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SodaStream International Ltd. (SODA) Message Board

  • attymdmnola attymdmnola Jun 21, 2013 11:40 PM Flag

    For Skirkel-FYI-Your Decision Of Course-GL

    In the short-selling game, volatility is a key ingredient. Think of it as the sugar in doughnuts.
    But too much volatility — like too much sugar — is something best to avoid in a stock.

    "How much is too much?

    In the short-selling game, volatility is a key ingredient. Think of it as the sugar in doughnuts.
    But too much volatility — like too much sugar — is something best to avoid in a stock.
    How much is too much?

    That is hard to quantify. But a few facts about the market can give a good frame of reference.
    A good cup with handle features a decline from the highest price to the lowest price of anywhere between 12% and 35%.
    Another key fact: Stock market leaders typically fall 1.5 to 2.5 times more than the decline of the S&P 500 and the Nasdaq. If the market corrects 10%, the leaders may drop 15% to 25%.
    So, if you see a stock that often falls or rises 25%, 30% or more in a single week, stay away.
    Such hypervolatile moves make it seem as if one can make a killing in a stock that’s falling fast. But there is no guarantee that such a stock will continue to move like that.
    You can improve your odds of success by concentrating on stocks that are behaving more in line with the short-selling patterns well researched by IBD. They include the head-and-shoulders top, the late-stage base breakout failure, and repeated feeble attempts to rise back above the 10-week moving average after a steep fall in elephant-sized trade.
    Even if you don’t whip out your calculator to investigate a stock’s weekly action, you can know when to avoid a certain stock by a glance at its chart.
    “In general, I shy away from stocks with that buzz-saw look,” Scott O’Neil, president of MarketSmith, told IBD. “I know that I can potentially have pain on both sides of the trade.”
    It sure looked like fund managers and hot-money traders took a buzz saw to Questcor PharmaceuticalsQCOR in 2012."


    Sentiment: Strong Buy

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    • The rest:

      "The expert in anti-inflammatory medicines enjoyed a lovely run-up after it broke out of a 12-week consolidation at 11.73 in late October 2010. In just 14 months, the stock rose 291% to a high of 45.95 before forming a late-stage base beginning in December 2011.
      That new base had plenty of flaws. Take the fifth down week on the cup’s left side 1 . The percentage spread from the week’s high of 44.18 to the week’s low of 33.66 was 31%. That’s excessive.
      The overall decline from the base’s high to low was 29%. That’s normal. But a base that features wild swings like the one in the week ended Jan. 13, 2012, signaled wild moves ahead.
      The June breakout past a 46.05 buy point was destroyed on July 10 2 , when the stock plunged 22% in heavy volume following a report by a bearish research firm. That in fact was a legitimate short sale entry point, and one could have covered the short position after the stock fell to 36, a 25% profit.
      But Questcor’s 48% drop on Sept. 19 3 made it simply too hot to handle. No viable short-sale entry points emerged. One may have extracted a gain as the stock fell the next week, but Questcor has made an impressive recovery ever since. When a short trade looks too obvious, it probably is.
      Now, a 25% drop after a short-sale entry is a welcome event. That gives you a convenient place to cover and take profits. Rack-space HostingRAX offers a current example."

      Sentiment: Strong Buy

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