Bear Trap Likely Today as Investors Reposition Holdings

If history is any indicator of future repeatable occurrences in the stock market, then yesterday's mini-selling should be about the only "pause" we will have in this bull run phase. Today should prove interesting as shorts are leaning too heavily since yesterday. It may have emboldened the shorts and that is always a bad thing.

Today, the exisiting home sales numbers are due. If it comes in below expectations, expect a market wide rally. Real estate is not out of the woods yet, and the New Home Sales data might be an abberation. If so, then we get the rate cut back on the table.

It should be a muted trading activity today ahead of the memorial day weekend.

Good luck and enjoy your mini vacation!

Note To Crocs Management: Enough selling!

I know management should be rewarded for a job well done. But greed has its limits and my patience on this. There has been a continuous stream of selling by the insiders since the blow out quarter. This company has historically had high insider selling activity since its IPO. Wouldn't it be great if the management can show some gumption and show the investors that they "believe" in the company's future like the investors?

I know the argument that I have always made is that the insider selling affords the company from doing additional public offering of their shares, but despite the insider optimism in the company, the amount of selling is bordering on ludicrous.

Note to CEO Snyder, take a cue from Meg Whitman of Ebay, she believes in her company and shown the shareholders that she does by selling minimal shares during her tenure. Do you also believe what you preach and put your money where your mouth is?

Crocs Will Need a Strong Day Tomorrow.

Look at the chart to the left, which is a daily chart of Crocs Inc. (CROX) You will notice that today's action violated the uptrend line and it remains to be seen if tomorrow's action will be able to reclaim that line. The pull back was with slightly higher volume than the prior day, indicating that the institutional selling was probably not a factor. However, it pays to remain vigilent. This type of action is never good but jumping too fast onto the short side of the trade is also not advised here. It could be setting up for a bear trap.

If you're short, you'd ideally like to see overwhelming rise of selling volume. But today's action was none the less painful to watch if you're long as the stock shed over 3%. But this is a momentum stock and follows the current market sentiment. The momentum line as you can see has taken it on the chin but despite today's big percentage decline, you will notice that it has held above support. If the stock fails to reclaim the uptrend line, it will likely fall to $72 where it will find support. I don't think that this support will hold and we may then be finding out that we are testing post gap support level, where there ought to be strong support at $64.82 level.

This market has had some stomach churning days that resembles sentiment change, only to roar back and slap the shorts straight across the face. The recent sell off is due to Greenspan's never relenting presence and renewed boisterious opinionation and reaction to housing and durable goods data that really is a lagging indicator. Much interesting tell will be the numbers related to existing home sales, which at this moment, I would like to think that it is still in bear mode. If that is the case, the numbers are below expectations, expect the market to rally and rally hard, probably on low pre-holiday volume which should add to the intensity. Historically, pre-memorial day market day ended in higher index numbers.

I expect no different tomorrow. I got "bold" and added 205 contracts of July $80 Crox calls today at "discount" prices. If my theory holds, I should make out like a bandit as Crox will run into the split date.

Target Tomorrow.

Target continues to meet overhead resistance as it tries to break above $59 mark. It continues to find support at the 200 EDMA and remains there. The sell side volume is scary. This is one time that I am bucking chart patterns and going with the thesis that Target will surprise to the upside. I have a small 26 contract June $60 position. All things indicate that Target will meet the EPS expectation and the real key is whether they continue to see customer weakness at their store or if April was an abberation. The street is ultra conscious of slowing economy and indication that customers are slowing spending will send this stock into a death spiral.

Watch Under Armour (UA) Tomorrow.

Under Armour Inc. has finished filling the gap today. After hitting intraday high of $49.00, the stock sharply retraced to the lows of the day of $47.52 before finishing the day below the opening price of $48.50 at $48.20.

The run up has been fueled in part by retailer's better than expected earnings results but this stock also has an eye popping 36% of the float short. Some of the shorts may have been covering but the real action is the bullish investors who have been piling in before the all important Dick's Sporting Goods (DKS) earnings tomorrow before the bell with the conference call scheduled at 10:00 AM. A lot hinges on DKS earnings report for UA. DKS is one of the largest retailers of UA and they will set the tone for redemption or spiral into the depth of oblivion.

Today's action showed that there is some stiff overhead resistance above $49 for those people who took it on the chin holding this stock that are waiting to get out. However there is one way to over come this selling pressure. Dick's Sporting Goods earnings report tomorrow.

I tend to think that Dick's will report better than expected earnings and most of the retail sectors were over sold into that terrible April. Dick's is no exception and that chain should be able to provide some interesting numbers tomorrow.

I am heavily leaning into long call options. I have 150 contracts of July $50 calls. I anticipate that if Dick's reports favorable earnings accelerated by robust UA sales, that will be the redemption that UA needs to move up. After that less than stellar forward guidance at the recent quarterly earnings report from UA, this will show that UA is still a robust grower and deserves the lofty PE and valuation.

Good luck everyone!

Crocs Intraday Reversal.

Today's Crocs Intraday Reversal from $78.65 and closing at $76.99 was a bit disheartening. But no stock can go up everyday. Volume edged up a bit from Friday's run. The trend line in this chart is intact and the stock has gotten a bit above this line. I expect this stock to retest this trend line and bounce tomorrow. I don't think that this stock's run is done just yet. It has just too much momentum behind it and like its counter parts Amazon (AMZN), Mastercard (MA), Buffalo Wild Wings (BWLD), and Apple (AAPL), it has much more upside to complete. Amazon broke out of three weeks tight formation and catapulted. While Crocs has not formed that type of consolidation, it has been using the trendline to establish a measured upside move.

I continue to keep eyes peeled as complacency only leads to losses. Today's reversal will be noted and few more days like this would indicate that there is heavy dose of selling into strength. But after a run up like Crocs has experienced the last few weeks, I don't think this action is out of ordinary and expected. But there are a lot of people waiting on the sidelines that are looking for a pullback to get in. I don't know if we will get any significant pull back other than a sideways consolidation that might occurr.

Historically stocks that are near record date for split generally ramps up into the actual split date and then most stocks experience a basing period where by traders take profits. We will see on that end.

Chart still remains bullish with a small dose of healthy skepticism.

On this Daily chart, we can see that the trend line is providing nice support as this stock runs up. A small hiccup today should not worry you just yet. Actions like today shows that people took profits and sold into strength. We will see the character of this stock tomorrow which may be down to sideways movement. But who really knows.



Consider this weekly chart shows healthy momentum, rising up volume, and intact uptrend from high tight flag formation.

Under Armour (UA) Short Squeeze?

I had mentioned in my recent blog that Under Armour (UA) has established a bottom. Since then, it has been steadily trading up on heavy volume. It still needs to resolve the downside gap which still remains and is beginning to be filled on the way up and will completely fill at $48.88. UA is the beneficiary of cautious outlook on their previous earnings. Since then, the stock has taken it on the chin but I think the selling has been over done. Recent fears of retail slow down has affected this stock and growth concerns also have played a key role in the down turn. Likely so, the stock now sports a 36% short position but I assume some of those positions are unwinding right now for reasons unknown. I believe the options are relatively cheap at this point and I have established July $50 call option at average price of $1.65 for a total of 150 contracts.

Lets consider the chart here:

If the gap gets completely filled, we could expect to see a challenge of the $52 level in short order. This is an amazing highly liquid market which is driven by demand. I don't know what is fueling it and I don't care to speculate. All I would like to say is that this one has definitely gotten some big money's attention and is headed up.

Amazon breaks out of tight 3 weeks formation

Amazon broke out today on heavy volume. I am adding to my positions here. I am playing the July $65 strike calls. I anticipate that this will be a strong move. Market is doing very well at the moment and the liquidity in this market is tremendous! Where it stops? Nobody knows but there is a lot of skepticism in this market still. They say, "this market cannot go on, it is completely irrational, it just can't be doing this!". I agree, but the difference for me is that I don't argue with the tape. This market action is some of the strongest that I have seen and I have been trading since 1995. What does all of this mean? I don't care. We will know the exact stimulus for the market action later in the history books. I choose to focus on what really matters as a trader, profits and protection of capital.

Why I Follow the Trend

I follow the market trend for the exact reason why my feelings, intuitions, and other "analysis" of the economy and market conditions are often contrary to market direction. Market always acts to baffle and confuse investors. What it seems may not always be what it is and when it is blatently obvious to an investor it may be too late. I think this is why so many investors lose money in the stock market and defer to professional money managers or mutual funds after a period of trying to beat the system.

The market is a forward looking beast. So, the numbers relating to economy is old news and has no relevance in most cases to the market action in the long run.

I am a momentum trader and mostly trade on the "long" side. My holdings can last a few days to few months but I never hold anything as a "long term" investment. The times that I have rationalized being a long term investor was when I lost money. I will stick to what I am good at.

As for my skepticism of the market, it continues. I have to remain disciplined and not give into my fears. I know that a lot of retail and professional money managers are on the sidelines waiting for that "BIG" decline based on our weak economic numbers. But market is a contrarian beast. It never does what you want it to do. So I take this opportunity and ride the momentum. It is scary but it is right because it is disciplined.

Crox Patent Status

I have several links for those who are interested in for Crocs Inc. patents for their shoe designs and issues relating to Croslite(TM).

1. Crocs Prima Flats- made of "patented" Croslite(TM)that softens with body heat.
http://stylebakery.com/fashionindexspring/aprilshowers_shoes.html

2. From December 2005 SEC filing statement:
"We consider the formulation of croslite used to produce our products to be avaluable trade secret. Prior to our acquisition of Foam Creations, FoamCreations developed the formula for croslite, and we believe that they did notpublish or otherwise make the formula available to third parties without the protection of confidentiality or similar agreements. Since the acquisition, we continue to protect the formula by using confidentiality agreements with our third party processors and by requiring our employees who have access to the formula to execute confidentiality agreements or to be bound by similar agreements concerning the protection of our confidential information. Neither wenor Foam Creations have attempted to seek patent protection for the formula butwe are not aware of any third party that has independently developed the formulaor that otherwise has the right to use the formula in their products other thanFinproject. Under the terms of our supply agreement with Finproject, Finprojecth as certain limited rights to use croslite, which were originally negotiated inconnection with our purchase of Foam Creations from Finproject's parent company.We believe the comfort and utility of our shoes depend on the properties achieved from the compounding of croslite and is a key competitive advantage forus, and we intend to vigorously protect this trade secret."

So this is from 2005 which has not patented the Croslite material but relies on confidentiality agreements.

http://sec.edgar-online.com/2006/02/02/0001047469-06-001232/Section18.asp

So Croslite (TM) is protected by trade mark and trade secret confidentiality agreements. My prior sources revealed that they were "patented" and many advertisers of Crocs line advertise that Croslite (TM) is patented. But on further examination, there exists no patent protection on Croslite much like the formulation for Coke. Crocs relies instead on patents on the designs of the footwear, trade secret agreements of Croslite which is trade marked, and aggressive prosecutions of any infringements on design, utility, and materials.