same recipe..new ingredients
Wednesday, February 7, 2007 at 11:03PM Yes, we are referring to our trading strategy at this moment. Basically, during the earning season, what else are you going to play besides the earning plays? The key for us here, is to recognize a good earning play right AFTER they announce the earning. There are many beating, raising and the masses chase the gap and then churn all day like an IVAC in a .70 cent range...Boring!... Here, we try to recognize more upside short term ...gap or no gap...same day or within days. It's easy to get sucked in by a pretty EPS number, many did with IIG today at $23,24. It's not that easy to recognize what will work, headline chasers get whipped and it only takes one bad entry to leave you marked and bruised!. Of course, initial earning reaction within minutes may not be the best indicator and that's why we usually get in a small starter position right away in a selective one and monitor the progress of the action through out the day to determine the playability of a particular report. Unless of course, we have this special "gut feeling" that the earning report is sooo good and we just have to buy it with a decent size no matter what. As we all have experienced before, strong earning play don't last just a day. If an earning report is very good, it sometimes takes days if not weeks to really sink into people's mind. It means that there's plenty of time to buy even after the strong "gap up" reaction of a stellar earning report. Also, believe us, not all institution can buy all of the shares off the earning report in one day. Here are some new ingredients...and what was cooking!
MDCI, this one hit our radar in pre market but we had no clue how the street is going to react despite the fact we liked the report. So, we get a starter position and wait. This stock was alerted in the low $35 and it finished up about 3 bucks from that point on. Of course, we added to that starter and hopefully you did too. We have to say that the performance of the stock is definitely more impressive than the earning itself. The split is also coming up so we think that's also an added factor as well going into the close. The stock will trade on split adjusted basis on the 9th and we have been trading this one very aggressively today. MDCI reported .38 beating two estimates by .08, revenues 67mln vs 59mln.
EML, well, we got lucky and unlucky. The co' had a release the other day saying earning release was the 8th but then we got this early move to $24 and sold the majority of our alert from Monday. Looks like one wire had the results, but most didn't till about 10:30. Luckily, we were still watching the action and jumped on the surge still not really knowing what the heck was going on...but hey, you go with the flow!. Something had to be up and it had to be good!. How else do you explain the rush of volume into a quiet stock?. If there's only one downside to the earning reaction is that it did not close nearly as good as MDCI. Is this something to get worried? Well, unless you feel their earning report will get reaudited down the road, we feel that there's absolutely nothing to be concerned about today's close. In fact, it still closed pretty well and given the thinness of the stock, this one can climb up with some meaningful percentage in no time. Again, valuation looks even more attractive with EML compared to CCF and we have a gut feeling that this one will trade better than CCF, less choppy that is. This is just an example of a thinster being discovered, we like to think we did that last Q as these numbers were somewhat in the cards.;). Don't forget why we got in Monday...Jefferies picked up 54k shares from the co'. That was the look into the keyhole of EML and todays report..The Eastern Company reports Q4 EPS $0.96 vs $0.23 in 4Q05, revs +76% to $49.7 mln :"2006 was a very good year. We set records in Sales and Earnings and our backlogs have increased. Notwithstanding the positive impact of $19 million dollars of shipments toward fulfilling a military contract, the Company's "core" sales increased 10% for the year and 17% in the fourth quarter, the 17th consecutive quarter of improved year to year sales. We are optimistic that trend will continue into 2007... The military contract to deliver door latching components to be used in retro-fitting the up-armored military Humvees will continue into 2007. These activities will be positive factors toward sustaining. http://djmarkets.squarespace.com/journal/2006/10/2/eml.html
CGX, this one we did not alert but feel that it also came out with a very good report. We think we had enough today and don't want our readers to get confused with 3 similar alerts. There's something about these "expensive" stock that we like since they just tend to be less volatile than the "cheaper" stocks once they report a similar strong earning report. We added this one to the top of our watch list also. We have seen this trade well off reports before and think it has some legs after this jump.
USAP/CNS, basically even the strongest stocks need to rest when they had such a good run-up since their report. Just look at their chart, neither stock has closed below 9 ema ever since they came out with their report. Things are still looking very much intact with these two but we feel we all should be paying more attention to the newer earning play. Basically, we're still eating up the reports, it's just not same restaurant every day. But considering these are two of our core plays this Q, we're surely to be back buying in size soon.
Watching MFW early tomorrow with a chance of adding..hunch
HXM has had a nice few days, CCOI had a very nice day
The bottom line is that nobody needs to be stuck on an out of favour play. With the earning season, you are almost guaranteed that there'd be something new and fresh coming around the corner. There's really no need to be afraid to play a new stock because no matter how unfamiliar you are with a company, the trading of that stock should always be familiar to you. We are looking forward to tomorrow.
cheers,