DWA bear gap

Dreamworks Animation SKG Inc. (DWA) gapped down sharply at the open on the third day of a decline and showed a new psar bear signal.

Dreamworks' new film, "How to Train Your Dragon", got a C-minus on its opening weekend revenues.

Analysts, as is their nature, quickly piled on, downgrading after the movement.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
DWA $38.90

DWA breaks my rules for a trade.

• The signal was based on news, and so any possible profit from changed circumstances is already part of the price.
• It's not a strongly trending stock. The adx stands at a mere 14.
• It is prone to whipsaws (as the adx suggests). In the past three months the psar has bear, three days; bull 10-days; bear 13 days; bull nine days, bear one day; bull 14 days; bear five days; bull three days; and then the switch today. 
• The longest stretch -- 14 days in bull mode -- showed a 3.8% decline in price.
• Moreover, earnings are April 27, less than two weeks past the expiration of April options. This is a period when pre-earnings news can cause further unexpected gaps.

But on the other hand, the stock is trading around $38.90, not so far off of February's big reversal level at 38.13. There's bound to be some stranded shares on the table at that level to stall or possibly reverse the stride.

And Dragon might well pick up. Movie-goers don't always crowd in on the opening weekend. Dragon might not be a gifted-and-talented pupil, but it's too early to peg it as a dragon-school dropout.

Also, the price pulled back from today's low of $38.56.

DWA breaks too many of my rules for me to trade it. But, if I were in a risk-taking mood, I'd look at an April iron condor mix maximum profit at expiration from $35 to $45.

DWA has a $5 spread between strike prices, so the potential profit vs. loss ratio is poor : It's the usual 1:3. The premium is now a credit of $1.82.

Anyhow, I won't be adding DWA to my Watchlist -- it's way too speculative for my taste at this point. I write it up, though, to show that even signals that break the rules outrageously are tradable.

Abbreviations:
psar - Parabolic Stop and Reverse
adx - Average Directional Index
pps - Person's Proprietary Signal
ma20 - 20-day moving average
macd - Moving Average Convergence-Divergence
mfi - Money Flow Index
sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

• trend: green for up, red for down, yellow for sideways
• adx: green for above 30-up, red for 20-down, yellow for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.