Howdy Andrew,
Thanks for joining us and and for sharing your real situation. Hey Andrew, I have been where you are right now! I've learned from my mistakes and I've made plenty of them! So, don't think I'm dumping on you. This is a learning experience which all investors must learn to overcome. You've done the right thing to share your thrill with us on this forum. Thanks!
Now, for my two cents worth. Some humor might take the edge of the fact that this is real money. WOw! Wow! My first impression was, "Timber, warning... watch out below!!!!"
REVIEW OF FUNDAMENTALS
To say ITWO is a little rich in the P/E is an understatement. Would you believe ITWO is at:
NASDAQ: (ITWO : $27 11/16) $1,768 million Market Cap at July 24, 1998 Trades at a 98% Premium PE Multiple of 76.9 X, vs. the 38.8 X average multiple at which the Software & Services SubIndustry is priced.
Although, ITWO earnings have been higher this year over last year, the quarter to quarter EPS increases have been dropping lower and lower. At least, for the last 3 earnings reports this year. Could this be a sign of slowing revenue sales or increases in expenses? In fact, the stock EPS was just adjusted downward from .72 EPS to a mere .36 EPS on July 21, 1998.
That is one heck of an adjustment and let down if it's true! Perhaps that new number is a restatement or adjust for the recent ITWO 2-1 split in June 98. The major potential hurdle with splits is the fact of the increased liquidity by floating more shares at half the price. Somebody has to buy those shares. Further, the shareholder's expectations are certainly increased and there is no room for let downs!
ITWO certainly pumped up shareholders expectations by going into a 2-1 split after a long steady rise in stock price and peaking at a new 52-week high recently. The stock moved way ahead of it's self. Check out the chart below for the BB and RSI.
bigcharts.com
PRE-SPLIT WARNING SIGNS
They say, "Hindsight is 20/20!" We must learn from our actions and mistakes so we don't fall prey to them ever again. If you have been following our forum Andrew, you know that when a stock moves up and is about to tag the upper BB and the RSI moves up above 70 that we should be preparing for the profit taking pull back by CCing at or deep in the money and few months out to grab as much premies as possible. With the premie dollars you buy LOADS of CHEAP PUTs. Had you done exactly that you would of had a nice kahuna with ITWO.
Earning reports, stock splits, and 52-week highs all happening at or around the same time spell danger flags or prime opportunities depending how you view it! I would have taken my call buyer's CC premies to protect my long position. That is the price of doing business in the stock market. Cheap insurance for the what if I'm wrong about the future! You can do what the big boys do yourself. I will explain further a few paragraphs down.
If the cheap PUTs are not being sold because of low open interest the shorted the stock! Certainly, there is plenty of share out there resulting from the 2-1 split. Another, valuable detail you could of used was the short interest information on ITWO. Check out for free at http:viwes.com/invest/shorts/query.cgi which appears below:
ITWO i2 Technologies Inc.
Month Shares Short Avg Daily Volume Ratio* Remark
06/98 3,320,050 1,064,208 3.12
05/98 1,239,830 362,646 3.42
04/98 1,180,399 312,142 3.78
03/98 1,124,624 209,541 5.37
02/98 1,066,578 355,365 3.00
01/98 1,416,067 286,079 4.95
That sure was one heck of an increase in short interest from may to June 1998. That indicates a sure move and major clue by the smart money and MMs towards "shorting against the box." That is, lock in your profit gains by being long and short on ITWO. Basically, no matter which way ITWO moves the smart money's position is protected. It is a stroke of genius to do it this way for the MMs. Here is what takes place after the events:
1. If ITWO goes up because of great earnings report, the MMs cover the short positions and the stock moves up nicely from a short squeeze. Not too common in this day and age because of the overvalue of most P/Es and the lenght of time of the bull market run up.
2. If ITWO goes down because of disappoint in earnings or some other news like your Asian Flu warnings, then, the smart money and MMs hold onto their shorted shares and then they immediately dump their long shares and at the same time SHORT THE STOCK bigtime!!!! They know it is a piece of cake to make HUGH PROFITs when fear hits! They are feeding it and creating it!
Most investors don't know how to be defensive. It reminds me when I use to fence in college. Yes, I was a spanish Zorro in college with a mustache and no mask. Well, I'm left handed and I practiced against those who were right-handed. Needless to say, I left my H mark on the majority of my opponent's chest with my foil, Špee, and saber. It just freaked them out and that gave me the edge over their temporary initial fear and lack of experience fencing against a left-handed person. Savvy small investors and making money in the stock market in downward markets is about as common as left-handed people. Rare at best!
Negative Forecast or Profit Opportunity
How I first hated, but, learned to love the phrase, "let the trend be your friend." We all take personal offensive when things don't go our way! Just looking at the facts, I think ITWO may move all the way down to first bottom price support level of July 1997 at $25 and then a small bounce. The second down wave may pound ITWO to the April 1997 price level of $14.00. Why? Simple, if I were an MM or fund manager I would bet that I can pull it off in collaborative timing with the market because of the fear in the street. The information is posted on the Level II Nasdaq quote screens. You can see what the others are trying to do by the type and size of their bids.
Those two lower prices I mentioned is where bulk purchasers/shareholders are situated according to the chart. If the market can force ITWO down to those prices and break the backs of the shareholder, they will fold and run for the exits. Don't forget the P/E in ITWO has LOTS OF FAT to trim!
SUGGESTIONS?
If you are able to monitor your position then either sell and get out! Otherwise, load up on some cheap ITWO PUTs. Use any price bounce to buy more PUTs. Of course, you could immediately write CCs a few strike prices down from the current price and as far out as possible to grab some large premies to buy the PUTs! You need to capture the massive volatility value in the CCs. MAKE YOUR CC BUYERs pay for your insurance. Get Defensive and watch that RSI and BB closely. |
