Thursday, May 29, 2014

Study: Trade or Fade?

Here's a chart that I'm sure the technicians would love. Great consolidation (inverse H&S?) and now a breakout. If this continues to run, it could wind up in a trading book as a perfect example.


That being said, I had noticed the consolidation and likelihood that HA could run last week.  Yet,  I decided I  did not want take the breakout trade and that this might be better as a "Fade."  The reason is that I don't see the fundamentals justifying a large run here. 

Revenue has steadily grown over the years but is subject to larger seasonality differences among quarters

 The Price to Sales Ratio shows that HA is trading at a relatively high ratio for itself.  When it began the run where it doubled it did so when the p/s ratio was at lows for this stock.  I would question how much higher could the ratio go when it would be starting the next run at a relatively high p/s ratio and the stock price appreciation has began outpacing the revenue growth.


The point of this exercises is to see if we can ascertain the degree that certain fundamental measures  are necessary to provide the structural support to sustain a larger move or is the chart really everything.  The next week should tell.

I have no position in HA.