Ron:
Reference your comment on the Z Portfolio thread that I'm a pig...
lol...I didn't trade between 36,000 and 450,000 shares from 10.68 to 10.84. I did far less than that today. I'm happy with the gains that I have booked in TOY the last few days, but they are small in comparison to the hit that I took from 14 to 10.80 when I finally gave up on it and started over. That said, I was really referring to the fact that TOY was up only 1% today versus the retail index, which was up 2.6%. Like I mentioned the other day, three things need to occur before I will have more confidence in being long the stock.
1. Relative strength versus the retail sector.
2. Diminishing volume, preferably back to its average daily volume of about 1.5 million shares.
3. A round base rather than a sharp bounce to the middle of the recent range, which could easily lead to a subsequent failure.
TOY showed relative strength against the retail sector one day last week, but it was weaker the other four days and today. It fails this test in my book.
Volume has still been heavier than normal, with volume of 6 to 7.5 million shares four days last week. The volume dropped to 2 million last Friday, but was back up to 3.3 million today. This indicates that there is still too much supply in this price range, although there has been enough demand to keep it from falling back to the low 10s. It fails this test in my book.
TOY has yet to put in a solid base because it hasn't tested the 10.20 to 10.40 area from last week. Obviously the stock doesn't have to base, but I would feel better about the sustainability of a rally after such a sharp decline if it did base.
If you sense that I am not overly confident holding a long position, you are right. I definitely would not short the stock at such a low valuation, so I am trading from the long side and taking "small" profits when I get them. The only way that I will get hurt by this strategy is if the stock breaks down again. One thing that could cause "the other shoe to fall" is a growing belief that the company will miss their fourth quarter, but it's still too early in the shopping season to draw any affirmative conclusion. Therefore, I think that the stock will trade within the parameters that I laid out earlier for the time being. These are the reasons that I am trading the stock even though I do not have a great deal of confidence that it has bottomed. It also explains why I am keeping my position much smaller than last week. If the three things in my list all come together at the same time, I will most likely increase the size of my position closer to where it was before. |
