Thursday, December 16, 2010

PIR Watch

Pier 1 Imports Inc. (PIR), an earnings play that I rejected for my own accounts, announced a 4¢ positive earnings surprise before the open, and is being punished for the good new with a 5%+ price decline. God knows what traders do when Santa Claus comes calling -- mug the jolly old elf and steal his wallet?

ppspsarmacd obvh-a trend ma20ma50ma200
PIR $9.90

The company reported 18¢ per share vs. analysts' consensus of 14¢. Sales were up 8.2%, which beat the forecasts by $1 million.

I don't often ask "why" about stock movements -- I think it's a waste of time. News stories claim that PIR dropped because earnings per share were far below the year ago figure of 37¢. Maybe, although I don't know many traders who focus on year-ago numbers.

But I can't say that I'm terribly surprised by the market's ingrate response to the happy earnings news. That tendency is why I rejected PIR as an earnings play for my own accounts.

On Dec. 6, I wrote: "The June earnings announcement also sounds a cautionary note. The pre-earnings consensus was a 1.7¢ loss, but earnings, announced before the open, actually came in with a 7¢ gain. The price declined that day and for a week afterward, and 11 trading days later stood down 32.6% from the earnings day open. For an earnings play, those facts make me very, very nervous."

On the Person's chart, the decline sent the price crashing through the weekly lower pivot, although it has pulled back well before it hit the second lower pivot.

Person's Table
ppspps openupper pivotlower pivot
PIR $9.90 $10.47 dec16 $11.38 +15.0% $8.95 -9.6%

After giving up the gains of the last 11 trading days, PIR pulled back from its death spiral to near the opening and closing highs set on two volatile trading days, Nov. 9 at $9.92 and Nov. 24 and $9.94. So, for the near-term, that's clearly an important support level, although there is no guarantee that it will hold.

Reversal Levels
  • $10.99, +11.0% (recent swing high)
  • $9.92, +0.2% (recent support level)
  • $9.90 --- You are here.
  • $9.71, -1.9% (today's low so far)
  • $8.77, -11.4% (recent swing low)

Peace to the random-walk theorists, who think the markets move with no more purpose than an amoeba, but the theorists are wrong.

The markets are an exercise in pattern and memory, as PIR's sour response to good earnings news shows. Yes, trading is an exercise of the now. But the now is a product of the past, and the behavior of a stock persists across time.

I think the lesson of PIR is that reading the chart as an historian helps keep me, as a trader, out of trouble, and points me toward opportunities for profit.

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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