Dear Earnings Edge Member,
So far this earnings season, we've focused on big-name doublers, from Altria to U.S. Steel, that give you ease of access.
Today I've got a tiny tech wunderkind. It is irresistible because it gives me the chance to use on one of my favorite strategies: Play the Fade.
Follow my instructions to the letter this morning, and you could do even better than a double in the next 3 days.
After yesterday's monster rally of 889 points, investors are hopping around on one foot like kids waiting for the pool to open. And, and, and Pappa Ben's gonna cut rates! Weee!
This is a market where you sell the rallies, my friend. Big days like yesterday are invariably followed by lower highs as the smart money locks up its profits and moves on.
Into a Play the Fade market, then, comes this classic Play the Fade tech stock.
HOW WE PROFIT
This tiny tech company is a beneficiary of the 3G phone movement and a leader in the miniaturization of electronics for gadgets.
The stock has been hammered, even by the market's standards: down 50% in 8 weeks, sliding relentlessly down its 20-day moving average line.
Then (sound the bugle) last night the company announced it had won a case against its top competitor in a patent dispute. The stock shot up 20% in after-hours trading and opened today nearly 3 points above Tuesday's close of $12.91.
AND the company reports earnings tomorrow!
On a day that the market was up 10%, this one was up half a percent … before the patent ruling hit the wire. I'm not impressed.
LOOK AT THE FUNDAMENTALS
The entire semiconductor industry looks like a picnic after a hurricane. This particular company has missed earnings 4 out of the last 11 times at bat. In the quarter ending July, it reported ZERO earnings, down from 5 cents for the May quarter. Yech.
AND THE DUMB MONEY?
You guessed it. It is true love. The ratio of bearish puts to bullish calls is at a 52-week low. It almost hit this love-fest level twice before, in April and August. Both times, the doting was rewarded with a sharp stick in the eye -- and losses of 25% - 43%.
PLAY THE FADE THIS MORNING
The good news is already priced in. This $12 stock is set for rapid 15% decline -- or more. Let's bag a quick double with a bearish trade as earnings fail to follow through.
I've put all the details you need to bag this double in this morning's Winning Edge, including extra analysis of analyst sentiment and support-resistance levels. Get it all here.
Act fast to Play the Fade -- we'll bag a double by Friday, I believe.
Keep your Edge!
Chris Johnson & Jon Lewis