When is a close 5% higher actually a bad thing? (April 22, 2015)
I want to look at Angie’s List ( NASDAQ:ANGI ) today, and the reason is because the stock, my gosh, it’s up 5 percent today. What a great response to earnings, they’re actually, get this, they’re actually making money. The reason I wanted to point to this is I did some technical analysis for an article on the CNBC website in their PRO section.
I was talking about how even though the stock’s been trending down forever; the short interest in it was really, really high. And when you’ve got a big short interest in a stock that’s been beaten down a lot the chances of the stock popping higher on earnings, even kind of crappy earnings, the chances are pretty strong. I mean think about it, when you are short the stock you are a built in buyer, you’re what I would call a latent buyer, it’s like nobody knows you’re there but you know you’re there.
Sooner or later you’re going to have to buy that stock. Any other stock in the universe you don’t have to buy because you’re not short. But if you have borrowed the stock in order to sell it you’re going to have to pay that stock back; and so even when earnings are really bad, and they weren’t in this case, but even when earnings are really bad the stock a lot of times is going to pop. Well that may not be the rest of the story but that’s the best of the story, because what happens after that tells you what’s really happening.
Here, lets look at the 5-minute chart, you can see, massive short covering right off the bat. Huge volume here, almost 1.5 million shares traded, that’s a big volume number. But then after that the stock just drifted lower all day long. The only reason the stock closed at 6.46 was because the closing bell rang. So this is a stock that even though it closed up 5 percent you don’t want to touch this stock right now because it is obviously being sold into; this was just a lot of short covering.
So this isn’t a stock that I would want to buy because it’s still in a downtrend actually. Yes it broke out above the 200-day moving average but where did it close? So until Angie’s List ( NASDAQ:ANGI ) starts drifting sideways for a sufficiently long period of time to give the 50-day moving average and the 200-day moving average an opportunity to cross to where you can say, “Wow! This is a bullish crossover.” I want to stay away from this stock.
So watch how this stock trades over the next several weeks. See if the 200-day moving average ultimately comes down and the 50-day moving average moves higher. If it’s going to do that it will do it in the middle of next month. So watch how this stock trades; my bet is it’s going to be in this kind of tight trading range here and then ultimately it’s either going to break out to the upside or down to the downside. But for now in my view it’s kind of in jail; you just want to stay away from it and watch it.
But again, up 5 percent, to the uninitiated that sounds like a really, really good move, but it’s not. It’s up 5 percent from the close, it’s down 10, 11 percent I think it was, yes, down 11 percent from the open. So even though the stock’s up 5 percent I’ve got to give this one to the bears; you’ve got to say this is a stock that you want to stay away from.
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