BEBE: Breakout or bounce?

bebe stores inc. (BEBE) is another of those all-lower-case stores selling high-image women's apparel to a mass market.  bebe's advertising posters are among the most amusing in the business, with their mocking hint of high-drama sensuality.

The Brisbane, California company operates 312 stories, mainly in the United States but also in Canada, the Middle East and  Southeast Asia.

BEBE had the most bullish chart among 25 stocks added today to the Zacks top-buy list. On a day  marked by a broad decline in stocks, "best" also includes "how did it do today".

And BEBE did quite well. It was one of the few stocks on the Zacks list to trade within its prior day's range.

BEBE's most recent leg up began Nov. 28, 2011 at $7.02 and carried up to a high of $9.58 on March 13.

Longer term, the picture is less bullish. From its recession bottom of $4.57 in 2008, BEBE has traced a large sideways pattern ranging from about $5.50 up to between $9.50 and $10.

It is approaching the upper level for a third time, suggesting that BEBE is nearing a level where it is likely to bounce in a major downside reversal. Or, perhaps, break out beyond the prior highs in a major uptrend.

BEBE has a low return on equity -- only 3% -- but also no long-term debt.

Institutional ownership is also low -- only 42% of shares. It takes $1.53 in shares to control a dollar in sales, suggesting the stock hasn't been subject to intense buying pressure.

Volume averages only 230,000 shares, and the options inventory reflects that with a limited selection of strikes and extremely low open interest. From my standpoint, BEBE is a shares-only play.

Implied volatility has been rising since mid-March and stands at 39%, implying a 68.2% chance that the price will close between $8.35 and $10.45 a month from now.

The company next publishes earnings on May 3. Shares go ex-dividend in May or a quarterly payout on a dividend yielding 1.06% annualized.

Decision for my account: The closeness of the $9.50 to $10 resistance zone suggests that I shouldn't open a position until BEBE breaks out beyond $10. The lack of usable options and the somewhat low liquidity are also points of caution. As much as I admire bebe's posters, I'm passing on this BEBE trade.


Methodology

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and 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.