Tuesday, November 15, 2011

Giving it Another Shot

My first blog post titled "long idea" was a bit half assed and rushed and it was a mistake on my part. My sincerest apologies to all ,but mostly to myslef. I would like to elaborate on the long $APKT idea here. As you can see, the stock has been killed this past year. As my friend and a really great trader @stocksage1 Rober Sinn pointed out recently, technicals confirm fundamentals. A technical analyst who really applies himself is looking for signs of big money and what they are doing. The big funds will normally accumulate stock that has a fundamental reason why they are buying or selling, whether it is because of value/growth/catalyst potential. So as technical analysts, we can see those footprints in the price action. A stock that looks technically promising looks that way because some big money believes the stock may be fundamentally promising. I guess the best way to really drive my point home is by showing you a chart of $APKT and at the same time, pointing out the fundamentals. My fisrt chart of $APKT shows you that $APKT was destroyed this year.

At this time, the quarterly operating income was erratic at worst, and stagnant at best, take a look at operating income for the past three quarters:

Operating Income
12.83 22.6 21.26 22.11 16.34

Meanwhile, operating income for 2010 was more than double that of 2009. So the parabolic rise in 09-10 was caused by growth smart money trying to profit from this growth And we see that the money that caused the rise started selling out after this awesome number came out, in early 2010, and the euphoric crowd that saw these amazing growth numbers caused the price to inflate so high, that once we saw that 2011 numbers were slowing down, they all sold out.

So what possibly happened was that the big value/growth funds who profited from these great margins, took profits in early 2010, and all that were left was the rest of the crowd hoping this performance would continue in 2011. Once the margins reported by $APKT came out, pretty dismal numbers, everyone else piled out, killing the stock. And the price was in the 80's so the insane disconnect between market price and value was too wide, causing them to sell.

Now, however, the once growth stock is also a value stock, at a price of 37 dollars, and there are some metrics, such as price to sales ratio, which hint that this stock might be cheap at these prices. Check out this chart and you can clearly see that there is big money bidding in support for $APKT.

Remember, the big funds will only buy a position that has value and/or growth, as their positions are way too large to simply trade in and out. So it cant ake months to accumulate a full position, and months to get out. So they look for fundamentally safe and healthy stocks generally. So a healthy chart signals that it is possibly a fundamentally strong company.

No comments:

Post a Comment