Some thoughts on buying this “cheap” stock. (November 05, 2012)
ROST
I’m Dan Fitzpatrick at Stock and OptionMarketMentor.com on Monday, November 5th. I want to look at Ross Stores ( $ROST Ross Stores, Inc ). By the way members I’ve got some interesting things to tell you in the Strategy Session today; about the sectors that are working, where we need to be, where we don’t need to be. One thing here, it’s why I’m doing the video on Ross ( $ROST Ross Stores, Inc ), that you don’t need to be, or one place you don’t need to be is here. Now, there’s a real tendency, and I’ve heard some of more fundamental based commentators talk about being bullish on Ross ( $ROST Ross Stores, Inc ), and some of the other discount retailers, because of how far they’ve come down. And that’s fine, but you’ve got to step back and look, have they really come that far down? We’ve had just spitballing here; okay basically a hundred percent rally, hundred percent rally and we’ve gone from seventy down to how much? Seventeen percent, eighteen percent, whatever the case may be. So we had this stock like double and then it’s fallen about eighteen percent or so and the market looks forward. Do you see things get better or worse from where they are now? Maybe better, maybe worse, frankly, I think my crystal ball remains broken and it’s pretty murky; even when it was working well it wasn’t working that great. So what I’m looking at here on Ross ( $ROST Ross Stores, Inc ) is a stock that’s in a downtrend. Frankly, I don’t particularly care if the company’s cheap, I don’t care if the stock is cheap, it would really be impossible for me to care less, as long as the stock remains in a downtrend. Now here’s what you’re tempted to do; you’re tempted to look at this sell-off last Thursday, massive volume, Friday, maybe we’re getting a little bit of a bottom, the volume was higher than average but much less than the prior day; finally, today, oh boy, we get a bounce. Do we really? A one-dollar bounce off a stock that’s just been absolutely getting crushed after a big sell-off, and we barely got back above the lower Bollinger Band. Look at what’s happened before on this stock, how many times have we seen this? First of all when we first started with the sell-off, you see a little rally there, you see another one here, you know that lasted for a couple days, then we got on some firming up right at the 200- day moving average, then we got a breakdown for a day. Oh, no, now Ross ( $ROST Ross Stores, Inc ) is going higher. Well, not so much, all of these have led to more declines. So what makes this different? You know what makes this different? You’re watching this video and you’re thinking, wow! I wonder if it’s time to buy Ross Stores ( $ROST Ross Stores, Inc )? That’s why. Maybe you weren’t thinking about it here, or here, or here, or here, or here, but you’re thinking about it now. What I’m telling you is, even now with this looking like maybe it’s a bounce, I’d say the probability is, maybe it’s not a bounce. Look at the Weekly Chart. The Weekly Chart shows a volatility squeeze just starting to blow out to the downside. When I look at a chart like this, I look at any rally back up to about this level here, to about $60.00, as an awesome opportunity to sell the stock because that has been the trade over the last umpteen days; I don’t know what umpteen is but it’s a lot. So I would use this type of a trend line, maybe this one, but anytime the stock rallies up here, that’s when you want a fire off a short, by the way, if you’re buying and you’re wishing that you hadn’t, this is also when you want to be selling, when this trend line gets hit. Here’s the deal, a downtrend, I was talking about this over the weekend in Houston when I was talking with some of the optionMONSTER guys, if you trade with the trend you’re going to be batting a thousand, a hundred percent of the time, you’re going to be right, except for that one single isolated instance when you’re wrong, when the trend changes. I like those odds and so until Ross Stores ( $ROST Ross Stores, Inc ) shows me something different I’m going to continue to bet against this stock. I like Ross Stores ( $ROST Ross Stores, Inc ) by the way, but I’m going to continue to bet against the stock because, number one, this downtrend remains intact, number two, this thing has had one heck of a run; let’s look again, there’s your run, basically from August 2011, August 2012 it blew up to a double. So now we’re on the way down, I don’t want to sit here and try to buy this stock, instead I’d rather wait for it to rally and then I want to short this stock. Okay, that’s it for today. Remember election day is tomorrow, then after that we’ve got all the lawsuits being filed, then after that we’re going to have the recount in Ohio where there’s just going to be all kinds of reindeer games being played and it’s not even Christmas yet; and then after that we’ve got the fiscal cliff. So there’s a lot of confusement, let’s just say on the horizon. I don’t want you to get hurt, remember you’ve got the rest your life to trade, don’t waste it all by gambling on a particular outcome in the election or more specifically on a particular move in the market as a result of the outcome of the election. Know that this is a time when you want to be really, really stringently managing your risk. Okay, that’s it for today. Free Chart