Trading Strategy for Steelcase Industries (SCS) Beats Buy & Hold

Steelcase Industries

Continuing analysis with the “Touch Moving Average” tool I built, today I report on Steelcase Industries performance. I have a trade strategy for SCS that beats Buy & Hold, albeit only by about 15%. Here’s the details:

Trade Statistics

  • Company Name: Steelcase Industries
  • Symbol: SCS
  • Market Cap: $1.94B
  • 1M Average Daily Volume: ~1M shares
  • Time Period Analyzed: 1 Jan 2009  – 11 July 2014
  • Number of trading days: 1402
  • Number of trades from this signal: 26
  • Number of winning trades: 12
  • Number of losing trades: 14
  • Average Win per share: $2.07
  • Average Loss per share: -$0.72
  • Max Win per Share traded: $3.74
  • Max Loss per share traded: -$1.54
  • Max Drawdown: 27%

Trading Strategy for Steelcase Industries

This is another iteration of my “Touch the SMA” strategy. Briefly, the strategy works like this: Wait for a touch of the SMA, then wait for a close higher than the day it touched the SMA. When that happens, BUY at the Open the next day.

In this case, the optimum strategy for SCS is to use a 34 Day Simple Moving Average as the trigger. I set a Profit Target of 127% of the opening price and a Stop-Loss Trigger of 90% of the opening price.

This is a long-only “channel” trade, which means that the expectation is that the stock trades inside a channel without significant breakouts.  This is a fairly wide channel I set here for SCS, which is why we have higher-than-normal Max Drawdown numbers.

  • The maximum number of consecutive losing trades is 4.
  • The maximum number of consecutive winning trades is also 4.
  • Average losses are about a third of the average wins, which is why this trade makes money even though only 46% of the trades are winners.
  • The expectancy of this trade is 2.45 when executed exactly according to my rules.

Results of Simulations

I ran a simulation using this strategy starting with a $10,000 account. I traded the maximum number of shares allowed for my account size, traded the signal every time it occurred since 1 January 2009, subtracted $13/00 for every account and assumed a 28% capital gains tax rate. After all that, the net account value was just under $30,000.

By comparison, using a Buy & Hold strategy for SCS, starting at the same time frame with the same starting capital resulted in a net account value of about $26,000. (I assumed a 7.5% long-term capital gains tax rate.) So, this is a marginally profitable strategy. I’m not crazy about this because I am much more conservative about my drawdowns, but I present it here for your edification because – in spite of my reservations – it still beats Buy & Hold.

Standard disclaimer: just because this trade worked in the past is absolutely no guarantee it will work in the future.

If you’d like more information about this trade or about using the analysis tool in your own trading, contact me.

ES Trade Plan for Friday Jan 31 2014

I’m focused more on the Phoenix Open this week than on trading. Phoenix is an awesome place to be in the winter time. That makes it a bit harder to focus on my ES Trade Plan, but I will soldier on.

I had identified 1767 as my entry point for a long trade, with a target of 1788. We touched 1767.75 overnight, but never got close to 1767 during regular hours today. I actually followed my plan, which meant – based on the price action – no trade today.

Today’s range was really narrow: 78-93.75, just over 15 points. That’s more like what we are expecting a “normal” day to be like. We’ve had some big days the last week. Though those are profitable when you get on the right side of them, they also are less likely.

So, on to my ES Trade Plan for tomorrow.

ES 03-14 (Daily) _ ^VIX (Daily)  10_16_2013 - 1_30_2014

The Plan

Tomorrow is EOM, which will have some affect, but not as much as EOQ or EOY. I expect some selling tomorrow for that reason alone. We’ve tested and proven the high 1760s as support. I have it at 1767,  the average support level for the last four days is 67.50. The best looking trade to me – like yesterday – is long at support. Perhaps like last night, I’ll get an opportunity to get in there with a target of 1788 again. The reverse trade also looks good: short at 88 with a target of 67. IOW, the exact same trade as yesterday.

If 67 fails to hold, we have support of the 100 Day SMA below at 57.50, but that will still be almost 10 points. Below that, things are dicey: On a daily chart there’s a little support between the high 40s and low 50s, but I think the stronger support appears to be the mid 1730s. Since that’s 50 points below us – which is 2 days worth of trading with the current 5D ATR – I’m not gonna worry too much about that. On a weekly chart, the next major support level is likely 1731 – and that isn’t terribly strong.

My best guess is we trade between the low 1770s and 1800 for a while longer. There’s an awful lot of volume in that range and we’ll need something to push us out of it – either higher or lower. For now, that’s the trade area.

Post Mortem on a Non-Winning Day

Two Mistakes

I’ve had a real good first month of the year, but I screw up sometimes too. Before I talk about my ES Trade Plan for tomorrow, I want to review my mistakes yesterday. I made two mistakes trading the ES yesterday.

  1. The first was getting short at the very end of the day and allowing my order tobe filled during settlement. The trend was actually against me at that point – even though it had stalled – and I should know better than to get an order opened during settlement. The good news is that my stop loss worked fairly well, and I lost just one tick more than my planned risk. But again – I should know better than to get into a trade at that time of day.
  2. My second mistake was when I saw the late evening push to 1800, I did NOT open an order. I had planned to try to get short at that point, but I simply didn’t do it. Then at 1:30 this morning, it spiked to 1800, then plummeted almost 25 points. That is exactly the kind of trade I look for, but I simply didn’t even enter an order.

Review of Today

Once again, all the action was overnight. I had no trades today, thanks to missing the entry last night at 1798.

We opened today back inside yesterday’s range, traded up to the low 80s and down to my previously identified support at 1767. We actually tested a little lower than that, but – for my purposes – 1767 was honored. I like it a lot when I get that sort of confirmation. 1767 will be a good launching point for a long trade tomorrow.

The range during regular trading hours was more in line with the average day for this month, but the 5D ATR now stands at almost 27 thanks to three big range days in the last 4. That will likely settle down back into the mid teens soon, and my expectations for any individual day will continue to be for a range in the mid- to high-teens. If that proves wrong, I will have to adjust my expectations. (That’s actually a positive. I need to average 16 points a day, and that would be easier with an average range in the mid 20s.)

We are stuck between the 50Day SMA and the 100Day SMA at the moment.  I expect the 100 to provide pretty good support for the next few days, even though I will make a Short plan just in case.

VIX is below 16 still. It was affected by these three big range days I am sure. I don’t really trade much on the VIX, but I do pay attention to it. It’s mildly useful to me to have a normalized measure of market volatility.

ES Trade Plan for Thursday Jan 30 2014

Long (assuming confirmation) at 1767 with a target of 1788. However, I will likely take half the contract off at 1777. Since the trade will be worth a total of 20 points, I will risk 1/3rd of that, or just under 7 points.

Long (assuming confirmation) at 1788.50 with a target of 1800. Risk will be 4 points.

Short (assuming confirmation) at 1767 with a target of the mid 1740s. Like the long trade, I will take half off after 10 points and will risk just under 7 points. The fly in this particular soup is that the 100 is below us at 1757.50 and I expect that to provide support. If we can get through that and stay through it, then the mid 40s have a good chance.

Short (assuming confirmation) at 1788.50 with a target of 1767. I will take half off after 10 points and will risk 7 points.

I’ll give each of these trades about 24 hours to work.

ES Trade Plan for Tuesday Jan 28 2014

No trade today because frankly it just didn’t feel right. As I was thinking about why it never felt right, even though I had identified the entry point in yesterday’s post, is because on the day after a big move, the market is trying to figure out what it wants to do. My ES trade plan is predicated on having a strong sense of the areas the market wants to explore. Today, we actually explored the low 70s to high 80s, but I think we could have just as easily retraced Friday’s losses or continued down into the 60s to explore there. Now that we’ve established a new range today, I think I will feel better about tomorrow.

Today we put in a 25 point range – 1767-1792 with the bulk of that spent between 71 and 88.50. I feel relatively safe putting our support at 67.25 and resistance at 88.75. Abpve resistance, our next major line is the BRN at 1800, then about 1810 – nice 10ish point ranges. Below 67.25 we have what looks like the 61 neighborhood. Not as much space down below, but then the next meaningful support is at 1730ish. The 60s still need to be explored, as do the 40s.

Tomorrow’s Plan

If LONG is the trend:

I will look to get LONG at the high 80s with a Target 1 of 1800 and Target 2 of 1810. That would be about a 30 point trade, but I will not risk 10 points for it. I think 1800 is very possible, so I will limit my risk to about 3.5 points.

I will look to get LONG at the high 60s with Target 1 of about 15 points and target 2 of 1787.50. That will be a 20 point trade so I will risk 6 points for this one.

If SHORT is the trend:

I will get SHORT at the high 1780s with Target 1 of 15 points and Target 2 of 1767.

I will get SHORT at the high 1760s with Target 1 of 1761. Target 2 will be the rest of an ATR, which currently stands at 23.50, Target 2 will be adjusted depending on the high of the day.

The risk amount for both trades will be no more than 1/3rd the expected profit.

I will give both trades at least a couple of days to pan out. If I get filled but hit no target, I will re-evaluate late tomorrow.

ES Trade Plan for Monday, Jan 27 2014

Friday finally took us out of the trading range we’d been in for weeks back into a slightly-less explored area. Before I write my ES Trade Plan for tomorrow, I want to review where we’ve been and what we’ve learned.

ES 03-14 (Daily)  11_14_2013 - 1_27_2014

Where We’ve Been

Friday took us out of the range we’ve been trading in literally all year down into the 1780s. We can say for certain that all previous support above us is now violated, but we’ll have to watch to see if it becomes resistance.

I have new support at 1780.25 and nothing significant under that till the high 1760s. I’d prefer a more defined support point below us, but I just don’t see anything. That is both good news and bad news. Good news because I could set a target just using the 5D ATR, bad news because that’s mostly just hoping.

As I look closer, the 1760s are not well-explored. Neither is the 1810-1830 range. Since the 1760s are closer, that’s a higher likelihood.

The range between Friday’s close of 1782 and 1806 was last explored between mid-November and mid-December. The December 18 announcement of a $10B reduction in the monthly Fed bond purchases sent us rocketing out of that range into the 1800s, but perhaps now we are going to explore again.

Daily View

A daily chart shows resistance around 1798, but that could just as easily be Big Round Number resistance. Nevertheless, from support at 1780 to possible resistance at 1798 is a good 18 point range. That’s a little outside of “normal”, but not so far that we couldn’t do it during a normal day.

About “normal” days

As you know if you follow me, I track the 5 Day Average True Range. I believe that tells me what a “normal” range for a “normal” day is. The behavior of the ES is that we have multiple smallish range days where we explore prices between major support and resistance.

Weekly View

A weekly chart is even more revealing. We support under us at 1768.75 which is well within reach, then support under that at about 1754 – again, about a 15 point spread.

I have a regression channel on my weekly chart which has as its anchor points the March 2009 low and the all-time high this month. Last week’s big move down actually brought us back down into that channel after having been extended well above it for the past two months.

Plan for Tomorrow

As always, I will wait for directional confirmation to be sure I am not trading against the trend. I will also check the overnight range to make sure I am not trying to take too much in a direction that has already put in the range.

Entry point tomorrow is 1780.75-1782. Direction will be dictated by the price action. Target 1 will be 10 points. Target 2 will be 1760 if short, 1798 if long. Stop Loss Trigger will be 1/3rd of expected profit. Time frame will the week.

We will also be approaching the 100DMA down below us, so I expect that to provide support, although I put less value in moving average S/R lines than in actual price support locations.