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.
Saturday, May 19, 2007
Friday, May 18, 2007
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.
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.
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.
Wednesday, May 16, 2007
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!
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!
Tuesday, May 15, 2007
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.
Sunday, May 13, 2007
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.
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.
Saturday, May 12, 2007
Jibbitz
Maybe Crocs investors shouldn't focus too much on the popularity of Crocs line of footwear and instead focus on the phenom that is Jibbitz. In what appears to be sweeping the nation with popularity amongst adults and children alike, Jibbitz is becoming a buzz word.
Crocs bought out Jibbitz on December 5, 2006 for $10 million with option to pay $10 million more if certain earnings targets are met. I don't think the founder of Jibbitz LLC will have a problem collecting on that additional $10 million!
Jibbitz is addictive. It allows for personalization and customization of Crocs and is one of the strong selling points for Crox. Never mind that Crox comes in varieties of "fun" colors that can be mixed to suit, the Jibitz allows for customization and creates a fan base for millions of school aged children and adults alike. In fact, many children in Phoenix sampled in Nordstrom's by myself recently states that (and I am compiling as a general consensus), everyone in school has one (Crox and Jibitz) and it appears that it has taken on their own element of trading and trendiness. Case in point, popularity now asserts in many of the Phoenix area children based on the number and uniqueness of Jibbitz! Unbelievable!
Can this be the start of the new craze such as the Pokemon, Uh-gi-Oh, and baseball trading cards? It certainly appears that way. If this phenomenon is true and continues, then we can count on Jibbitz which has huge profit margin and are relatively inexpensive to manufacture will add significant profit margin to already stunning results by Crox! During the recent quarterly earnings call, Mr. Schneider, CEO declined to give projections or include Jibbitz contribution to profits until next quarter, probably because the founder of Jibbitz was paid the $10 milllion bonus for Crocs hitting their target.
It continues to get interesting for Crocs in what appears to be the best stock for 2007!
Crocs bought out Jibbitz on December 5, 2006 for $10 million with option to pay $10 million more if certain earnings targets are met. I don't think the founder of Jibbitz LLC will have a problem collecting on that additional $10 million!
Jibbitz is addictive. It allows for personalization and customization of Crocs and is one of the strong selling points for Crox. Never mind that Crox comes in varieties of "fun" colors that can be mixed to suit, the Jibitz allows for customization and creates a fan base for millions of school aged children and adults alike. In fact, many children in Phoenix sampled in Nordstrom's by myself recently states that (and I am compiling as a general consensus), everyone in school has one (Crox and Jibitz) and it appears that it has taken on their own element of trading and trendiness. Case in point, popularity now asserts in many of the Phoenix area children based on the number and uniqueness of Jibbitz! Unbelievable!
Can this be the start of the new craze such as the Pokemon, Uh-gi-Oh, and baseball trading cards? It certainly appears that way. If this phenomenon is true and continues, then we can count on Jibbitz which has huge profit margin and are relatively inexpensive to manufacture will add significant profit margin to already stunning results by Crox! During the recent quarterly earnings call, Mr. Schneider, CEO declined to give projections or include Jibbitz contribution to profits until next quarter, probably because the founder of Jibbitz was paid the $10 milllion bonus for Crocs hitting their target.
It continues to get interesting for Crocs in what appears to be the best stock for 2007!
CROX, AMZN, CAT, GOOG, and TGT
Crocs (CROX)
Crox is forming a bullish pennant formation on declining volume which is very encouraging. This formation is a high risk formation but a break out from this pattern represents a very powerful bullish uptrend move. The volume has been declining last week as it held and consolidated the gap up. The gap held during Thursday's sell off. What remains to be seen is that Tuesday's CPI number must be "just right". If not, we can expect this market to roll over. I do not think that this market is done just yet.
AMAZON (AMZN)
AMZN is forming a short stroke pattern and has been consolidating its monster 40% gain over the past 1 1/2 weeks. If the stock can break above the $65 level in high volume, we can expect strong gains from this point. Additionally, on the daily chart, AMZN appears to have formed the high tight flag formation as well. Either way, this is a high risk high reward chart pattern and again, CPI numbers will determine if the market continues the amazing uptrend and hence AMZN uptrend.
Caterpiller (CAT)
CAT has broken out of the pennant/flag formation and is headed for $80. On the weekly chart it is also finishing the right side of the cup without a handle base, with buy point at $81. But for the adventurous like me, you can get in earlier, if you have faith in this market.
TARGET (TGT)
I know that April comp numbers were bad for 80% of all the retailers out there, Target included. I also know that it may be partly attributed to the slow down in the economy. But has anyone considered also that April was tax deadline day and many Americans are still reeling from paying Uncle Sam. Also, because the retailers were hammered for the past three months, it may be time to start considering retail and I believe Target (TGT) is the best of the breed. Remember, market looks ahead 8 to 12 months, and I have to believe that Target will do better. Why is that? Isn't gasoline prices going through the roof? Isn't inflationary pressure still the FED's primary concern? Don't we have to worry about subprime and housing impact on consumer spending?
Well, yes and no. Again, the determining factor would be to see the CPI numbers. If it shows that the consumers are not impacted too much and that inflationary pressure is also moderating, that will drive the retailers and the general market.
On a side note, I was at Target on more than one occasion here in Phoenix and it is BUSY! I know that it is just one person's view, but you wouldn't believe that this place was doing as bad as the market is pricing it to be. So, I will take a contrarian view and say that the earnings report on May 23, 2007 will surprise. I continue to hold June $62.50 calls.
On a side note, Countrywide keeps hitting highs on rumors of a take over. If the stock goes over $45, I am going to initiate long dated put position. But I am in wait and see mode. For those of you who are new to this site, please read my prior blog on the state of the economy and the housing industry. My view on the economy hasn't changed but I am a momentum trader and I am obeying the "trend". So please don't say that I am flip flopping etc...
Good luck!
Crox is forming a bullish pennant formation on declining volume which is very encouraging. This formation is a high risk formation but a break out from this pattern represents a very powerful bullish uptrend move. The volume has been declining last week as it held and consolidated the gap up. The gap held during Thursday's sell off. What remains to be seen is that Tuesday's CPI number must be "just right". If not, we can expect this market to roll over. I do not think that this market is done just yet.
AMAZON (AMZN)
AMZN is forming a short stroke pattern and has been consolidating its monster 40% gain over the past 1 1/2 weeks. If the stock can break above the $65 level in high volume, we can expect strong gains from this point. Additionally, on the daily chart, AMZN appears to have formed the high tight flag formation as well. Either way, this is a high risk high reward chart pattern and again, CPI numbers will determine if the market continues the amazing uptrend and hence AMZN uptrend.
Caterpiller (CAT)
CAT has broken out of the pennant/flag formation and is headed for $80. On the weekly chart it is also finishing the right side of the cup without a handle base, with buy point at $81. But for the adventurous like me, you can get in earlier, if you have faith in this market.
TARGET (TGT)
I know that April comp numbers were bad for 80% of all the retailers out there, Target included. I also know that it may be partly attributed to the slow down in the economy. But has anyone considered also that April was tax deadline day and many Americans are still reeling from paying Uncle Sam. Also, because the retailers were hammered for the past three months, it may be time to start considering retail and I believe Target (TGT) is the best of the breed. Remember, market looks ahead 8 to 12 months, and I have to believe that Target will do better. Why is that? Isn't gasoline prices going through the roof? Isn't inflationary pressure still the FED's primary concern? Don't we have to worry about subprime and housing impact on consumer spending?
Well, yes and no. Again, the determining factor would be to see the CPI numbers. If it shows that the consumers are not impacted too much and that inflationary pressure is also moderating, that will drive the retailers and the general market.
On a side note, I was at Target on more than one occasion here in Phoenix and it is BUSY! I know that it is just one person's view, but you wouldn't believe that this place was doing as bad as the market is pricing it to be. So, I will take a contrarian view and say that the earnings report on May 23, 2007 will surprise. I continue to hold June $62.50 calls.
On a side note, Countrywide keeps hitting highs on rumors of a take over. If the stock goes over $45, I am going to initiate long dated put position. But I am in wait and see mode. For those of you who are new to this site, please read my prior blog on the state of the economy and the housing industry. My view on the economy hasn't changed but I am a momentum trader and I am obeying the "trend". So please don't say that I am flip flopping etc...
Good luck!
Friday, May 11, 2007
Week in Review and Plans for Next Week
What a week! The market continues to amaze me with the resiliency. Again, I understand we are at lofty levels in the market and at a certain point this market will correct, and I anticipate that correction will be rather violent, but, I do not think that time has come yet. There is still a lot of negativity and pessimism in this market. This tells me that there are a lot of uninvested money that are clamoring to get in.
Thursday's action was an opportunity for those who have been on the sidelines a chance to get in. But I am willing to bet that many got frightened into inaction because of the possibility of the dreaded correction. We are embarking on uncharted territory. There are many reasons why one should stay defensive in this market:
1. The market has run up without meaningful pull back since March.
2. Economic numbers continue to show slowing.
3. "Sell in May and Go Away".
4. Subprime Slime.
5. Fed did not cut interest rates.
Yet, the market rarely acts to consensus notions. I do not think that the market is due for a pull back, yet, for the following reasons:
1. Everyone is expecting one.
2. There is too much excess liquidity in the market.
3. There are many "retail" investors that have not yet participated in the market.
4. Subprime slime appears contained (I was wrong).
5. Inflation is moderating which increases chances for a rate cut.
My trades are in Crox June $75 call and Target June $62.50 calls. Crox is consolidating its gains nicely and have held the $70 mark. It may be possible that level may be retested next week as options expire. It is also entirely possible that the option may be pinned at the $70 level but it is also possible that the options may expire at $75 level due to high percentage of short positions. After the options expiration, I believe there will be a rush to get the stock before the record date of 5/31/2007, which may have the stock run up to the $80 to $85 level heading into June. If these conditions are not met next week, I plan on closing out my calls.
Target (TGT) June $62.50 is a gamble, in light of the weakening retail numbers, but, I do believe that the negativity has been priced in and that the markets will begin to price in for the retail recovery and eventual rate cut that the market expects. I hold a small position and I am willing to take this gamble as the risks versus reward is justified here. There is too much possible upside in this trade.
Amazon (AMZN) is forming a short stroke pattern as it has been digesting its 40%+ monster run up for the past 5 days. I believe that the stock still has too much momentum and is due for another break out into the options expiration week as this stock is still heavily shorted. Same story as Crocs here. I may be taking a small 10 contract position into the June $65 position here.
CPI is important and I believe it is the most important economic number next week as that will determine the continued uptrend or beginning of the break down of the uptrend. We will see.
Thursday's action was an opportunity for those who have been on the sidelines a chance to get in. But I am willing to bet that many got frightened into inaction because of the possibility of the dreaded correction. We are embarking on uncharted territory. There are many reasons why one should stay defensive in this market:
1. The market has run up without meaningful pull back since March.
2. Economic numbers continue to show slowing.
3. "Sell in May and Go Away".
4. Subprime Slime.
5. Fed did not cut interest rates.
Yet, the market rarely acts to consensus notions. I do not think that the market is due for a pull back, yet, for the following reasons:
1. Everyone is expecting one.
2. There is too much excess liquidity in the market.
3. There are many "retail" investors that have not yet participated in the market.
4. Subprime slime appears contained (I was wrong).
5. Inflation is moderating which increases chances for a rate cut.
My trades are in Crox June $75 call and Target June $62.50 calls. Crox is consolidating its gains nicely and have held the $70 mark. It may be possible that level may be retested next week as options expire. It is also entirely possible that the option may be pinned at the $70 level but it is also possible that the options may expire at $75 level due to high percentage of short positions. After the options expiration, I believe there will be a rush to get the stock before the record date of 5/31/2007, which may have the stock run up to the $80 to $85 level heading into June. If these conditions are not met next week, I plan on closing out my calls.
Target (TGT) June $62.50 is a gamble, in light of the weakening retail numbers, but, I do believe that the negativity has been priced in and that the markets will begin to price in for the retail recovery and eventual rate cut that the market expects. I hold a small position and I am willing to take this gamble as the risks versus reward is justified here. There is too much possible upside in this trade.
Amazon (AMZN) is forming a short stroke pattern as it has been digesting its 40%+ monster run up for the past 5 days. I believe that the stock still has too much momentum and is due for another break out into the options expiration week as this stock is still heavily shorted. Same story as Crocs here. I may be taking a small 10 contract position into the June $65 position here.
CPI is important and I believe it is the most important economic number next week as that will determine the continued uptrend or beginning of the break down of the uptrend. We will see.
PPI and Retail Sales Look Bullish for the Market
PPI is up 0.7% on energy but core is unchanged. Retail Sales are down 0.2% less than forecasted. However, when considering slow down in the housing market and the auto market, this number isn't as bad.
So the tug of war continues. This is exactly what I was talking about regarding this market. One day you have concerning numbers that the investors react to, then the next day, the numbers don't seem all that bad. This is what I call whipsaw. It is best to take a position and stick with it, lest you lose money by flip flopping in this market. I made a resolve to stay with the trend and that's what I have been doing for the past 1 month.
On the trade front, Crox looks to resume their uptrend. Yesterday's sell off meant that it was time to step and buy and those buyers are getting rewarded today. Also watch the retailers which have been beaten up due to the slowing sales. I believe a lot of them have hit technical bottoms and should begin to move up a bit from here, which offers a trading opportunity. I have initiated a small call position on Target with 20 call options for June 07 strike $62 at $0.50. I may add more on weakness. I anticipate an earnings report upside as all negative factors appear in the stock price now. Report bad numbers, the stock goes up, the guidance is key for Target (TGT).
Looks like we're going to have an upday today. Good luck everyone.
So the tug of war continues. This is exactly what I was talking about regarding this market. One day you have concerning numbers that the investors react to, then the next day, the numbers don't seem all that bad. This is what I call whipsaw. It is best to take a position and stick with it, lest you lose money by flip flopping in this market. I made a resolve to stay with the trend and that's what I have been doing for the past 1 month.
On the trade front, Crox looks to resume their uptrend. Yesterday's sell off meant that it was time to step and buy and those buyers are getting rewarded today. Also watch the retailers which have been beaten up due to the slowing sales. I believe a lot of them have hit technical bottoms and should begin to move up a bit from here, which offers a trading opportunity. I have initiated a small call position on Target with 20 call options for June 07 strike $62 at $0.50. I may add more on weakness. I anticipate an earnings report upside as all negative factors appear in the stock price now. Report bad numbers, the stock goes up, the guidance is key for Target (TGT).
Looks like we're going to have an upday today. Good luck everyone.
Thursday, May 10, 2007
Long Expected Correction Arrives!
Folks, take heart! The correction is here! Why am I so giddy about the prospects of the market going down? It is because the markets have risen without a smidge of a correction since March! It is said that corrections are the ingedients for future upside moves. It is a process by which excess speculation and euphoria is washed out of the market. It builds strong support bases which are essential for the next upside moves.
Having said that, the markets corrected on average volume today. You wouldn't know it but it seemed much worse with close to 3:1 decliners over advancers on the NYSE and NASDAQ was worse with 4:1 ratio.
The million dollar question then is this: Is the beginning of the end? I would beg to differ. I know a lot of you would argue that it is a seasonally weak time to be trading. That major traders have packed it up until fall. But is it really different this time? Not really. The only major issue that I would like to point out is that there still exists excess liquidity in the market place and the long sided bulls that have been clamoring to get into the market before it ran away from them. You see, after the Correction in February 27th, many gun shy long sided traders have stayed on the sidelines to watch this market propel higher and higher and to their dismay, this market gave no convenient points of entry. Until now.
I hang on to the thesis that the markets have been pricing in a stronger economi growth in 12 to 13 months down the road. Also, the markets were pricing in a rate cut some time this year, and based on the retail numbers and the PPI and CPI (due next week) numbers, the markets may get just what they wished for. I still believe that the markets need a rate hike, not a rate cut, to combat inflation, but my feeling is that Bernake will succumb to the pressures of politics and dare not destroy the economy during the presidential election cycle. No way! It is too bad because whoever the next president will be, they will have a lot of garbage to clean up and our economy may be in for a rude awakening.
I do not fight the trend. Rarely in my trading career did I make money by fighting the trend and I will not change it this time. I have to stay true to what makes me a relatively successful trader. Until that trend is violated, and no matter how contrary the markets act in relation to the economic fundamentals, I will obey the trend. That trend is still up!
I am not right 100% of the time, but I am right just enough that it makes me money. Many of the readers will realize that for the past two months I have been really getting hammered and many are wondering how do I consistently trade? It is because I take small position sizes relative to my trading capital. To some that may be a big huge position but to others it may be peanuts. I generally trade anywhere between 10 contracts all the way up to 1000 contracts depending on how bullish I am. I have a win percentage of 38.4% which makes me money. The key is to manage contract size and capital wager.
Okay, I am boring you. So I will get to the gist of what I am up to lately.
I believe the market correction today will be short lived and the fundamentals today was ugly. Retail sales were down sharply more than forecasted spurring on fears of recession and slowing economy. Like I have said, the FED is in a precarious position but they will have to choose their poision soon enough and I am willing to bet that Bernake will wink and cut rates. Based on that, the economic data coming out will continue to be mixed causing much volatility in the market. But this sell off today will be a one or two day event and I predict that we will continue resumption of the uptrend soon enough. Thus today represents a key buy point for those who are in the market and those who are clamoring to get in.
It is doubly important that the "wall of worry" is brought back into the focus and according to my theory, it is a necessary evil for the markets to continue their upward trend. So that is a plus.
I am heavily involved in Crox. You might say, "what the heck are you on crack?" Well listen me out here. That quarter that Crox reported was just a monster one! It legitimizes Crox as more than a FAD. Additionally, it proved many naysayers wrong. Yet, as is often the case, the naysayers will not give in easily, even as they see the stock leap 20,30, even 60% from this point. I think that the price target of $105 by the end of the year is not unrealistic and a short term price target of $85 is reasonable. With the impending stock split, it is likely the hedgies and institutions will bid it up. Did you notice how it has been silent in terms of upgrades from big brokerages? It is likely that they are accumulating shares, quietly. This can take a while. But all indications are that there still is the 6 days to cover 28% short position in this stock and the meat of the squeeze is yet to come. Once the market gets over their conniption, we will see resumption of the uptrend in this stock. I have now accumulated 240 contracts of June $70 at an average price of $3.73. I plan on adding if the current option prices hold for the June $70 at $3.80 to $5.00 range.
That is my major trades. I have not done much with J&J or CAT. CFC looks like a good short from here and I may just do that but I have been burned on that stock before so I will tread carefully.
good luck!
Having said that, the markets corrected on average volume today. You wouldn't know it but it seemed much worse with close to 3:1 decliners over advancers on the NYSE and NASDAQ was worse with 4:1 ratio.
The million dollar question then is this: Is the beginning of the end? I would beg to differ. I know a lot of you would argue that it is a seasonally weak time to be trading. That major traders have packed it up until fall. But is it really different this time? Not really. The only major issue that I would like to point out is that there still exists excess liquidity in the market place and the long sided bulls that have been clamoring to get into the market before it ran away from them. You see, after the Correction in February 27th, many gun shy long sided traders have stayed on the sidelines to watch this market propel higher and higher and to their dismay, this market gave no convenient points of entry. Until now.
I hang on to the thesis that the markets have been pricing in a stronger economi growth in 12 to 13 months down the road. Also, the markets were pricing in a rate cut some time this year, and based on the retail numbers and the PPI and CPI (due next week) numbers, the markets may get just what they wished for. I still believe that the markets need a rate hike, not a rate cut, to combat inflation, but my feeling is that Bernake will succumb to the pressures of politics and dare not destroy the economy during the presidential election cycle. No way! It is too bad because whoever the next president will be, they will have a lot of garbage to clean up and our economy may be in for a rude awakening.
I do not fight the trend. Rarely in my trading career did I make money by fighting the trend and I will not change it this time. I have to stay true to what makes me a relatively successful trader. Until that trend is violated, and no matter how contrary the markets act in relation to the economic fundamentals, I will obey the trend. That trend is still up!
I am not right 100% of the time, but I am right just enough that it makes me money. Many of the readers will realize that for the past two months I have been really getting hammered and many are wondering how do I consistently trade? It is because I take small position sizes relative to my trading capital. To some that may be a big huge position but to others it may be peanuts. I generally trade anywhere between 10 contracts all the way up to 1000 contracts depending on how bullish I am. I have a win percentage of 38.4% which makes me money. The key is to manage contract size and capital wager.
Okay, I am boring you. So I will get to the gist of what I am up to lately.
I believe the market correction today will be short lived and the fundamentals today was ugly. Retail sales were down sharply more than forecasted spurring on fears of recession and slowing economy. Like I have said, the FED is in a precarious position but they will have to choose their poision soon enough and I am willing to bet that Bernake will wink and cut rates. Based on that, the economic data coming out will continue to be mixed causing much volatility in the market. But this sell off today will be a one or two day event and I predict that we will continue resumption of the uptrend soon enough. Thus today represents a key buy point for those who are in the market and those who are clamoring to get in.
It is doubly important that the "wall of worry" is brought back into the focus and according to my theory, it is a necessary evil for the markets to continue their upward trend. So that is a plus.
I am heavily involved in Crox. You might say, "what the heck are you on crack?" Well listen me out here. That quarter that Crox reported was just a monster one! It legitimizes Crox as more than a FAD. Additionally, it proved many naysayers wrong. Yet, as is often the case, the naysayers will not give in easily, even as they see the stock leap 20,30, even 60% from this point. I think that the price target of $105 by the end of the year is not unrealistic and a short term price target of $85 is reasonable. With the impending stock split, it is likely the hedgies and institutions will bid it up. Did you notice how it has been silent in terms of upgrades from big brokerages? It is likely that they are accumulating shares, quietly. This can take a while. But all indications are that there still is the 6 days to cover 28% short position in this stock and the meat of the squeeze is yet to come. Once the market gets over their conniption, we will see resumption of the uptrend in this stock. I have now accumulated 240 contracts of June $70 at an average price of $3.73. I plan on adding if the current option prices hold for the June $70 at $3.80 to $5.00 range.
That is my major trades. I have not done much with J&J or CAT. CFC looks like a good short from here and I may just do that but I have been burned on that stock before so I will tread carefully.
good luck!
Tuesday, May 08, 2007
Cisco Reports Strong Earnings but Shares Fall 5%
I am left with quite a dilemma because even though Cisco reported good earnings, the markets were not impressed. I myself had been hoping for at least $.35 to $.38 but non-GAAP $.34 was announced, $.01 above views. It was disheartening to see this stock get taken to the shed and shot but this was clearly the "sell the news" event. The expectations were huge on this stock and because this is a bellweather stock one good thing came out of this event today.
Our economy is doing just okay and that many of the Cisco's vendors are saying that "soft landing" is in full force.
So what is my plan today? I think that this stock will be under pressure tomorrow morning before the market opens. I am not sure if this stock deserves a 5% hair cut though. A fair price for this stock would be around $31 based on this earnings. Once the investors have finished freaking out, it may be a good time to hold on to the options for additional few weeks to see how this stock plays out.
There have been rumblings of possible partnership between Apple and Cisco but no more detail can be found. I am not sure of the authenticity of this claim but if it is that can jump start Cisco in the right direction.
More realistically, the stock should meander from $25.90 to $27.90 tomorrow. For options traders like me, I am going to take advantage of the higher implied volatility at the open and get out. Based on I Volatility.com, stock price of $27.25 will yield call contract price of $1.02 and stock price of $26.77 would yield option price of $.80. My basis point for June 27.50 call was $1.32 and if I can maintain 70% of my position tomorrow morning, I would be grateful.
I will cut my losses and move on.
I am looking into J&J September calls which are fairly undervalued and the IV and HV have not diverged yet. I believe that based on the cup base formation, this stock may be ready to prod upside. Additionally, I am planning on adding onto the June $70 call of Crox. I already have 17 contracts placed on this trade. I would like to take the remainder of my capital and concentrate into Crox over time, taking advantage of volatility in price. I am hopeful that I can gain 300 contracts here. There is more upside left in Crox.
So for those reeling from Cisco, take heart, because there is always another day.
Our economy is doing just okay and that many of the Cisco's vendors are saying that "soft landing" is in full force.
So what is my plan today? I think that this stock will be under pressure tomorrow morning before the market opens. I am not sure if this stock deserves a 5% hair cut though. A fair price for this stock would be around $31 based on this earnings. Once the investors have finished freaking out, it may be a good time to hold on to the options for additional few weeks to see how this stock plays out.
There have been rumblings of possible partnership between Apple and Cisco but no more detail can be found. I am not sure of the authenticity of this claim but if it is that can jump start Cisco in the right direction.
More realistically, the stock should meander from $25.90 to $27.90 tomorrow. For options traders like me, I am going to take advantage of the higher implied volatility at the open and get out. Based on I Volatility.com, stock price of $27.25 will yield call contract price of $1.02 and stock price of $26.77 would yield option price of $.80. My basis point for June 27.50 call was $1.32 and if I can maintain 70% of my position tomorrow morning, I would be grateful.
I will cut my losses and move on.
I am looking into J&J September calls which are fairly undervalued and the IV and HV have not diverged yet. I believe that based on the cup base formation, this stock may be ready to prod upside. Additionally, I am planning on adding onto the June $70 call of Crox. I already have 17 contracts placed on this trade. I would like to take the remainder of my capital and concentrate into Crox over time, taking advantage of volatility in price. I am hopeful that I can gain 300 contracts here. There is more upside left in Crox.
So for those reeling from Cisco, take heart, because there is always another day.
Monday, May 07, 2007
Cashed Out of Crox for Now.
I cashed out of my 80 contract position of June $60 call options on Crox to add to my Cisco options for tomorrow's earnings report. I will wait for some consolidation of Crox, which may only last a few days and will consider reentering this trade at July or August options priced out to $75 call options on Crox. I made good profits on this Crox trade but feel that more is to come.
Also, Disney (DIS) looks interesting for tomorrow's earnings play. I am also paying close attention to Charles Schwab (SCHW), more on this later. I am also paying close attention to Mindray (MR).
Good luck!
Also, Disney (DIS) looks interesting for tomorrow's earnings play. I am also paying close attention to Charles Schwab (SCHW), more on this later. I am also paying close attention to Mindray (MR).
Good luck!
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