Wednesday, November 24, 2010

GES Watch

The clothier Guess? Inc. (GES) provided a surprise within a surprise within a surprise when it released earnings after Tuesday's close. The company beat the earnings consensus by 16¢, and on top of that announced a one-time $2 per share bonus dividend and increased its regular dividend by 25%.

Wish I had gone along for the ride.

ppspsarmacd obvh-a trend ma20ma50ma200
GES $49.13

In an analysis posted Friday, I said that for my own account I was passing on GES, and I outlined by reasoning for having some misgivings about the stock, foremost among them being a tendency for the price to decline sharply after earnings surprises rather than building on strength.

From Friday's open GES crept up by 4.4% in the days before the earnings announcement, and this morning, post-announcement, gapped up by 7.2%.

As a trader, my job is to constantly assess my performance, and to figure out why missed opportunities were missed, successful plays were successful, and disastrous trades were disastrous.

All of that without regret, for regret is an enemy of clear thinking and therefore of profit.

In the case of GES, two of the surprises could not have been anticipated, at least by me as a technical trader. I did anticipate an earnings surprise, although not of the magnitude that actually occurred.

So far so good.

Historically, GES has risen, often with a gap, after an earnings announcement, only to fall precipitously thereafter. That was my main reason for avoiding the position.

How could I have analyzed things differently, within the limits of what was knowable at the time?

On the Friday that I posted my analysis, the price lay within the prior-day's range, although with a strong intra-day push to the top. The next day, on Monday, the price moved sharply above that range, and the on-balance volume indicator that I use for confirmation did in fact confirm the bull phase. That suggests that the balance of market forces tilted toward a further price increase.

Moreover, my historical analysis focused on the price declines after earnings, and rather ignored the price rises before earnings, followed by an upward gap upon the announcement. Taking those into account, opening an earnings play on GES was perfectly defensible, as long as I was willing to close it the day after earnings were announced.

Had I looked at the history in that manner, I would have felt free to open a position once the on-balance volume kicked in. That would have been a Nov. 22 trade at $44.73 or so, allowing me to participate in a 1.7% price rise up to the announcement, and then the huge gap thereafter.

Reversal Levels
  • $51.28, +4.4% (swing high)
  • $49.25, +0.2% (Wednesday's high)
  • $49.13 --- You are here.
  • $41.90, -14.7% (20-day moving average)
Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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