Wednesday, August 8, 2012

The Daily Note - $PCLN - Anatomy of an Earnings Play

*****Yesterday was the earnings play of the decade if not the century. $PCLN the darling leader of all traveling stocks lost over 100 points from the close, post announcement, when the company's outlook failed to forecast expected profits. Did anyone know it would happen? Maybe some knew, there were rumors of a miss, but as history shows it was never a good gamble to believe the rumors especially with high flying stocks, and $PCLN is one of them for sure.

Thus I made the call with history in mind, always looking for a wide enough entry range so a whip action will not effect the main move. The 665 entry short was based on support level likely not to cause whip, and vice versa for the long. Targets are picked for likely reverses. True too is that my eye saw a possible 625 -600 also, which I was thinking a bit ridiculous. Of course it now reminds me, once again, to always pay attention to that inner "eye".

The call itself is not as remarkable as the move or, more accurately, the reaction to the news that followed. All targets were taken out early and it almost looked as if a reverse would take hold, but then more selling took over and once 625 hit and 600 neared, the panic set in; driving down the stock to a 100 point loss on the day and then lower to almost 565. the 100 point call gain was missed by 37 cents; unlike I've ever seen before. I watched it with awe, because true to my earnings play rules, I was out at target. Entry again would have only proved that I was with the panic which is always risky business and I don't advocate repeat earnings plays. Best to be happy with the gains one gets. Satisfaction is when I hit my target, not in the butchery.

Clearly the selling was panic driven but also it has history in that all the high flyers have dropped substantially from their heights and not recovering with ease, so in that it may have been justified selling for those who have been in since the beginning of the year when I first called long on it on my SwingList in January. True also is that the call has long fulfilled itself peaking at 774.96 and $PCLN has already dropped more than 100 points and hit 600 once before. So there should be no big surprise at the current level due to a disappointing report. In fact as I mentioned, the 600 should have been expected; I was just not expecting it in one swoop.

What's next? Well it's as we traded it today. There are further drops possible as are support levels. Faith tends to drop along with big drops in prices, therefore selling from top is likely, and reverse plays risky after the first day. Today we played a long from 575-577 to as high as 584 at market open, then waited for the possible short at 565 which began in the afternoon with a slow and steady push down from the 570 (when watching the 15 minute chart) that could not recover making the 565 entry more likely for success as the pressure increased.

This type of trading is not for everyone, but one thing for sure, even small holdings can deliver good gains, and bad losses too. Therefore, know and study what you do and always: Trade them well and carefully!

Laws Of Gravity by Rubik on Grooveshark

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The Daily Pick - Revisited $PCLN
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