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Financial relative long positions entered

December 24, 2012

24 December

It is Christmas Eve, I should be taking a break, but I must record that two potential trades I have been monitoring gave their entry signals on Friday.

On 26 November, I showed Wells Fargo (WFC) v Boston Properties (BXP) as a potential Bollinger Band breakout trade.

Wells Fargo (WFC) v Boston Properties (BXP)

Wfcbxp_weekly_rtt_241212

This pair meet the criteria of having the tightest bands for three years. The entry signal of an end of week break above the upper band and an expansion of the band width was given.

SPDR Financials (XLF) v SPDR Energy (XLE)

Xlfxle_weekly_rtt_241212

The same entry criteria as above were met on Friday. Positions in these two pairs are opened.

The stop loss is initially a move below the lower band but this can change with the trade. If the breakout follows through, the bands will expand and that stop loss would be too far away. If the ratio meanders sideways, the trade can be cut without a specific level being reached. Only on a sharp move down would the stop loss be reached but anyway, trades that don’t go to plan can be cut before stop losses are reached.

The banks v railroads trade idea shows a bit of progress but two of these trades is enough.

Update on Japanese stock pair

The pair of Kubota (KUB) v Nippon Telegraph  & Telephone (NTT) continues to progress, showing a 17.2% gain.

Kubota (KUB) v Nippon Telegraph & Telephone (NTT)

Kubntt241212

It is time to close half of the position and move the stop loss to break even. In practice, I wouldn’t let this move all the way back to break even.  

This trade was backed up by an expectation of Yen weakness and by the commonality shown, with other stocks against NTT showing Bollinger Band set ups.

From the 19 November posting, the Orix (IX) v NTT ratio has broken above the green, multi year resistance level due to the relative weakness of NTT.

Orix (IX) v Nippon Telegraph & Telephone (NTT)

Ixntt241212

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