≡ Menu

Weekly Reversal Report 5/26/2015 JBLU (JetBlue) Made The List and Had The Statistics To Back Up The Screening

A brief note: I decided to save time today by attaching the charts to links like the old days. If you do not like that set up and want me to go back to posting the charts directly on the blog, please let me know at buffalotrader100@gmail.com. I am trying different ways to produce high quality with increased speed. I found a way to consolidate the list of survivors (which is why you see them all in a nice pretty column today).

Here is the quick look at the original list of screen survivors for Friday 5/22/2015. All these stocks trade at greater than 1 million shares/day, prices at or above $10/share, have positive momentum reversal characteristics on higher than its 50 day simple moving average of volume (reported as greater than or equal to 150% of that value, though there are a few reporting anomalies which might slightly be in disagreement with that). The close of that day is greater than the open, and there is a decent statistical expectancy that a variation of a 61.8% retracement of the previous swing from low to high on a daily chart has been met, followed by a reversal. The neural net models do a complete optimization of the swing pattern model it is based on, and it looks for highly probable statistical fits for the next run up. It is a proprietary model that I built using Ward Systems Inc. NeuroShell Day Trader Professional.

WNC Transportation/Equipment Mfg.
JBLU Transportation/Airline
TRMB Electronics/Telecom
KSS Retail Store
ANF Retail Apparel Maker/Marketer
URBN Retail Apparel Maker/Marketer
LINE Petroleum Exploration and Production
LNCO Petroleum Exploration and Production
NBL  Petroleum Exploration and Production
RICE Petroleum Exploration and Production
RRC Petroleum Exploration and Production
SN  Petroleum Exploration and Production
UPL Petroleum Exploration and Production
POST Food Processing (Grain/Sugar/Flour)
CME Brokers
VXX Specialty ETF
QLD Specialty Dividend ETF
XME Natural Resources ETF
FAS  Financial ETF
INVN Electronic Components
KEYS Electrical Equipment
HMC Auto/Truck Manufacturing

Note once again that US petroleum exploration and production names continue to pop up on this list. Today, non met the combined screen pass for value and for pattern statistics, so none get on that list. Some names are close and should be watched, in my opinion. Among them are UPL, WNC, POST, HMC, SN, KSS, URBN, and KEYS. Probably the best value on this list might well be UPL, but it probably bears watching as the price of oil stabilizes. It might take some time, but if that does happen, there are a lot of names including that one that may begin to present stronger and perhaps longer-term buying opportunities.

Let’s look at a chart of JBLU (JetBlue). A few things are noticeable:

1) Look at the consistent trend line that has existed since January  2015.

2) It just hit a new all-time high on May 19 ,2015.

When you see conditions like this with increasing volume at swing points, you tend to see extensions of new highs made. This stock for the balance of the year has been a real “buy the dips” kind of stock. The neural net statistics (Profit factor 2.56/1 and 66.7% with an average win/average loss ratio of 1.28/1, tends to verify that analysis. Does that mean that the next swing is a guaranteed winner? NO! What it does mean though is that we might expect this trend to continue given what we know about the company’s current earnings activity. That is:

1) The after tax cash flow enterprise value of this company is roughly $37 dollars. Its earning growth estimates for the coming year are anywhere from 20% to 29% per annum, given the fact that air travel is expected to improve for the balance of the summer, as apparently, according to industry estimates, lower gasoline taxes have put some additional money (for now) in the pockets of consumers, and those consumers are chosing to spend it rather than to save it.

2) If you accept 13.61 as the current price earnings ratio for JBLU and the 2015 earnings going forward would be 1.75/share versus 1.36/share from 2014, you get an earnings growth of 28.7%. If you divide that by the trailing PE currently (which is 13.39), you can use that reliable Peter Lynch price target mechanism and estimate that the stock could have a terminal price of $33.96/share sometime by the end of the year. What makes this a little dicey is that JBLU currently estimates zero real earnings growth in 2016, so the numbers need to be pretty solid going into the second half of the year, which seems at the moment to be the case. This could indeed change.

Compare this price target chart to the price target my model would provide. As you can see, we are well within those terminal price targets with the outside target being 23.56, which is a 17.6% potential gain over Friday’s closing price, EXCLUDING COMMISSIONS FOR THE TRADES TO BUY AND TO SELL.

I still believe this market does have risk to world events, goofy Euroland issues roiling institutions, ETFs,  and mutual funds, and a real question of whether we see a recession sometime in 2016, but for now, it would appear that buyers are going to chase certain transports. As long as the earnings seem predictable (as predictable as one can ever figure in the current US market envrionment), JBLU should be among those that will continue to be bought into that range I discussed above. I have a hard time seeing it getting that much above 33.96 (even by the end of the year), but at least there is some realistic potential that it could happen. If you were to try to position this, you would attempt to buy at or below the open price on Tuesday, with a stop just below 18.97. At the first target of 21.49, that creates a 1.37/1 reward to risk ratio, and if the second target is the goal, it ends up being a 2.23/1 reward to risk ratio. If you get the first target and decide to take partial profits, you would then move your stop to breakeven and allow the rest of the position to take a chance at the second target, and even the third target.

I am going to cut this post a bit short. The pickings with this methodology on a once a week basis have been slim of late, but I will do everything I can to squeeze out what I can find until we get strong established trends again. Remember that trading involves risk and you must take consideration of this before determining position size or even taking the trade at all. Thank you one and all for supporting this blog!

{ 2 comments… add one }

  • Charles May 24, 2015, 11:24 pm

    Thank you for a nice and very detail analysis. I am total agreed with you and will hold my shares till the end of this year, for sure I will retire when JBLU hit 33.9 .

  • admin May 25, 2015, 7:48 am

    Just keep your eyes on it. For now, there does seem to be a modest tailwind on shares like JBLU. To be certain that you are not disappointed, you might consider selling some call options to protect it, but, you should probably consider what that limit of pain would be before you would end up having to liquidate the position before retirement, and then take action. It is always difficult if one holds a large position in one stock, and for any reason, it tanks (remember Enron and others after 2000). If you need to do so, consider talking with a chartered financial planner with experience in that area. A lot depends on your appetite for risk, and at retirement, that begins to dimimish in a lot of cases. Take care.

Leave a Comment