(Click On Chart To Enlarge)
Interesting chart (back-to-back Wolfe Waves), and a very interesting development in CROX yesterday: a possible bullish reversal in the Bullish Wolfe Wave (pattern in green), after a Wave 5 fakeout to the downside last Friday, March 7 (as the chart stands...Friday's low could get taken out).
Wolfe Waves, basically, are fancy Bearish Rising Wedges and Bullish Falling Wedges. The difference is that there is a strong rally or decline, or "Lead-In," then the formation of the five Waves. The KEY to the pattern is the Wave 5 "fakeout" because it puts the proverbial "everyone" wrong-footed in the trade. At the Wave 5 Halloween high (Red #5), CROX penetrated the top of the pattern, looking like it was going to break out to the upside. Shorts had been getting dragged higher and had to "buy to cover" their shorts, and more longs were coming into the stock on the lengthy rally. "Everyone" (not literally) was a buyer, and they all got caught "wrong-footed" on one side of the market. We can see what resulted from that.
In the current time-frame, CROX broke the Bullish Wolfe Wave (or Bullish Falling Wedge, if you will) to the downside last Friday, looking like it was going into freefall and like it might become a "falling knife." We aren't supposed to buy those "falling knives," but that's the "fakeout" or deceptive quality of a Bullish Wolfe Wave. Longs tend to capitulate on the breakdown at exactly the WRONG time, and new shorts come into the stock on the technical breakdown and find out that was the wrong play, as well. In contrast to the Halloween high, in this case, "everyone" trading (not investors) is caught wrong-footed on one side of the market by selling, and by selling short.
If this ISN'T a Bullish Wolfe Wave, stop a long trade out if Friday's 18.08 low gets taken down. If CROX only gets back to the top of the pattern and/or fills the earnings gap at 31.68, that's a very nice gain from here (50%-ish). If it IS a Bullish Wolfe and CROX gets anywhere near the target line at Wave 6, that's an excellent gain from here (close to 100%). Good risk:reward trade (excepting any nasty gap down, which always is a risk in any stock). Downside risk from here would be about 13%, so roughly a 1:4 risk:reward on a play for the top of the Bullish Wolfe Wave. The risk:reward would improve if CROX is bought on a pullback.
5 comments:
Awesome analysis Melf!
CROX: Short Interest UP 20.8% to 25.5M at the End of Feb 2008
According to new short interest data from NASDAQ, short interest for Crocs Inc (NasdaqNM: CROX) INCREASED 20.8% to 25,510,718 shares as reported at month-end February, 2008.
Based on CROX's 20-day average daily share volume of 7,996,330, it would require approximately 4 day(s) of buying to cover this short interest.
You may also check the CALVF chart, I have bought @ .193 bullis BO coming very soon imho.
cheers
Oliver
Oliver,
Yeah, I was looking at that short interest. Fuel for a rally if CROX can move up off Wave 5.
Good luck!
Melf
fyi: Buying Opportunity on CROX
Wednesday March 12, 3:48 pm ET
By Rob Plaza, CFA
Crocs, Inc. (NasdaqGS: CROX - News) reported fourth quarter results that were slightly above consensus estimates, but its guidance for 2008 was slightly below market expectations. What was the market's response? The stock sold-off by as much as 17% in after-hours trading. The reason behind the sell-off was Crocs' lower profit margins and climbing inventories.
For the six-months ending June 30, 2008, the company expects revenues to increase approximately 50% over the six-month period ended June 30, 2007. While we agree that these issues are a cause for a concern, we contend that these issues are more than reflected in the price of the stock. CROX shares are trading at about 7.8x our 2008 EPS estimate, despite expected EPS growth of 33% in 2008 and 19% in 2009. All told, we think CROX shares are attractively priced, and we view this sell-off as a good buying opportunity.
At $20.78 per share, CROX is currently trading at 7.8x our 2008 EPS estimate, which is substantial discount to our estimate of the company's long-term earnings growth rate. While Crocs growth rate is slowing faster than expected, the company should still produce above average growth for the next few years. As such, we now rate the stock a Buy with a target price of $44, which is 17x our 2008 EPS estimate and a discount to the Crocs long-term earnings growth rate of 20%.
Thanks, Oliver!
Here's another article, if you haven't seen it. I posted the wrong link. Hope this one is right.
Good luck!
Melf
http://www.homelanddefensestocks.com/insiderscorner/Articles/031308.asp
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