Is Ollie’s Bargain Basement a bargain? Maybe…for the shorts. (December 10, 2019)
OLLI
I want to look at Ollie’s ( NASDAQ: OLLI ). The company reported earnings and the stock is up over 10 percent. This could give us a good trade for tomorrow; I almost wish I had a trading session at the open tomorrow, it would be kind of fun to trade this.
Here’s really what you need to know: This was resistance for the stock right here. Before the company reported earnings the last time this was the low right here, so this is like no man’s land or no person’s land. And so if the stock had gapped up HERE instead of up to the bottom then this would potentially be what is called an island reversal. That’s not what’s happening; the stock is just up to the prior resistance level from back here in November.
As such, this could turn out to be a pretty good shorting opportunity tomorrow or at least a low-risk shorting opportunity. A defined risk shorting opportunity and here’s how that works: You could see the stock scream right after they report earnings and so I am looking at $70.00 as kind of the drop dead level, right? So what you are doing is, you would have to put a stop, a buy stop, above $70.00 if you are going to short the stock tomorrow.
I think what you want to do is wait for the stock to gap up. Wait for it to open where ever it’s going to open and then give it a minute or two; because a lot of times you will see a stock gap up and then it will keep going, and it will keep going. And if you try to short it right at the open because it is up 11 percent you can be the guy that’s holding that stock as it runs and runs and runs. And finally you can’t take it anymore, you cover your short and that’s when the buyers are exhausted and the stock falls over.
What I am saying is, don’t be that guy. Wait for the stock to gap up in the morning and then if it starts trending lower, that’s when you want to go ahead and short the stock. You would probably be able to get $2.00 or $3.00 out of it. I wouldn’t really look for more than that. You have to let the trade come to you. You can’t make the trade. You can’t predict the trade. You have to see the stock open up and then start to trade down. Don’t short into this kind of trade.
Ollie’s ( NASDAQ: OLLI ) is a good company, they make a lot of money. I look at this chart and it just looks to me like the stock wants to go lower. This is a good example of how a company that is really kind of relatively unknown can run for quite a while. But as the stock becomes more widely known, more and more people are buying it and this is when the funds start to sell. So the pros are in here and then as the stock goes higher the level of sophistication of new buyers decreases along with the amount of capitalization that the new buyers have. So at some point all the weak hands are holding the stock and then it is just going to start trending lower.
That’s another reason why I am looking at this saying this gap could give somebody more of an opportunity to sell more stock. Maybe stock that they were hoping to sell up here but they couldn’t and they didn’t want to sell it here. But if they can get one more chance to sell this thing up here at the top then they will go ahead and do so. I am looking at this as potentially a good short but I have got to see it first. Hopefully, the trade will show up and hopefully, you will make some money too.
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