify the daytrader, flipper and heavy sellers and 21 periods to trend based on a typical month.

In the example below, periods 1 and 2 show normal buying/selling into a pop. Period 3 shows ChiOsc divergence during basing, suggesting a load into a pending run. Period 4 shows the selling shift as well as the Retail attempt to support price as momentum collapsed-- ominous foreboding going into Friday.

In the next example, the "devil in the details" detection can be more readily seen on an Intraday chart. Both the Money Flow and Volume Accumulation indicators whipsawed for the first 1 1/2 hours on Thursday before the ultimate crash during the 1:45 time block.

Template Approach DD Example: Broadwind Energy, Inc

Cove Reflections — Thu, 28 Jan 2010 21:48:00 GMT

Template Approach Example: Broadwind Energy, Inc BWEN

1. Overview:

(1) Company: http://www.finviz.com/quote.ashx?t=bwen

(2) Industry/Sector: http://www.tickerspy.com/index/Wind-Energy-Stocks

(3) Index: http://www.cleanedge.com/ceindex/

a. http://finance.yahoo.com/q?s=%5ECELS

(4) National/Global: http://windpowerstockstowatch.blogspot.com/2009/10/wind-power-stocks-in-news.html

2. Capital Structure:

(1) Confirmation: http://www.sec.gov/Archives/edgar/data/1120370/000104746910000185/a2196102z424b4.htm

(2) Stock Holder’s Equity: Common & Preferred Shares http://www.sec.gov/Archives/edgar/data/1120370/000110465909061909/a09-31192_110q.htm

(3) Secretary of State: https://delecorp.delaware.gov/tin/controller

a. http://www.coordinatedlegal.com/SecretaryOfState.html

3. Key Fundamentals:

    (1) “Report Card” http://quote.morningstar.com/stock/s.aspx?t=bwen

        a. Growth: The growth grade shows how a company's growth compares with that of other stocks in its sector. It measures not only how fast a company's sales are growing, but how consistent that growth has been and whether it is speeding up or slowing down. The growth grade encapsulates the most important information about a company's growth into a single rating, allowing easy comparison between companies.

b. Profitability: The profitability grade shows how well a company's profitability, as measured by its return on assets, compares with its sector. It measures not only raw profitability, but also whether a company's ROA is consistent and improving. The profitability grade encapsulates the most important information about profitability into a single rating, which allows easy comparisons between companies.

        c. Financial Health: To get a high financial health grade, a company should have low financial leverage (assets/equity), high cash-flow coverage (total cash flow/long-term debt), and a large cash position (cash/assets). Also, companies with improving financial health are rewarded, while those with deteriorating health are penalized.

    (2) “Stop Light” http://www.finviz.com/quote.ashx?t=bwen

4. Short Interest:

(1) http://www.shortsqueeze.com/?symbol=bwen

(2) http://www.nasdaqtrader.com/Trader.aspx?id=ShortInterest

    (3) Example of faulty data:

        a. finviz hasn’t updated most recent Short Interest Report (3.15%).

        b. Short squeeze hasn’t updated the Float (3.82%).

        c. True Short % = 3,102,500 / 91,700,000 = 3.38%

(4) Reg SHO Threshold Security List: http://www.nasdaqtrader.com/Trader.aspx?id=RegSHOThreshold

(5) Naked Short: http://www.buyins.net/tools/short_list.php?ssd=20100127

5. Equity Influence:

(1) Equity Incentive Plan: Note 12 http://www.sec.gov/Archives/edgar/data/1120370/000110465909061909/a09-31192_110q.htm

(2) Private Placement: LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

(3) Shelf Registration: Financing and Liquidity

6. Ownership Sentiment:

(1) Insider Sells/Buys:

        a. http://www.secform4.com/insider-trading/1120370.htm

        b. http://www.insidercow.com/

    (2) Institution/Fund Sells/Buys:

        a. http://www.mffais.com/bwen

        b. http://www.j3sg.com/Reports/Stock-Insider/generate-Institution.php?tickerLookUp=BWEN&pageNumber=1&descending=1&sortBy=value

(3) Analyst Opinion: http://www.briefing.com/Investor/Public/Calendars/UpgradesDowngrades.htm

7. Litigation:

(1) Within Filings (10Q/K) Note 15

(2) http://courts.delaware.gov/

(3) http://dockets.justia.com/

(4) http://dockets.justia.com/docket/court-txsdce/case_no-4:2008cv02034/case_id-589538/

8. Past/Present News:

    http://finance.yahoo.com/news/A-Major-Score-for-Wind-Energy-indie-1616332209.html?x=0&.v=1
    http://blogs.barrons.com/techtraderdaily/2010/01/14/broadwind-sags-as-pickens-slashes-wind-turbine-order-will-stock-deal-price-tonight/?mod=yahoobarrons

9. Fundamental Milestones: Alt/Clean Energy Support—Federal, State

(1) Earnings: http://earningswhispers.com/calendar.asp

Float Runner Short-- Matrixx Initiatives Inc

Cove Reflections — Mon, 11 Jan 2010 00:16:00 GMT

MTXX [NASD]

Matrixx Initiatives Inc.

Healthcare - Drug Delivery - USA

Posted at the Lion on 1/09 with Live Chart version Click Here to Read Post

Interesting set of dynamics: against an infamous negative backdrop swirling in continuing litigation (re: Zicam); MTXX has current favorable TA, favorable float analysis, favorable FA ratios, and anticipated earnings report (due 1/25) -vs- a substantial short interest...

Additionally:
--Noted "heightened awareness" to the current flu season to which Zicam products may have benefited from in terms of increased sales
--Recent hiring of a new Ad Agency (duly noting that work doesn't look to hit the streets until April: Adweek.com )

Short Interest history peaked in Sep but is currently on back-to-back increases:
12/15/2009 1,965,684
11/30/2009 1,867,531
11/13/2009 1,818,159
10/30/2009 1,928,680
10/15/2009 2,131,552
09/30/2009 2,335,129
09/15/2009 2,241,372
08/31/2009 2,163,304
08/14/2009 1,963,360
07/31/2009 2,073,931
07/15/2009 2,134,554
06/30/2009 1,891,662
06/15/2009 387,965

Float Analysis:
TOR: 2.24%
Reported Float: 9,100,000
8MA: 203,440
WF: 658,332
EF: 1,723,513
RF: 4,512,156
EF% of Reported: 18.94%
Short Interest: 21.6%
Short Ratio: 5.2

1/8 TOR: 3.37%
1/8 Vol: 306,230

Would like to see a daily volume of ~325k shares for more effective pressure -vs- short position.

Pincher Prospect-- Harmonic Inc

Cove Reflections — Tue, 17 Nov 2009 01:31:00 GMT

HLIT [NASD]

Harmonic Inc.

Technology - Communication Equipment - USA

Posted at the Lion on 11/16 with Live Chart version Click Here to Read Post

Pincher Prospect-- Digital River Inc

Cove Reflections — Tue, 17 Nov 2009 00:45:00 GMT

DRIV [NASD]

Digital River Inc.

Technology - Internet Software & Services - USA

Posted at the Lion on 11/14 with Live Chart version Click Here to Read Post

Pincher Prospect-- Standard Motor Products Inc

Cove Reflections — Tue, 17 Nov 2009 00:25:00 GMT

SMP [NYSE]

Standard Motor Products Inc.

Consumer Goods - Auto Parts - USA

Posted at the Lion on 11/14 with Live Chart version Click Here to Read Post

Float Runner Short-- Superior Well Services Inc

Cove Reflections — Wed, 11 Nov 2009 14:00:00 GMT

SWSI [NASD]

Superior Well Services Inc.

Basic Materials - Oil & Gas Equipment & Services - USA

Posted at the Lion on 11/11 with Live Chart version Click Here to Read Post

News: 11/11 Analyst Coverage Initiated on Superior Well Services (SWSI) by Canaccord Adams; initial rating = Buy

Float Analysis:
TOR: 6.01%
Reported (Actual) FLoat: 13,900,000
8MA: 835,010
WF: 2,702,092
EF: 7,074,078
RF: 18,519,936
EF% of Actual: 50.89%
Short Interest: 20.17%
Short Ratio: 4.89

Daily TOR: 6.14%
Daily Vol: 852,810

Float Runner Pincher-- Stewart Information Services Corp

Cove Reflections — Tue, 10 Nov 2009 05:34:00 GMT

STC [NYSE]

Stewart Information Services Corp.

Financial - Surety & Title Insurance - USA

Originally posted at the Lion on 11/09 Click to read Post

Float Analysis:
TOR: 2.28%
Reported (Actual) Float: 16,700,000
8MA: 381,090
WF: 1,233,207
EF: 3,228,537
RF: 8,452,309
EF% of Reported: 19.33%
Short %: 8.62
Short Ratio: 5.93

Daily TOR: 3.60%
Daily Vol: 601,550

Float Runner Pincher-- AirTran Holdings Inc

Cove Reflections — Sun, 08 Nov 2009 03:17:00 GMT

AAI [NYSE]

AirTran Holdings Inc.

Services - Regional Airlines - USA

Originally posted at the Lion on 11/07 Click to read Post

Click on the AirTran image (right) to see the AirTran presentation given at the Imperial Capital 2009 Global Opportunities Conference on 11/05.

TOR: 4.35%
Reported (Actual) Float: 132,500,000
8MA: 5,770,000
WF: 18,671,720
EF: 48,882,563
RF: 127,974,550
%EF of Actual: 36.89%
Short %: 11.85
Short Ratio: 3.83

Daily TOR: 5.30%
Daily Volume: 7,020,000

Float Runner Short-- Atlas America Inc

Cove Reflections — Tue, 29 Sep 2009 06:02:00 GMT

ATLS [NASD]

Atlas America Inc.

Basic Materials - Oil & Gas Drilling & Exploration - USA

Posted at the Lion on 9/29 with Live Chart version Click Here to Read Post

TOR: 2.09%
Float: 34,200,000
8EMA: 713,820
WF: 2,309,922
EF: 6,047,375
RF: 15,832,027
%WF: 17.68%
Short %: 20.14
Short Ratio: 12.02

Daily Standard Prospect-- Focus Media Holding Ltd

Cove Reflections — Sun, 27 Sep 2009 19:55:00 GMT

FMCN [NASD]

Focus Media Holding Ltd.

Services - Advertising Agencies - China

Posted at the Lion on 9/27 with Live Chart version Click Here to Read Post

Looks to break thru top of rising channel w/ favorable fundamental news driven outcome (9/30 deadline) and possible short squeeze (cannot nail down definitive data)

25-Sep-09 Upgrade Susquehanna Financial Neutral → Positive

Focus Media Rallies; Analyst Expects Restructured Sina Deal ( http://blogs.barrons.com/techtraderdaily/2009/09/25/focus-media-rallies-analyst-expects-restructured-sina-deal/?mod=yahoobarrons )

Float Runner Short-- Service Corp. International

Cove Reflections — Mon, 21 Sep 2009 04:37:00 GMT

SCI [NYSE]

Service Corp. International

Services - Personal Services - USA

Posted at the Lion on 9/20 with Live Chart version Click Here to Read Post

Float Analysis:
TOR*: 0.65% (*day volume 3,030,000 [> 2x 8EMA] = 1.24%)
Float: 244,600,000
8EMA: 1,600,000
WF: 5,177,600
EF: 13,554,957
RF: 35,486,877
EF%: 5.54%
Short: 3.02%
Short Ratio: 7.39

Daily Standard Prospect-- Drugstore.com Inc

Cove Reflections — Mon, 21 Sep 2009 03:35:00 GMT

DSCM [NASD]

Drugstore.com Inc.

Services - Catalog & Mail Order Houses - USA

Posted at the Lion on 9/20 with Live Chart version Click Here to Read Post