Trade number 3: PETM

PETM lowered expectations for the next quarter. Normally, this would be a common catalyst on earnings season. However, not many do so with a >10x the normal volume and >12% decrease in stock price. Add to that the poor climate for retailers lately, and we have a recipe for a bearish trade. Even after hours, the main competitior of this company, PETC, issued a warning about future quarters as well.

Take a look at the news items at Yahoo Finance and also notice the volume and the % reduction in stock price.

http://finance.yahoo.com/q?s=PETM

A quick glance at the common charts and you will notice the huge volume, but also notice the cross over of moving averages overhead. A clear bearish signal.

http://stockcharts.com/def/servlet/SC.web?c=PETM,uu[w,a]daclyyay[db][pb50!b200!f][vc60][iUa12,26,9!Lp14,3,3]&pref=G

Certainly ready to consider this trade, I take a look at the charts in detail. PETM has just broken down to a new year low, suggesting that the stock may be gaining momentum to the downside. Unlike the other bearish trades I am considering, I am not considering a rebound as likely in the short term, so entering the trade is urgent. My analysis using the RET software is below:



The long-term rally since the bottom of 2001 appears to have come to an end. The preferred count implies that it was a zigzag, rather than an impulse series. This is a wave (a) that could be retraced completely, and end at wave (b) in the months or years to come. However, I am looking for a shorter-term decrease in stock price to the low 20's. The chart below shows that the higher probability area is between $21 and $15. The breakdown to a new 52 week high gives me the signal I need to enter the trade. It implies that momentum is to the downside, and that a rebound is unlikely to occur. The Downtrend is a double zigzag and wave y is likely to exceed wave w to the downside.



I will enter this trade at the opening tomorrow morning and I will post the confirmation and current account positions as soon as that's done.

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Update: Here is the trade filled. I immeditely opened a contingency order too:




Here is the current status of the account. It has grown thanks to the AMLN trade, but CREE seem to be going our way too. The account has increased by 15% in just a few days. Let's hope it keeps going that way.



Notice that I have 2 bearish and 1 bullish trade. This is not a reflexion of my views of the market. The idea is to keep a balanced view. However, I am just trying to find good candidates, up or down. That should not matter.

BTW, I have considered MSO and RIMM as bullish trades, but they do NOT fit my profile of long-term brand new catalyst. They are more like developing stories. BUT you should look into them as possible trades too.