Fibonacci Retracements ans Extensions

Fibonacci Retracement and Extensions

Fibonacci (Leonardo Bonacci) was an Italian mathematician born in 1170 who died between 1240 and 1250. In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers. In trading 38.2, 61.8. 100, 138.2 and 161.8 are the strongest and most popular numbers of the sequence used.

In my experience they don’t work worth a crap. 50 and 100 are the only numbers that work and they are not part of the Fibonacci sequence. What do work are 50 and 100 percent retracements and extensions.

 

Tutor Perini Oversold

February 6, 2016Commentary

Tutor Perini Oversold

TPC

TPC next reports quarterly earnings on Feb. 24, after the market close. On Jan. 22 they pre-announced that FY15 would be significantly below prior guidance. Prior FY15 GAAP EPS guidance had been $1.90-2.10 and was reduced to$ 0.85 to 0.90.

Tutor Perini management’s reasons for the miss were due to significant project charges at Five Star Electric recorded in the third and fourth quarters and a  previously disclosed adverse court decision in the third quarter of 2015 related to long-standing litigation from a 2011 acquisition.

They went on to say that they see FY16 diluted EPS of $1.90-2.20, versus Capital IQ non-GAAP consensus of $2.40, and revenue of $5.1 billion to $5.6 billion, versus Capital IQ consensus of $5.37 billion.

It’s unfortunate that everything doesn’t go the right way all the time. TPC had some unanticipated problems with the Five Star Electric contract and made a mistake several years ago buying a company with outstanding liabilities. That’s all behind them now.

I saw the sum of all this information as a great buying opportunity and bought TPC on Jan. 22. With nine times average daily volume, I think TPC is now in strong hands and has already moved up more than 25 percent from the low of $10.16. If it will retrace a little bit, I would like to add more around 12 bucks.

FY16 guidance of $1.90 to $2.20 gives us a forward P/E of 6.7 at today’s closing price of 12.78.

TPC should be back to business as usual with a price of $19.50 within six months and $24 to $26 within 18 months.

Since this little debacle on Jan. 22, Tutor Perini has signed $1.232 billion in new business.

Dave  C

 

The buy was made on 1/22/2016 and posted in real time at $10.41. The high to date, 7/19/2016 is $25.98, good enough for me.

tpc daily fib

 

 

This is what allowed me to develop a target on stock that was in new all time low territory.

 

The channel break down that gave me the outside parameters at $19.54 and $14.97 was a four months old channel when it broke through $14.97 on January 7, 2016. The difference between $19.54 and $14.97 is $4.57. That is the amount you can expect the stock to move down before it rebounds.

tpc week fib

 

That makes the target $10.40. The low that day was $10.16, close enough for me.

Now we have the weekly chart of TPC.

Let’s not forget that the fundamentals were in line here also.

blog tpc wk 2016

Centene reports Q2 (Jun) results, revs in-line; raises FY16 guidance  (75.26)

7/26/2016, 6:14:36 AM ET

Reports Q2 (Jun) earnings of $1.29 per share, excluding Health Net acquisition related expenses and amortization of acquired intangible assets, may not be comparable to the Capital IQ Consensus of $1.09; revenues rose 97.9% year/year to $10.9 bln vs the $10.81 bln Capital IQ Consensus.

The second quarter of 2016 includes a $0.19 per diluted share benefit related to the 2015 risk adjustment and reinsurance reconciliations under the Affordable Care Act in connection with our health insurance marketplace business.

Co raises guidance for FY16, sees EPS of $4.20-4.55 (prior $4.00-4.35), may not be comparable to the $4.21 Capital IQ Consensus Estimate; sees FY16 revs of $39.4-40.0 bln (prior $39.0-39.8 bln), may not be comparable to the $39.72 bln Capital IQ Consensus Estimate.

Adjusted diluted EPS excludes Health Net acquisition related expenses of $1.00 to $1.05 per diluted share and amortization of acquired intangible assets of $0.50 to $0.55 per diluted share.

Operating cash flow of $(420) million for the second quarter of 2016, reflecting an increase in premium and related receivables of approximately $600 million due to the timing of June capitation payments from several states.

Courtesy of Briefing.com

The highlighted phrase above is a death knell for an earnings report.

CNC beat on their EPS, beat on their revenue and had growth of 97.9 percent. They also raised their guidance for FY16 to $4.20 to $4.55, a raise of 20 cents.

To make matters worse their revenue growth prior to this earnings report average 35 percent this year and about 50 percent last year. With revenue growth at 35 percent and forward earnings of $4.20 that values CNC at (35 x $4.20) $147.00.

blog cnc 5m 7-26-2016

 

 

CNC is in the health care sector where I currently own two stocks that I bought at P/E’s of 2.7 and 3. I do not want to own another health care stock.

I am willing to day trade it. This would be a price action trade with a strong value component.

blog cnc 1m 7-26-2016

With stock moving this quickly I use market orders to enter. The reason is that I have determined (rightly or wrongly) that now is the time to get in. My stop price is just under the low of the day at $63.39.

The circled green candle is where I entered at $64.09. I entered at 8:57 and exited at 9:18 at $68.98 with a profit of $4.89. The five minute chart above gave me the target. The Fibonacci retracement from yesterday’s close to this morning’s lows were the parameters of the Fibonacci measurement.

I could keep adding to this list of Fibonacci measurements on a daily basis. These are very common moves all across the land of trading. When I research a trade I always do several Fibonacci studies on the daily and weekly charts. These are especially useful when they coincide with existing support and resistance levels.

Needless to say this was a day trade and I used the 5 minute chart to generate a exit target. Take note that  I sold 37 cents short of the target. That’s because the closer you get to the target the more selling pressure there is. CNC topped out at $69.24  and dropped to $67.60 in five minutes. I learned long ago not to be a pig and to take my money and run when targets are hit.

Next time we talk about Fibonacci I will go into more detail on where the parameters are and what other options are available with Fibonacci.

Dave C.

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