Detailed Prognostication on FPL

Today was a negligibly negative day in the market. That being the case, not much happened to my positions. So the majority of this post will be about prognosticating one of my favorite stocks, FPL.

As an update, NG pulled back a little but is still in contention for assignment in 30 days; CVX also pulled back a little but still contains profit; DIS advanced up a little more (and I did tighten the stop before the open as I was considering in the previous post); and T declined further executing my stop. Unfortunately the sale proceeds of my T option were for a loss and too small to give me much buying power for the immediate future. In addition, after doing the math on it, I have come to the conclusion that I really should keep my stops tighter than what I set them because the gross loss is a lot more than I truly wish to loose. I am thinking it would be wise to also subtract the cost of commissions from the multiple of the percentage I am willing to lose and then reverse calculating the stop point and setting it appropriately.

Now on to FPL. Today, it put in a short-body down day with a long upper shadow, not quite doji like. It's position in relation to the previous day is that of a bearish harami. That is, the body of it's price movement did not travel outside of the open and close of the previous day which was an up day. This is only one point determining future direction. The other indicators I watch, however, are bullish still because they average the previous movement of the stock. Without a change of direction in these indicators, the future movement is uncertain. But there are a few indications of possible movement which I will cover next.

The first indication is the general direction of the next largest trends. The next largest trend of the stock is punctuated by lower highs and lower lows. When we see lower highs and lower lows we describe the stock as having bearish momentum. This momentum needs to be broken before it is officially a bull candidate in my opinion. As of this post, FPL is still riding below a lower high trend line. If it breaks this trend line tomorrow, I would consider it a buy for a short term swing trade ($1 in about 4-6 days). However, if it continues lower, I will assume it has tested and failed this trend line and head toward the trend line of the lower lows. In this case it is a significant drop of about $3-$5 in ten days, which would make it a candidate for a Put Play.

Next we have the trend of the peaks and valleys of the secondary indicators. For example, two of my indicators are the Slow Stochastic and MACD. Only one needs to break it's trend before I officially consider it a bull candidate. However, if the other is contradictory, I will proceed with caution. FPL, as of this post, has broken the MACD trend line that I have identified and the Slow Stochastic trend line is well above it's current position and too flat, in my opinion, to be weighted much in my prognosis. That being said, I am more inclined to believe that the stock will go up. That is my opinion, you can take it or leave it.

Disclaimer: See bottom of page.

Pick(s) for the Day

Today I have a pick to discuss. It is the home of the flame broiled Whopper, Burger King. (BKC) I am going to describe how I analyzed the chart and the indicators that I used in picking this stock.

First we will start with the candlestick indicator. Yesterday (03/04/09) it created a bearish candlestick indicator, known as a bearish harami. Simply put, the stock price closed lower than it's open, and this movement was within price range movement of the previous days. The day before the stock price closed higher than it's open. This indicator is a major that informs me that a pivot in the price direction is probable. It requires additional flags to confirm.

So now I analyze my other indicators. Lets look at the RSI (Relative Strenght Indicator). The RSI is at 58, not a good sign. This tells me that the stock has strength to continue to move up. This could be a disappointment but I don't dismiss it right away. So lets continue.

Lets look at the stock price relationship to the Bollinger Bands. Currently is at a the upper Bollinger Band. Now, I wouldn't put a lot of opinion on the Bollinger Bands, because they are a moving resistance or range indicator. They really only suggest that the stock should be watched for reversal indicators. So to me it is confirmed by the candlestick indicator and not the other way around.

I have two more indicators that I like to look at. They are Stochastics and MACD. Both of these agree with the chart that the stock is in an up trend. But that is not what I am concerned about at this point.

The Stochastics are presently near the 80 mark. The 80 mark is a standard indicator that the stock is overbought and that some selling is bound to take place. In addition the Stochastics have a signal line that follows its movement. If the Stochastic starts to turn toward the signal line in an attempt to cross it, then there is further probability that the stock is reversing. This just happens to be true on this day.

The MACD (Moving Average Convergence Divergence) is similar to the Stochastics in that there is a primary line and a signal line. In this case I also have the histogram turned on that tells me what the difference in the two lines are. The histogram told me that the difference between the two lines was shrinking in comparison to the day before yesterday. So this is further indication that a reversal in movement is likely.

So because the price is at the upper Bollinger Band, the stock created a bearish harami candlestick pattern, the stochastics and MACD show signs that the move is at an end, I bought a put option against the King.

BKC PX => OTO 1.85, Stop @ 1.30 (Risk of 30%)

That is my opinion, you can take it or leave it.

Disclaimer: I am not a stock broker; I am not a financial advisor; I am not recommending to you what to buy or sell. I am just an opinionated investor. If you decide to follow in my footsteps you are taking risk. It is inevitable that I may be wrong. So if you are going to follow in my footsteps that is your own personal decision. I am not responsible for any loss that you may, and probably will, incur regardless of my opinion.