Monthly Archives: December 2015

ICON

Sells 90 % of ICON
Sold half in premarket at 6.80 Plus 4 cents
Sold rest at the open between 6.46 and 6.50  Minus 30 cents
Any SEC investigation will crush a stock. It may be a buy later but you don’t want to hold an existing position for a bounce as this could fall for several days before stabilizing.
28-Dec-15 08:01 ET
Iconix Brand announces it received a formal order of investigation from the Staff of the SEC; co intends to fully cooperate with the SEC  (7.45)
  • As previously disclosed, the Company is currently in a comment letter process with the Staff of the SEC related to the accounting treatment for the formation of certain joint ventures.
  • Additionally, the Company formed a Special Committee of the Board of Directors to conduct a review of the accounting treatment related to certain of the Company’s transactions.
  • Courtesy of Briefing.com

Selecting a Trade–2 Support and Resistance S/R

Selecting a Trade —2 Support and Resistance   S/R

In this example I will use daily, weekly and monthly charts. In charting, S/R is the most important aspect of determining where to buy or sell a stock. In this case CMG has had a recurring set of bad news based around e. coli bacteria in their food, not good news for a restaurant.

With trailing earnings of 16.76 and estimated FY 16 forward earnings of 16.39 CMG is very overpriced and has been for quite some time. Growth has slowed to 1 or 2 percent so the P/E should be between 8 and 15. At 15 P/E CMG is worth 251.40.

With trailing earnings of 16.76 and estimated FY 16 forward earnings of 16.39 CMG is very overpriced and has been for quite some time. Growth has slowed to 1 or 2 percent so the P/E should be between 8 and 15. At 15 P/E CMG is worth 251.40. With their recurring E. coli problems that growth could become negative.

The daily chart you see above (April of 2014) shows the detail of the bottom at that time. This is support for the current move down (December of 2015). Occasionally I have had to look back 10 or 12 years for S/R levels. They are still effective many years later.blog cmg daily 4-2014

This drop from 580. To 472.41 was caused by a 22 cent miss on their earnings call on April 17, 2014. The reason is irrelevant though. The only thing important thing here is that CMG found willing buyers at this level and will more than likely find more here again. CMG has fallen from 758.00 to  482.00 and will be perceived as a buy by many uneducated buyers.

This will be a bounce play only but it COULD bounce as high as 597.00 which makes it a viable trade candidate.

The low on the chart is 472.41. I always use yellow lines for the tail of a candlestick. The close on that red candle was 476.28 and those are your support levels. If I traded this my stop order would be 471.50 or so.

When you have a fall this drastic in a stock that has been an investor favorite for so long a period of time a strong support level will usually generate a nice bounce in the stock in spite of the fundamentals. Bear in mind that CMG has been trading at a high P/E for years.

One last thing on the chart above. In the circled area we have a pattern called a cup and handle. This is a reliable reversal pattern. The cup in this case is the V bottom. The red line near the top of the circle is the breakout level of the handle and the first top of the first bounce from the bottom. The stock then consolidates for 13 days before breaking out. The buy here is just above the breakout. The stock continued up for a month from there and gained more than 80 points.

blog cmg weekly 12-2015

 

Now we have the weekly chart and the support levels are much easier to see. On the left side of the chart note that the support levels are at 499.00, with the tail of the candlestick at 472.41. 494.30 is the opening price My problem here is the 27 point spread in those numbers.

When a favored stock has fallen this far there will often be a lot of buyers at a strong support level. As they sit and watch this fall they start to become anxious about whether they will be filled where they want to get in. Then there are the cowboys who just buy because it has fallen so far. Don’t forget that there were buyers all the way down from 758.00. Every penny CMG fell someone new perceived it as a great buy. Folks will often start getting in early and you have to determine if the stock is going to turn early or reach the target. The determining factor for me is my stop price. No matter where I buy at my stop price is still 471.50.

You have to have the knowledge to determine the support levels and the discipline to wait for it to get there.

blog cmg monthly 2015

 

Finally we have the monthly chart. Here we find that there is no doubt where support is.

I’m writing this on Saturday so Monday could be pretty exciting. CMG bottomed at 482 and closed at 495 this week. Was that the bottom? Who Knows?

Don’t forget this was an exercise in finding support and resistance. I left out very important info on the fundamentals. Do your due diligence before you jump into CMG.

Good Luck

Dave C.

 

 

 

 

 

UNG Investor Trade

Buys UNG 7.60. Better late than never.

UNG bottomed last week at 6.91. I had been watching it but picked the wrong time to not check it.

UNG is a long ETF for natural gas. Natgas is setting multi-year lows and could continue lower.

The oil industry is shutting in wells and not drilling new ones so we should be near the bottom within the next few months.

This is a opening position on a multi-year trade.

Dave C.

P.S. Don’t forget to buy low and sell high. If your buying high and expect to sell to a greater fool try to remember your the new guy, no matter how long you’ve been trading.

 

OUTR follow-up

OUTR follow-up

Last night I decided to write up an explanation of what I was doing and thinking about this OUTR trade I’m in and being taken to the cleaners on as of last night (12/22/2015).

blog outr 120 min 12-23-2015

The chart above is the daily chart as of about 10 A.M. OUTR had broken tail support at 37.43 and although it rebounded above that level it fell back and closed at 37.12. Not a good sign for a guy that is long this stock.

I had several things going for me though. Look at the 120 minute chart at the top and you will notice that even though OUTR set a new low yesterday the last candle of the day was a breakout of a four day descending channel. Also in the daily chart below we have descending wedge, which is a reliable indicator of as reversal.

When I’m trading a stock that has taken this large a hit I always take a look at the short interest in the stock. In OUTR’s case there were 17.7 million shares short. That is 49.2 percent of the float, a huge percentage considering the forward P/E was down to 4.68 at the low of the day.

A year or so ago I started paying attention to the number of shares short on large drops in stocks such as OUTR. What I have found is that when we reach the 80 percent mark the stock rebounds. Nothing works a hundred percent of the time but this has been very reliable to date but this is on a relatively small number of stocks. 80 percent of 17.7 million is 14.16 million. As of the close last night (12/22/2015) the shares traded since the gap was 13.86 million.

At 12:30 Central Time OUTR is up to 39.30, almost a six percent move. This is a short covering rally.

The open on any stock is the most volatile time of the day and for that reason the opening move is always discounted as an aberration. The reason for this is the retail traders enter buy and sell orders for the open, many of which are market orders. This allows the brokers to do as they please with an equity for the first few minutes of the market.

blog outr daily 12-23-2015

Once we past that time I entered a stop market order to buy long if OUTR exceeded the bounce high of 37.57. The ordered executed at 37.60.

Now let’s talk about what I would have done had OUTR continued lower today.

The next support level on OUTR is at 34.44. At that level the P/E would be 4.4. You must remember that P/E is an objective level of valuation. Even a poorly performing stock should be able to maintain a 7/8 P/E in this market. At 7 times forward earnings OUTR would be priced at 54.95. Just how much risk am I incurring here? To me the risk is not being in the stock. As the price drops lower and lower the risk of missing a great trade is too much to ignore.

At this point only 7 percent of my trading capital is in this stock. As I have said before I’m willing to go as high as 20 percent if necessary.

Back to the question. If it continued lower I would buy and double up at 34.50/35.00. That would put me in OUTR in the 36.75 to 37.25 in the various accounts. OUTR is up 2.30 at this point today so you can see it would be a short hop to profitability and another short hop to large gains. If it didn’t reach 35.00 I would hold my position until I got a reversal pattern of some kind and add to the trade then. If it continues down past 34.50 I will ask for prayers from all of you. No seriously, if it continued lower I would sell half the position and wait for a reversal pattern.

So why half the position and not all you say? At under 4.4 P/E this stock would be (and is now) a tremendous buy. I don’t want to sit over a bottomless pit with 4 or 5 thousand shares. The stress is too great and you can make some huge mistakes under stress.

I hope this is helpful

Dave C