Category Archives: Charting Techniques

Charting Techniques covers many aspects of charting.

GNC

Buys GNC 13.67

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GNC broke through the descending channel at $13.55 but yesterdays high was $13.65. I could have bought at $13.56 but I wanted to be sure it was a breakout. Notice the two circled breaks through the upper parallel line.  It was certainly possible to get another one of these this morning.

Those two false breakouts and the trading in the upper half of the channel let me know yesterday of a strong possibility of a break to the upside today.

This is a deep value trade but it could go to ten bucks. Size your trade accordingly.

Dave C

GNC

As you all know I got out of GNC at $21.50 on Oct. 21. The reason was the long sideways movement and no credible offers for the company. Earnings were right around the corner (a week away) and I had low confidence in their ability to beat their projections.

GNC Holdings misses by $0.12, misses on revs  (20.14)

10/27/2016, 6:55:48 AM ET

  • Reports Q3 (Sep) adj. earnings of $0.59 per share, $0.12 worse than the Capital IQ Consensus of $0.71; revenues fell 8.1% year/year to $628 mln vs the $651.32 mln Capital IQ Consensus.
  • Negative domestic retail same store sales of 8.5%, which includes GNC.com, resulted in a $35.2 million decrease in revenue year-over-year. Negative same store sales were primarily due to lower sales in the protein, vitamins and food/drink categories and a significant decrease in e-commerce sales due in part to better aligning web promotions to the Company’s stores. E-commerce sales were 6.8% of consolidated revenue during the current quarter compared with 7.3% of consolidated revenue in the prior year quarter. In addition, corporate stores decreased from 3,546 at September 30, 2015 to 3,512 at September 30, 2016 in connection with the Company’s refranchising strategy.
  • “Our results for the quarter fell short of our expectations, but we have been moving quickly to address the key issues that are critical to returning GNC to growth. We are focused on eliminating confusion regarding our product pricing, providing customers with an improved loyalty program, enhancing the customer experience in our stores and reinvigorating the GNC branded product innovation pipeline.
  • Peer: Vitamin Shoppe (VSI).

They actually did much worse than I expected. Along with a 12 cent miss on earnings their revenue declined by 8.1 percent.

GNC is definitely in need of a change in management which would occur with a buyout. Or the board of directors could bring it about any day now. This huge slump in earnings and revenue could bring it about. Even they should know by now that they need to act in one capacity or another. Even I as a lowly trader can come up with several scenarios that would turn this company around.

Future earnings have been reduced to $2.59 this year, $2.47 in 2017 and 2018 and $2.60 in 2019.

Based on earnings of $2.47 per annum in 2017 and 2018 GNC’s current forward P/E is 5.46. This is definitely in the buy range of 4 to 7 P/E’s. I am currently watching GNC for a turnaround in price based on price action. Be aware that a 4 P/E would value GNC at $9.88. That would be the worst case downside in mine opinion, so don’t go overboard on share size.

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This slow grind down is an indication that GNC will continue down, but

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after setting a new low this morning GNC broke through the upper band of the channel you see on the 15 minute chart above.

If it does not set a new low and breaks above $13.65, the high set today, I will reenter here.

The reason is this now a much better buyout candidate,

it is now a serious value play at a forward P/E of 5.46,

it will have set a cup and handle reversal pattern

and fair value is $37.05 at a 15 P/E.

Target is $24.50

No stop price.

Dave C

 

DG

This called a price action trade.

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There was a small gap down this morning, a nickel, which was followed by a $1.50 drop in the first 5 minutes. Certainly a panic price movement.

My first buy at $67.11 was set up before the market opened. The additional buy at $66.76 was entered after I felt the selloff was over.

I sold half of this position at  $68.24 for 67 cents to reduce my position size because DG broke support at $67.14 which indicates DG could go lower.

Next support levels are $64.90 (minor), $62.50 (minor) and $60.02, which is major support.

DG has been sold to Dollar Tree for $74.50.

Dave C.

 

TGI

I added some more TGI yesterday at $26.96.

On the opening pop TGI  yesterday set a new high of $27.33 and on a break of that I will add more.

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This post has several things to teach new traders.

Let’s start with the two blue parallel lines you see on the chart. These are enclosing the price action after the pop up on 9/22. We will get to the tails in a few minutes.

This formation is called a bull flag. When you are in an uptrend, which is in question here because this is only the second day of a reversal, the buyers will stop for a time and the stock will trade sideways and slightly down.If the flag is slightly rising it is much more likely to fail and the stock goes lower. If I were not already in this stock I would not buy until it broke through $27.33, which is the high of the pop after the reversal on 9/21. The buyers that are in here now are probably shorts who are covering their position. If we break through $27.33 we should get a strong short covering rally.

Let’s move on to the opening bar of each day. In a stock with no new news a falling stock will very often pop up a few cents at the open. Conversely, a stock that is rising will often fall a few cents at the open. What this is is the market orders to be executed at the open. Those market orders allow the market maker free reign to do as they please with your order at the most volatile time of day. Bear in mind the MM (market maker) has tons of information that you don’t have access to or don’t understand the importance of.

So on a falling stock the MM  moves the price up a little and you (buy at market at the open orders) buy higher than yesterday’s close. He, meanwhile, shorts your buy and then lets the stock continue lower. He covers his short a little later and pockets the change. That 5, 10 or 50 cents may be on a few thousand shares or 100’s of thousands shares. Those are the little pops up or down (rising or falling stocks) that you see at the open. Because these are not informed trades I pay no attention to these tails when I’m drawing lines on my charts.

I am normally at the computer at the open every morning and it gives me confidence to see these little opening moves.

Dave C

 

TGI

Triumph Group, Inc. TGI is an OEM manufacturer of aircraft components. They design, manufacturer, engineer, overhaul, repair, and distributes aero structures worldwide.

Over the last year or so TGI seems to have had some execution issues but I am hearing that these are pretty much behind them now.

Deloitte’s 2016 Aerospace and Defense Sector outlook states that this sector should be bullish for the next 20 years so the business is there if TGI’s management has gotten their act together and can sign some major business to the books.

Dan Crawley was hired as CEO and President of TGI on Jan 4 this year. He has 32 years experience in the aerospace and defense industries and was last with Raytheon as the President of Raytheon Integrated Defense Systems, Inc.

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As you can see on the daily chart above the projected earning for FY 18 are $4.48. With the new CEO I assume that every negative thing that could be found has been thrown into the last couple of earnings reports, and this is pretty apparent with negative sales growth for the past year.

Using the worst projected earnings TGI’s of $4.48 current P/E is 5.96. If we use last years earnings their P/E is 5.27.

In 2013 TGI had a high of $85.50 and a low of $13.44 in 2009.

Currently we have strong support at $23.00 then $18.00, 16.20, 14.60 and finally $13.44.

I would be astonished if TGI broke $23.00 but I’ve been surprised before. Currently I am watching TGI daily waiting for a reversal signal because it is way oversold.

Initial target is $40.00. With an improvement in sales and profit $70.00 within 18 months.

Dave C.