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I like the setup on this stock. It could be viewed as either a 14 month cup w/handle or a square box base. Both the handle to the cup and the sq box base are a little deeper than I would like to see (19%). However, they both provide the same BP of 27.35. This would be a first stage base, which you don't see many these days. It caught my attention on 5/3, when it was up 8% on 521% higher volume. On 5/27 it was added to the 85/85 list.
My CANSLIM Notes:
C=This is one of those rare stocks where the sales growth is close to its EPS growth; The sales growth is also strong 6 Qtrs of sales growth > 45%. It's last Qtr EPS growth was 88%, on the down side the EPS Est revisions have been trending down, the EPS Est for the next two quarters is poor, but last Qtr it beet the street Est by 50.8% a very healthy suprise;
A=Strong Annual EPS growth over the past 4 yrs, with strong sales gains to match, ROE is 68% with no debt, Profits margins are healthy, last qtrs margins were at a new 6 qtr high, surpassing its peers (EDU, DV, EDMC), Cash flow is great, as is SMR, its EPS stability is a 40 reflecting its ups and down in the past two years;
N=Its IPO was in 2009, and has great IBD coverage;
S=S/D is great. Vol is 4.2% of its float, short interest is 54% of float - setting up for a short squeze; I could only find two other stocks with a higher short interest LNKD & HGG - and both of those have a composite rating less than 50;
L=Its sector rank is 10, but has been steadily improving since it's worse rank of 27 on 4/11, Its industry rank is 43, also improving since its worse rank of 189 on 3/21,
I=Just great. Sponsorship rating is B, Increasing number of funds owning it, A/D is A- and has been improving.
M=Market in Uptrend.
-- If I had to wish for the perfect setup. It would be nice to see the market take a breather giving this formation to set up a handle forming a 7-wk cup w/handle base.
I will be looking to buy on any breakout on good volume though.
By my calculations the stock broke out of a cup base on 5/12 when the market was in "correction". It is not a square box base because it has corrected more then 15%. If you view the longer base as a cup with handle it is 53% deep. So any way you slice it the trade carries a higher risk here. I has been my experience that it can be hard to overcome those big spikes in volume like the one on 6/2. Stocks act squirrely around those points because you had some people that bought at the near the top of the days range and spent the last five weeks trying to get back to even. So there is a danger that some of those traders want to bail near the pivot. I always a much smaller sized position if I feel the need to play this type of chart because you would be violating many rules to enter the trade. But the fundamentals are outstanding so maybe it is worth the risk.
Supposedly the sky has cleared for these stocks but Obama's minions are still in there regulating this sector to death. What an amazingly low PE for a company generating mountains of cash.
I looked at the cup base that broke out on 5/12, but dismissed it. I was looking for the prior uptrend and not really seeing it. I viewed the 5/12 cup as just part of the its bottoming action and building of the right side of the larger cup. Is that really a proper prior uptrend to call the 5/12 price move up a breakout? I am usually like to see a better prior uptrend.
The only flaw I see is that the Sq box base is 19% deep vs 15% deep - it did follow the market, and found nice support at its 20-day MA. Is the difference between 15% and 19% that fatal of a flaw? As this is a new IBD pattern, I don't have much practical experience with them. I do concur that the 53% deep base is fatal enough to drop that form consideration. However, that does reset the base count from the cup that broke out in March 2010.
On the wishfull thinking side, those weaker sellers (sellers who bought at the pivot point 5 wks ago) could help form a handle, a 2-wk handle would improve this chart tremendously, giving us a 7-wk cup w/high handle.
Once the overhead supply is gone, any move up above the pivot point should produce a short squeze, its short interest is 53% of the float. With Average trading volume being 4.2% of float, combined, it should not take much buying interest to move this stock up. What is you thoughts on the high short interest and tight supply in how that would play out on any move past the pivot point?
Thanks tucsontrader for pointing out the depth of the larger cup base. I had overlooked that and didn't look at its depth. I also didn't even notice the PE, not something I use. But yes, it is low given its cash and ROE. WIth an ROE of 63%, it means that it is generating 63 cents of revenue for every $1 in equity - not bad either.
I'd like to bring to your attention ULTA. You'll note that I blogged and had this company in some of the forums that are published here.
Earlier, nearly 2 years ago, if you research what IBD wrote about this company, they indicated that some of the bases may be within a larger Cup. Bring up that chart and compare to what ibd-p has posted.
While I don't know this company BPI, the wasy I know others, you may find something important to pick up on with the larger formations.
Hope I described this well enough.
I wasn't able to find the article. But I did look at the chart for ULTA. I found the pattern you were referring to. ULTA broke out of a cup that was within a larger/longer cup. ULTA broke out of a base on 9/4/09. Many similarities between ULTA and the BPI pattern, but some differences. The big difference is that on the ULTA base, the prior uptrend 191%, from the bottom of ULTA 2009 correction. For BPI's current base, the correction was not as deep and the prior uptrend was not as pronounced. But the point that a prior uptrend can exist within a larger period of consolidation can be made. Thanks for pointing it out.
BPI has dropped below its buy point. Will we watching for a handle to form...
very nice observations! I notice that management also owns a hefty chunk...
Where can I find the info about short interest being 53% of the float, and average trading vol being 4.2% of the float? Thanks,
how do you get 19% of handle,53% correction of the base,the calculation of 53 short interest and vol being 4.2% of the float?. From my caculation I see the top of handle is 27.25 and the low of handle is 21.94. It is more than 24%. The top of the base is 27.50 starting on April 23, 2010 and the low of the base is 12.75 August 20, 2010. The base has been corrected more than 100%. I do not know where to get the calculation of short interest and vol 4.2%. Can you help me to see if what I am doing wrong here?
how do you guys get 19% of handle,53% correction of the base,the calculation of 53 short interest and vol being 4.2% of the float?. From my caculation I see the top of handle is 27.25 and the low of handle is 21.94. It is more than 24%. The top of the base is 27.50 starting on April 23, 2010 and the low of the base is 12.75 August 20, 2010. The base has been corrected more than 100%. I do not know where to get the calculation of short interest and vol 4.2%. Can you guys help me to see if what I am doing wrong here?
@Jessie in my book a 50% deep base must be ignored as a base. The unercut of the $14 in August of 2010 reset the base count. The 1st 30% thrust from a low of $13.75 on 10/15/2010 to 19.67 should put it on our watch lists. After which, base one is 23% deep and has a breakout on 5/3 with massive volume. It has worked out pretty well for those that bought the large volume gains and added to the quick follow on accumulation of 5/9 and 5/12 and 5/25. Now it is up 34% 10 weeks after base one and likely to start base 2 at anytime.
In regards to finding information on short interest being 53% of float. MS does not provide this data as a criteria in a screen. However, to find the short interest as a percent of float is easy as it is provided as a column in the data tables at the bottom. To add a column, just go to Customize Column layout, under Price & Volume, you will find the Colum for "Shrt Int % of Float".
For vol as a % of float, it is harder, as MS does not provide the data in the screen or column data. What I do, is look on the weekly chart, it gives you the shares in float and the average daily volume. Just diivide the average daily volumn by the shares in float to get a percentage. I look for a % of float of at least 2%, below that and I start to look deeper into the data, I would not touch a stock with a value of less than 0.75%. The Vol as a % of float is a good proxy for IBD's S/D rating. The S/D rating is on most of the charts in the paper, but not as readily available on MarketSMith. It is also important in analyzing the "S in CAN SLIM". If you are on the weekly chart and have just figured out the Average daily Volume as a % of float, just multiple that percentage by the Short Interest days to get the short interest as the percent of float.
I will also export the data to a spreadsheet and do a few calculations on the side which is faster.
First off, the handle in the cup with handle base is flawed in that it is too deep - the 53% depth. The handle is the part that I was looking at as the start of a second stage base. It's peak was on 6/2 @ 27.25, the base low is 21.94; 27.25 - 21.94 is a $5.31 drop in price, and $5.31 / $27.25 gives you a 19.48% correction. A base can't correct more than 100%, no matter what the price of the stock, if it corrects 100% than it is at Zero. To correct more than 100% would imply a negative stock price - which doesn't happen, the company is bankrupt at a price of zero.
See my reply to SM000 as to how I get the short interest and col as a % of float.
How would you roughly compare your 2% rule on % of float to assess liquidity to the S/D rating in the paper's graphs? Also, when looking at the % short over the days to cover, when does your "short squeeze" alarm go off? Thnx. Jessie & SM000, excellent question as I, too, was wondering were Rob pulled that 53% # from. Rob, thanks to you for the thorough answer to the questions. Brad
I could not find my original research on this. What I recall is that a stock with at least 2% Avg daily vol to float will give you an 80 or 85 S/D rating.
As for the short squeeze alarm. I haven't developed a short squeeza alarm. In this case, with a short interest 54.3% of float, it just jumped off the page. The median value is 4.2. Only a few stocks have a value higher than BPI's. I am looking for feedback from others who have seen or traded stocks that have had such a high short interest. I found a few IBD articles on stocks that have experienced short squeezes - but they didn't give specific as to values and how to trade them.
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