Doug,
I think your arguments/suggestions about leaving the table are solid, and I'd throw in a few more pieces and some random thoughts, please pick on them:
1) WS loves earning surprises (upward), since most anal'ysts are not very smart. If you confuse them, they'll gonna hate you. REALLY hate you. So far, it seems that this possibility (upward surprise) with NEON is gone, for the time being at least. In WS terms, "the earnings outlook is not clear"
2) As you mentioned, NEON is on a path of growth via acquisition, instead of internal organic growth. This will add further burden to the stock performance: you would likely dilute earnings, put strains on cash, put pressure on sales and R&D (intergration both technology and culture). This might be good long term for the company, but it'll kill the stock short term (6 mos or more),until earnings prove itself. That'll easily take a couple of quarters. In WS terms, "to gain back trust".
3) Let's put these fundamental issues aside, and look at the chart. It's simply an ugly chart. Gap down on huge volume, indication that big players are leaving the table in a hurry. (Yes there are some big players/buy blocks, but I trust that's merely traders and they'll at most hold till the dead cat bounce). Once the momentum players leave the table, the stock will be drifting (down) for a while.
I am almost tempted to short the stock at this stage, maybe not outright, perhaps get couple of puts. But the volatility of the issue is too high at the moment so I'd rather wait a few days instead of paying for the premium right now. For those who trust that the stock will come back FAST, I'd suggest that you buy short term calls and if there is no tax consequences, just replace your holdings with short term calls, to protect against downside risk while enjoy all the upside potentials. For those who think the stock will be a dog and stay at this level for a while, and don't want to sell, the best option I can see is to sell short term calls against your holdings. The danger of this exercise, is that if the stock drops again big time, you still lose money, although not as much; and if the stock pops, you don't get to anticipate fully.
I posted earlier that I won't even consider touch the stock if it gap through 20s, until it hits about 13. Now I am thinking that could even be in danger (not a very big chance, I'd say perhaps 20% chance) and the stock can go to single digit. However, because of the huge gap down, all the technical indicators show oversold (CCI, STO, Bollinger, RSI.. ), so the stock would most likely come back somewhat, and that might be good time to come out. My guess is 25 to be the upper limit. Of course, this is merely throwing darts, so take for what it's worth.
If you or others don't mind a bit of history, I've found a surprising parallel to this issue. The first 100 postings on RATL thread is such an interesting read, I'd suggest anybody who's got a 30 min to spend read it, pay special attention to posting 45, 48, 62 and 83. You'll see what I mean. Here's the link to the thread techstocks.com
(it'll really help if you have a stock chart of RATL when you read those postings, even better if you have a detailed charting program that'll let you see exact date and trades and volume and opening and closing)
The reason I post this, is that I want to make a mental note to myself so that few years down the road I can come back read/learn from my success/mistakes. Besides, I've learned so much from other great SI postings (including yours), I felt I had to share my thoughts with you.
And hopefully, they'll get better and better.
Best of all,
W. |
