Crocs in Review.

I haven't done one of these in depth reviews of a stock since last March. Be as that may, and many of you know how my emotions got the best of me on that Countrywide trade, but let's not rehash any sore wounds right now.

I am concentrating on Crocs (Crox), an upstart company that has the patent rights to the Croslite material that is the heart and soul of their rather trendy foot wear. Some would call them ugly and some would call them cool but most everyone would agree that this shoe is one of the most comfortable bar none! Their line of products target sandals, slippers, flip flops, as well as boating deck shoes to other more main stream shoes planned for the future. But make no mistake about this, it is not the funky sandals that the company makes that is the heart and soul of Crocs Inc. It is the Croslite, a proprietary resin polymer material that is in all Crocs branded shoes. What is so impressive about this material is that it can serve as the insole of the more mainstream shoes to act as an orthotic (orthopedic foot insert device) that not only gives support but aid in cushioning. In fact, depending on where you read the data, Croslite can reduce anywhere from 39% to 6% of normal pressure in the feet during standing and walking. This makes it popular among health professionals (nurses, physical therapists, doctors, and other allied professionals). There has been a ban or a threatened ban on Crocs material in Europe because it was thought to cause electrostatic damage to heart monitors and telemetry units. As it turns out, Croslite did not cause these issues but rather immitation brands made of cheap plastic caused the static electrical discharge. I am in the health field and thus far in my state (Arizona), I have not heard of any incidents, but they are everywhere from ERs (Emergency Rooms) to OR's (Operating Rooms). Of course, I swear by my Crocs as well.

But, is this shoe company just a fad? To which I reply, who cares? Right now, no other company can duplicate the Croslite material but many are trying to immitate without success. Does that guarantee long term sustainability? No. But nothing is for certain in this world of high momentum stocks and if you chase these stocks like I do for a living (at least partially), then you always have to consider that nothing in this universe lasts forever. So, I don't care if Crocs will sustain itself in 10 years or 3 years. What matters to me most is the following:

1. Disruptive technology of Croslite.
2. Burgeoning target customers encompassing wide age spectrum and gender.
3. Wide moat around technology.
4. Early expansion of growth and revenues.
5. Aggressive management with investor friendly posture.
6. Skepticism.

I won't go into how great Crox's earnings have been for the last 3 quarters. We all know that Crocs is kicking major butt in the fundamentals arena. But I will concentrate on what matters most to me regarding this stock.

1. Distruptive Technology of Croslite: Many would argue that anyone could duplicate this material and make something even more comfortable. Some have even pointed out Birkenstocks as an example of comfortable shoes that ended up bombing due to fad issues. But the real genius of Croslite is that it has antimicrobial qualities, is durable, water resistant, and actually reduces ground reactive force while walking or standing. Croslite does not have to be relegated to the standard Crocs sandal or flip flop design. As Crocs expands into more mainstream shoe arena, especially the turf occupied by ever popular Deckers (DECK), the edge may be given to Crocs due to Croslite inner sole that can line these shoes giving a stylish shoes with the same benefits of Crocs sandals. Furthermore, if everyone realizes how Crocs got their start, they were a small time, boating shoe company. The applications of Croslite as far as shoes are concerned is quite far reaching. As Crocs matures somewhere down the road, they may license their technology to NIKE and other major shoe company much the same way Gore-Tex does to many apparel manufacturers. We are in inning 1 of this long drawn out roller coaster ride that is Crocs. I anticipate that there will be some bumps in the road but I just do not agree with the skeptics out there who think Crocs is just a passing fad.

2. Burgeoning Target Customers: Crocs affects all age spectrums from 1 year olds to 100 year olds. It crosses both gender barriers. It appeals to doctors to restaurant workers. The company has high return customers who will buy more than one pair generally. Due to their creative marketing and color choices, many children have taken customization to a new level with multicolored Crocs on each foot. Additional buy out of Jibbitz recently is paying huge dividends as it allows consumers to customize their Crocs even further. It is so hip right now among school children, many have been known to actively trade different Jibbitz. There is something for everyone. Now that the "noise" regarding Crocs has gotten a bit louder, many people are curious and will try it out just to see what the hoopla is all about. A sales person at Dillards even guesses that many first time buyers become repeat buyers.

3. Wide Moat Around Technology: Anyone can make a cushioning device from plastizote to Spenco inserts to Adzorbs etc... So, the actual relevance of Croslite as a cushioning device is pretty minimal. Where the moat comes to play is in the patent of this technology and the way it feels. Even skeptics will agree that Croslite has the effect of keeping the feet comfortable and supported. The material is low maintainence and can be used in all einvironmental extremes except fire. Birkenstocks cannot do that as their material is derived from Burkocork. A cork much like the corks seen in wine caps.

4. Early Expansion of Growth and Revenues: I will not post numbers here. Except to say that this is the beginning. Crocs has ambition to go global and is becoming a "brand" name.

5. Aggressive Management with Investor Friendly Posture: The Crocs management has been actively and strategically buying companies to help expand their gross margins and revenue. This is reflected in the robust EPS and PPS expansion. The recent acquisition of Jibbitz LLC, Ocean Minded LLC, EXO Italia. EXO Italia manufactures EVA (Ethylene Vinyl Acetate) based foot wear products and allows Crocs to expand and diversify its products from Croslite to EVA. EVA is what lines a lot of cushioning foam in many of the other foot wear products. This opens up another avenue for continued growth for Crocs. These companies were bought with minimal capital expenditure but represents very shrewd positioning by the Crocs management. Additional licensing agreement from Marvel Comics, Time Warner, Disney, NASCAR, NHL, MLB, and NCAA. More licensing deals are on the horizon and recent announcement of Mario Batali shoes for bistro type shoes will be a huge hit in restaurant industry. The recent split announcement of 2 for 1 is also indication of the management's committment to Crocs. Some have openly complained about insider selling, but this is not alarming as say (Countrywide's) and the insiders have huge owndership stake in this company and the most recent shares that insiders owned is above 25%.

6. Skepticism: In Wall Street, skepticism is a good thing. I always believe in the wall of worry. It means that the greater fool theory is not in force, yet. 3 analysts still rate this stock a sell, 2 a hold, 3 buy, and 5 strong buy. There have been very little coverage from the big institutions such as Goldman Sachs, Bear Stearns, etc... Last week JP Morgan rated Outperform and initiated coverage. So this is a good development but we are no where near the end of this run. I would say, when most major brokerages and institutions have initiated coverage with a "buy" rating or higher, it may be time to get out. That has not happened yet. Still many are still torn regarding the "fad" issue. Maybe it is. But again, skepticism is a good thing.

I anticipate that Crocs will run as long as this market rally holds. This rally is completely irrational and is completely contrary to economic numbers that points to a slow down. My theory (I never trade on theories anymore) is that the market is factoring in pick up in economy in the last 2 quarters of this year and is pricing that in. Many are on the sidelines and to their chagrin are seeing the indices and stocks march higher everyday. Eventually, the retail investors will succumb and the bears will cave in and that will be the time to get out and let nature take its course. Remember, skeptics are always right...eventually.

Will Crox break $80 this week?

Crox continues to amaze me. It continues to power ahead higher with momentum clearly driving this stock. I think that there is some panic buying that is going on by institutions. While there is constant debate going on about the "fad" nature of this company.





I did my recent investigative visit to Dillards and Macys where the sales people were beaming about the demand of Crox and Jibbitz. According to the sales person at Dillards, Crox shipments have increased but they are sold out within 15 days or less. Jibbitts are the same story and many of the children and adults alike are snapping these little buttons up at $10.99 for 4 buttons. $10.99!





I am interested to see how the next quarter's earnings will go. They have announced several key licensing agreements with Marvel Comic and Batali Bistro shoes last week. Additionally, new styles are hitting the stores as we speak.





As a daily user of these shoes in my line of work, they are more comfortable than anything else.





Crox becomes more and more extended but what do you expect from a high tight flag formation. These formations have been know to launch a 90% to 400% gains in less than 3 to 9 months. So I believe this stock still has some legs. If we get any pullbacks, it will behoove everyone to add to their holdings.





Now for the chart:


Crox is now established the uptrend line and is orderly marching up in high volume and pulling back in lower volume on the daily chart. Momentum have broken above the upper level and consolidating nicely. If it maintains this trajectory, I think that it may be possible to see $85 to $95 by next earnings report due, I think in early August or late July. At this level, I would consider this stock to be at high risk levels but if they report another blow out earnings, it may gap to $105 in no time with subsequent run to $125 to $135 range in a few months (price before split).

I am accumulating September 07 $80 call contracts as I speak. I currently own 80 contracts.

Target Puts in a Bottom

I stated on my prior chart analysis that Target's chart was bearish as it was decending below the sideways channel. But today, the stock reversed the down trend on healthy volume and has put in a bottom. With JC Penny and Kohls report robust earnings and not being affected by the so called "market slow down", I believe Target, should do just as well. On a superficial glance, Target is always booming with business and something about the store makes me want to spend money there.





Let's consider this chart:


Target has broken out above the bottom channel where it spent the last few weeks below it. Volume for the past few weeks have been strong and robust and the momentum line is threatening to break above "neutral". It would all depend on earnings of this company but since this company is probably one of the reasons why Walmart is doing so poorly, I wouldn't be surprised to see some healthy earnings and upbeat guidance when it reports earnings on May 23 2007. Analysts estimate EPS of $.71. It will be the guidance and issuance of statement that the "no foreseeable slow down in sales are foreseen".

Also, Target scored an upgrade to Buy from Hold by AG Edwards. I am sure there is more to come.

March Continues

Just how high can this market go? It is just unbelievable. Despite the negativity and pessimisms regarding this economy, the market continues their bullish ways. Today's action was abetted by the options expiration but many of the "momentum" stocks and stodgy stocks both gained in healthy volume and price action. The breadth was wide and advancers to decliners on the NDX was 3 to 1. Also, the small caps and IBD type stocks also finally joined the rally in a convincing way.

Where is all this liqudity coming from? It seems like any stocks with decent potential are being bid up. At some point, we would need a correction but I won't guess about this. I will continue to do this until the market tells me I need to stop going "long".

Sadly, I still believe that the retail investors are the ones that will end up holding the bag on this rally as many are still shell shocked from February market melt down and are waiting for a chance to get in. In the mean time, the hedge funds, and global investors are probably bidding our stock market up right now. Why fight the force? The encouraging aspect of this rally is that there are enough people waiting for this market to unravel. Many are convinced that the dislocation from economic fundamentals and market technicals will end in disaster. Yet we keep climbing. Calls for a "new" bubble is resonating and words like "unsustainable" is being heard. But as a trader, I don't really give a care about why the market acts like this. As long as I have the strong momentum, I know I can make money.

I had one of the readers of this blog accuse me of not being thorough. I appreciate any comments good or bad as it shows that someone is actually reading my fledgling blog. I never make any pretenses that I am all knowing. My blog is about my thoughts and why I trade. But that can be seen in my profile. I am a momentum trader and will change sides as opportunities arise.

But enough of that. I would like to point out that Nasdaq which has been a laggard, is on the verge of joining the rally full time. Also QQQQ is showing bullish chart pattern. I omitted the Dow and S&P 500 because they are obviously over extended and in a clear uptrend. I think we will have a chance for Russell 2000 small cap index and Nasdaq to finally join the program.

Amazing Market

Yesterday, I advocated caution. But like so many times since the February 27th market sell off, this market has bounced back strongly from a bearish sell off. Today was no different. It was a broad based bullish action that included the internets, techs, and even retailers. I also mentioned that Dow was hitting the upper trend. It is actually penetrating that upper line and if it stays above that trend line, it will be very bullish. Also, NASDAQ is working itself back onto the prior trend line and it is a very bullish action.

I also said that Google broke down yesterday but it came back with a vengence! A bullish report by Bear Sterns shows that Google with their new search algorithms are not losing market share and are in fact gaining shares. You Tube is also trying to schedule a meeting with the military to discuss the ban. Like I mentioned in the prior chart analysis, Google seems to have formed a double bottom base with an unusual long handle but clearly, it appears to be headed higher probably into earnings report due in July.

Crox took a breather today but gained back most of its losses today and finished in the upper channel. A new coverage by JP Morgan at Outperform (a new upgrade) in the stock had a bullish run up in the premarket and then continued to deteriorate until the end where it gained most of those losses back. This goes to tell you to never trade anything pre or post market. It is just too illiquid and you can get your ass handed to you. I initiated a September call positions today and will be adding throughout this month on any weakness. I believe Crox should surpass $75 to $85 by split record date of 5/31/2007.

Amazon also took off today gaining on their announcement that they will open a music download store much like iTunes. The stock needs to penetrate $65 to break out of the channel but it is a bullish action nonetheless and I anticipate that this stock will gain some legs if the market holds up.

United Online (UNTD) also broke out of its side ways consolidation today and appears to be heading higher. I think this stock has one of the best looking chart formations I have ever seen! I believe this stock can challenge $20 in no time.

I would still continue to stay bullish but keep one eye peeled. This run up is strong and without a rest. I think days like yesterday and last Monday are all we are going to get in terms of "corrections". We should embrace the market and make money. It is after all, that is when you make money, when you are fearful, no when you are giddy. Majority of retail is still on the sidelines waiting for the "sell in May" to actually materialize. They will probably begin getting in around September to October at which time, it may be too late. I once reiterate that I am very bearish in the month of October if this run up continues.

All of these came on the heels of housing starts which rose but building permits declined. The FED is expected to say tomorrow that inflation is moderating and may signal a possible rate cut. I don't know if this is good overall, but I am in it to make money not analyze details. Everytime I try to analyze anything, I have lost. Case in point is this March where I was bearish on the market. I am a bullish trend trader and I have learned to stick to what I do best.

Good luck everyone!

Target Breaks Support!

I am more bearish on Target and growing more so each day based on the chart which broke the trend line today.

United Online Has a Beautiful Chart!

United Online, a dial up internet access provider has a huge sleeper potential in the classmates.com which is the other social networking site that is growing rapidly. It's because it caters to students and it may begin to rival myspace.com in popularity. Additionally, it carries Juno.com and Netzero.com dialup and broad band ISP's. The growth is atrocious but is slated to be improving. Additionally, this stock yield 5.6% dividend and the chart is very bullish. It is little known currently but upside is strong.



The financials are not as stellar as earnings and revenue growth for the quarter was 2.8% (for revenue) and 2.0% (for earnings). ROE is above 18% which is just okay. I think this is a rebound play and that further growth can be made due to the classmates.com site. Additionally, it may become a take over targeted by larger groups such as Yahoo or MSN. Short interest is high at above 9%.

The chart has broken out from a double bottom base and now has based in a tight formation.

Schlumberger (SLB) looking to break out.

SLB is looking poised for a break out after basing in a tight fashion for the past 4+ weeks. Sell volume was rather high in the past 5 weeks but it seems to be abating and despite the high sell volume, the stock has maintained above the breakout level in orderly tight price pattern. This deserves continued monitoring. I believe that the summer months will put strain on gasoline and oil inventories benefitting this stock.

Bullish SLB.

Google Breaks Down!

Google has broken down below $460 support level. At this point, Google seems to be headed for the $438 range if further weakness plagues this stock. Today, Google was downgraded from Sector Perform to Market Perform with continued litigation issues. Also US Military will ban the use of Youtube and other Google features. The company continues to be hit with negative news lately, but it would not be advisable to add to or even initiate a position here until a new uptrend can be established.

Bearish short term, Bullish intermediate term.

Crox bucks NASDAQ Trend!

Crox had a high volume bullish break to the upside today on news that it has licensed Marvel Comics characters. It will feature The Incredible Hulk, Spider Man, Fantastic Four, and others. It will also feature Marvel character Jibbitz as well. It broke above the uptrend line on high volume which shows strength and power. This stock is probably headed much higher in the short term. But be forewarned, if the market correction should happen, this stock will fill the rather large gap on the break out from the recent earnings release.

Having said that I think at this point, it would be advisable to add to or even initiate a new position here (for those that are daring). My position will continue to ride this momentum unless the market can confirm further weakness at which point I will take profits.

Bullish on Crox.

Keep Your Eyes Peeled, Today's Action is Bearish

Despite the fact that Dow finished in record territory, closer examination will show that DOW index finished in the lower half of the price range. Additionally, NASDAQ had a distribution day and ended the day in the red on higher volume than the previous day. Does this mean that the current rally is dead? No, this means we must exercise caution and realize that this is not a good technical situation. The market has been such that after bearish days, it is followed by a bullish reversal. It would not be too far fetched to think that this may be possible.

But the charts tell the story on the Dow and NASDAQ. Both are divergent and shows bearish implications. Perhaps this rally is losing steam. One day a trend does not make, but an astute trader will always heed caution at this point. Consider these charts above. Dow is hitting the upper channel line and finished in the lower price range. NASDAQ has broken through the uptrend line and is going down in higher volume.

If you are leaning too long or margined, it would be advisable to trim some underperformers. Be extra careful if you are considering adding or initiating new positions. Under no circumstances should you start a new options position in these circumstances unless a bullish confirmation happens. This market is confusing as I said before. It diverges technically and fundamentally but you must obey the trend. Dow is still in an uptrend while NASDAQ has broken the uptrend. I will continue to hold my positions at this point until further confirmation happens. Scary but that is when money is made.

Thoughts on Options Expiration Part II

Target and the state of retailers are a bit confusing. The recent retail number was absolutely terrible. That is why I tend to believe that worst is behind retail. But continued weakness in the economy as well as rising gas prices in addition to the threat of hurricanes this year can threaten further economic deterioration. Retailers are too hard at this point and I change my mind on playing the earnings report for Target.

I will still keep my 20 contracts for June $62.50 and see what happens, knowing that curiosity may kill the cat. But, no big deal. Upside surprise can be huge and 20 contracts are not worth that much anyways.

Weekly Chart of TGT

Back in October, TGT started to make a bearish flag formation, a warning sign, despite the strong run up in prior months. It ran up and then ran into resistance and since then to my interpretation has formed a bullish flag formation OR break in the sideways consolidation. Volume is increasing on the sell side. I believe now that there is more downside to go. We will see what happens.

Bearish on TGT.

Thoughts on Options Expiration Part I

There is a saying "Sell in May and Go Away". The problem is, so far anyways, traders have not gone away in May and further more, no one is selling.

This week ending May 18, 2007, options expires. We can expect volatility and some zaney action as always, but a thought has crossed my mind that might make this options expiration quite interesting.

On the QQQQ, there is significant amounts of May out of the money puts in relation to call volume which is astounding. Which suggest that many traders are betting big that May correction commensurate with last year's magnitude will happen again this year.


For example, QQQQ is currently trading since last Friday's closing price of $46.78.

Look at out of the money puts for May 07, expiring in May 18, 2007 Friday.

Strike Volume Open Interest
42.00 4 170,333
43.00 10,692 166,336
44.00 937 210,462
45.00 6,263 246,584
46.00 54,536 218,668
47.00 46,087 127,052
48.00 10,471 30,368 *** denotes in the money or at the money puts ***

The puts represent over 1.835 times the call open interest.

So where am I going with this? If the CPI numbers continue to point towards moderating inflation and weakness, the market will continue this rally and the general consensus that the markets will sell off in May will be refuted. There may be a strong rally based on short covering and positioning for May 07 options expiration. I chose QQQQ because it is highly correlated to market psychology.

Consider the weekly chart of QQQQ



What this tells you is that there has been quiet accumulation of QQQQ over the past 5 to 6 weeks and QQQQ has broken through the near term resistance and has found support above it. The volume on accumulation side has increased slightly but nothing really to write home about. The momentum indicator also is showing a slight break to the upside and there really is nothing weak about this chart suggesting that perhaps there won't be a May sell off, which I believe to be true.

Long QQQQ.

CROX weekly chart




On Crox, there exists two separate trend lines. The longer term trend line and the shorter term trend line. The longer trend line shows that last week, Crox managed to finish up above that line, which is long term bullish. If Crox can continue to stay above that line, we can see some significant movement to the upside. On the daily chart, Crox has formed a bullish pennant formation, and these formation usually resolve to violent upside movement. I would stay long this stock despite significant run up in the stock price. Additionally, the options expiration week may see some strong upside movement if CPI number holds up to the bullish side.

Long CROX.

Weekly Chart of AMZN



Amazon has formed a high tight formation in addition to three weeks tight formation all of which are bullish. These chart patterns have shown to precede violent upside price movements. The down day volume is light and the price action is tight and in the upper range of the daily price range. Additionally, momentum is clearly in Amazon's favor. Again, this is a risky chart pattern but one that can pay off huge on the risk to reward ratio.

Long AMZN.

Google Weekly Chart



Google is frustrating and an anomoly. It really has been trading within a range between $660 and $670 range since reporting stellar earnings last quarter. It continues to digest the Doubleclick.com acquisition, which appears to be weighing on the stock price. I have wrote in my prior blog that Google deserves a higher multiple of 40X earnings. I still believe that. The chart is showing some interesting bullish sign. Google has formed a double bottom base with a handle and sell side volume and the overall volume in the stock is declining, which is very bullish. Also, google has formed a cup base on the second leg of the "W" base and is trying to finish the right side of the handle. Momentum is flat but appears to be trying to resolve to the upside. I believe the ideal buy point would be $492, which would give the best risk to reward ratio.

But, if the upside volume kicks in, Google can run to prior resistance of $513, which is the point of double top formation. I believe this will be the resistance point leading to the next quarterly earning. I am keeping my out for a call play probably for October 07. But patience is key as we are still trying to resolve some key issues with law suits and other challenges on Google. But I would not bet against Google.

I will discuss Target on my next blog.