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Strategies & Market Trends : Z PORTFOLIO -- Ignore unavailable to you. Want to Upgrade?

To: Larry S. who wrote (10969)	11/29/2003 1:01:02 PM
From: DanZ	Read Replies (1) \| Respond to of 11568

Clearly TOY has faked me out more than once the last two weeks. First the stock broke down on the company's third quarter miss and lower fourth quarter guidance. It went straight down on heavy fund selling with nary an up tick. Then it never really based and went straight up the last two days with nary a down tick. Making money on a short, even a scalp, has been impossible because the stock never pulled back more than 5 or 10 cents. I agree that the chart looks better with the gap above the 200 day moving average, but one has to question why it dropped below the 200 day moving average in the first place on such heavy volume (5 times normal) if a long term bullish case is in place. I wouldn't consider that a normal correction in what had been a bullish chart the last several months. Bullish case: The stock is cheap relative to the retail sector and its own expected growth. The general market is in an uptrend with the retail sector being one of the better performers this year. The question is will the market rally continue and will retailers continue to do better than the S&P 500? Toys R Us has a better selection than Target and WalMart, but it isn't clear whether the product overlap between TGT, WMT, and TOY represents most of the sales volume or only a small part of it. Anyone know? I have heard that only about 150 products are available at all three retailers. However if those 150 products generate 70% of sales/profits, it would obviously be much worse for TOY than if those 150 products generated only 10% of their sales/profits. Bearish case: Guidance for sales and profits are coming down due to competition from WalMart and Target. TOY has had to reduce prices to remain competitive, which is pressuring margins. The company is also losing sales to WalMart and Target because it is more convenient to buy toys while shopping for other items at general retailers such as Target and WalMart. TOY gets double whammied. Lower margins and lower sales. Neutral: The chart looks better but has been very choppy. Based on what I am hearing, sales this quarter aren't great but they aren't bad. Maybe they have just been good enough to cause a relief rally and short covering. Long term, the company has some structural problems with their business plan that they have to deal with. This should keep a lid on rallies. The cheap valuation should keep a floor under the stock in the low 10s unless the fundamentals break down worse. I think that 12.25 will be a tough nut to crack because that is where the stock gapped down to on the third quarter report, and it also has significance on the point and figure chart. If that area is tested, obviously my short would be too early. I have done well with TOY this year up until the last two weeks, but it is now toying (pun intended) with my patience.