Zale Corp (NYSE:ZLC)
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The Company through its wholly owned subsidiaries, is a retailer of fine jewelry in North America.
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The Company through its wholly owned subsidiaries, is a retailer of fine jewelry in North America.
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Short term call, looking for a retrace. May be near the end of a short squeeze after an analyst upgrade "caused" a short spike, followed by a computer trading spike, followed by a bigger short spike, followed by daytraders checking in......expecting a retrace as a 52 week high for Zale Corp, despite somewhat better earnings the last quarter is not warranted. Cyclical, only posts profits on Christmas Quarter. October earnings usually the lowest of the year.
Metrics look deceiving, but could be why Zale Corp share price stays higher than warranted. P/B only about ONE, or inventory value and P/S only 0.10, but little if anything gets the bottom line in this highly competitive, economically dependent industry. Short term call, expect a slow bleed back down unless the economy buoys all ships, in which case, expect a hard reset of price on next earnings in mid-November.
TSIF -
I have a short in ZLC - I am pretty much deep in the red.... obviously we have pre-election rally going, with current at risk factors include the fiscal cliff, spain downgrade, GDP contracting, QE not meeting expectations, earnings not meeting, etc.... ZLC earnings in November....
How much more room do we have to do an upside? My prediction is 2B+ in revenues could be extremely positive for ZLC which I do not think would happen... recently they were at 12 months ended revenue of 1.86B or so...
Stock has rallied on a share purchase of CEO of 4000 shares, and TIF/SIG being upgraded recently...
We have slight increase in consumer spending today... not significant... plus higher commodity costs (gold, etc.)
I didn't like the beat on ZLC due to warranty revenue recognition, obviously the refinance with the lower % was bullish. Last time stock traded at this level it subsequently tanked to low 5's... rebounded to 6's and then tanked to 3's and beyond... this was last year mid summer and early-mid fall time range.... two rally periods, and two tanks...
So what is your opinion on the case recently? I need to decide on whether to cover or not I would appreciate your honest assessment.
Hi stocktrader486, thanks for checking in. Those who follow me here on CAPS know that I'm not an active shorter in Real Life, but will play some options from time to time. My "short/timing" success on CAPS is "pretty good", but here on CAPS we have an infinite timeframe. With all the volitility in the market, I'm pretty content betting "something" "distressed" will go up, rather than something "inflated" will go down.
You don't have any picks here on caps, so I can't tell your general attributes, but taking your commments above and that you are a short trader, I can probably guess. You also appear to focus on fundamentals.
Unfortunately, from a short perspective, the markets really don't give a hoot about fundamentals, especially on the low volume equities. The slow increase in share price and new 52 week highs bring in computer trading, speculators, daytraders, technical traders, and shorts get forced to re-up, which they do in increasing numbers as the share price goes up. Some investors are attracted to companies with miniscule P/S as the "potential" is there with just a little luck or a few changes to turn the corner.
These are the companies hedge funds like to take private if the share price gets too depressed. They can cut to the bone, renegoatiate debt, and then leverage it back to the hilt and run.
The 4,000 share buy by the CEO, while it made nice material for the freelancing SA writers, really had litte bearing. The CEO, on the same day sold 6,613 shares, non-open market...where's that headline? Neither means much when you're sitting on 80,000 shares and get $1.2 Million in salary.
The increase in consumer spending was due to the gas pump bandit. Most people know that. Overall, that's bad for bobbling jewelry.
The upgrades did help drive up the share price, even the STREETS robotic underlings who went from a sell to a hold, but upgrades only bumped it because it vindicates newbies.
Funamentally, and overlaying world economics really isn't the issue here with the share price. They helped start the trend that sprung the technical signals, that caused the short covering, that caused the computer trading, that sprung the technicals..... I don't know why she swallowed the fly.
That being said, when will it end? We'll most of my CAPS plays either start bearing fruit the first few days, or it could be trouble. At this point, (advice is free, I have some charities you can donate to if it works out, but generally others do better by shorting my free advice).....I'm pretty confident...about 80% that the top is near (or in). That it didn't occur today, however, when mutual funds are "window dressing" on a down market chops my confidence slightly. We're also not near options expiration and too far from earnings.
My 80% call, however, is that we're now at 52 week highs were everyone is a winner. Someone will blink and we'll start down. If we break $7.05, however, we're probably in for another cycle as described above.
If Breeden dumps again that would help, or another well respected anal yst could start pointing this down, causing the seal the profits cycle and the reverse of what drove it up.
So short answer, this is a technical stock at this point. One needs to watch equities with heavy short interest and sub 500,000 shares volume. The signals this was dangerous were the low volumes during the selloff, some days, sub 100,000, followed by the high volumes on the rise. Nearly the entire float has turned over since August 28th, with 11 days over a million. Since we know insiders held and mutual funds have a high stake, that's a lot of the SAME shares getting passed around.
Based on a little thumbrule that I'm seeking to patent, I think it's tme to stick a fork in it. Probably late today or early next week. The high volume and float turnover, however could mean a slow bleed, or a sharp stepdown if it's fueled by analysts or another catalyst that trips some stops. Everyone who bought the last 52 weeks who is currently a "winner" will think about running.
Good luck on your short, hope I didn't just add confusion. Shorter answer, $7.05 is BAD! My opinion, odds this will drop are good, the timeline questionable. Else, one should always be willing to cut bait and run if one has better ideas for their money.
Nudge $7, looks like if you didn't cover yet, that you are "safe" for now. The slow bleed today on relatively strong volume should be a good sign that a top is in. The float/volume has met my meterics for a slow bleed. Shorts really need to be careful piling up on "some of these". While a high short interest "generally" means that "fundamentally" an equity is overvalued, the market isn't too interested in fundamentals much of the time. A high short interest on a LOW Volume interest can "tempt" some of the MM's to trip it on "good news"..... Good luck...
so today the beginning of it? hopefully we don't see more irrational up days for ZLC on down market days.... I agree with all of what you said initially and describing the rally thereafter.
Hopefully I see a little bit of luck short term and this stock certainly doesn't deserve to be what it is.
this trading today really is upsetting me... what is up with the irrational trading on this pushing it up on a down market day and vice versa...
They upped the yahoo finance 1 year price targets for all the newbies.... earnings doesn't happen til November...
Just sitting now watching carefully, not really in love with this short as it is facing more resistance than I would like.
Up on a down day after such a promising downward trend yesterday is a difficult short play. Volume remains high, so perhaps someone is accumulating trying to keep the squeeze on. Overall, however, shorts have been their own worse enemy the past week or more. The short volume, except for yesterday was higher than the long volume. Today they jump back in after the aborted sell signal yesterday and then panic again today. Many keep tight stops and re-upp constantly. Sounds like you play them longer. Patience is usually rewarded, but not always, and the trip can be painful. Many shorts prefer to cut bait and look elsewhere when these patterns develop.
Overall, still staying under $7, but looks like it could teeter through without much effort. Long term I agree this one should drop, and drop fairly hard, but with lower volume equities and no catalysts due up, it's hard to say when.
I think down is near, but again, if it breaks through $7 it could run up another couple of percent quickly.
yea this is disheartening to me as I went in heavy and early... The fundamentals do not support the run up, though they did support a run period... there are a lot of unknowns still and I don't believe the sales increases will be sustainable nor do I think their revenue recognition will save them again .
Anyway, I cannot predict the future, but someone is pushing the volume and accumulating. It appears shorts are almost half the volume as of late... so I agree they are constantly trying to re-up like you said... they are looking for the top to set in and someone keeps pushing them out... I think squeeze mode is over as we touched on 7 last week already... question is, did we top out... there was MAJOR resistance today at 7.
Lastly, from a larger market perspective looks like there is more favor to shorts than longs because of overbought scenario and potential unknowns looming and QE under scrutiny finally.
However, the market is continuing and could continue to be propped up... obviously a major contributing factor to small cap price appreciation over past few months... especially in retail...
There was this statement issued today: "The National Retail Federation expects holiday sales to rise 4.1% to $586.1B this year. Though the mark would rep the slowest pace of growth since 2009, the forecast is still higher than the average growth of 3.5% realized over the last ten years for the November to December period. Online retail is still a bright spot, with holiday sales expected to rise 12% this year to $96B."
This entails a strong holiday period comparative to last 10 years, but weakest since 2009... add in the softening economic data... and the holiday season... especially for jewelers like ZALE that cannot pass the costs on to consumers to the same degree as let's say a TIF....
So having said all that, despite these facts Zale has done better as far as sales and cost management over the past year and refinanced their debt, though that debt did not vanish and they still have a significant period of change in front of them....
Question is can they continue to reduce costs so rapidly and continue sales increases.... that is fundamental but as you said the stock is in technical mode.
What will bring a true volume drop on this and start bleeding it out? I don't know... analysts are already factored in on the buy and hold side and targets have already been met, no significant new data out yet... and probably won't be until November.
Not sure the best strategy may look to get out in mid 6's and re-up myself...
tsif,
they just filed their 10-k
thoughtS?
Hi Stocktrader486. The 10-k (thier annual), should have minimal if any impact on share price. For a transparent company, the earnings report is generally sufficient for investors, with the key metrics. AS you indicated in your earlier post, this is trading on technicals. Technical traders care very little, (some admittedly nothing), about anything besides technicals. This company is not the "dog" it was two years ago, but it's not a 200% improvement either. Companies with long periods of loses who make a profit on non-one time items, typicaly do get an excess amount of reward. In the short run, balance sheets can be influenced. In retail, that the third quarter is the worse most likely will come as a surprise to some holders, but that's too far away.
Here on CAPS, most of our calls are CAPS only and a short term technical spike can be ridden out. When you get in the higher rating, (by hook, crook, luck, etc), accuracy can be more valuable than points, so riding one of these out is the norm. Unfortunately, this skews what the "community" feels about an equity on a day to day basis.
I thought you had a chance two days ago when volume dropped and share price dropped, but the break through of $7 on high volume does not bode well for shorts. Technically, this could go up to $10 at this point. Again, retail investors will be concerned with protecting profits which all buyers in the last 20 months now have.
Once this broke $7 it was dangerous to hold, although I understand the motive.
Another thing against you is history. This was a $30 stock pre plunge. I know, and you know that this type of metric has little meaning at this point, but many retail investors will look back on this as a potential. So the 52 week high above $7 doesn't necessarily set a limit.
The basing is strong here, although it's masked by a 40-60% daily short covering. While exiting your postition may be painful, and while this could drop hard when it does drop, leaving you unable to reupp at an optimal level, I see more short term risk than reward. Pain thresholds vary. If you have other uses for your money then sometimes it's best to turn it.
Good luck.
Another chance to pull this back down....if shorts can get their timing down....
are we in pullback mode? i am a little afraid because of higher lows and higher highs...
Now we're in pullback mode. :) Hope you rode through or got out with minimal loss when the $7.00-$7.25 short covering cycles and Foolish Speculators were on board. Keep in mind LOW VOLUME, VS HUGE Short interest, and cyclical earnings cycles. I need to factor more of these in myself and will be more wary. Good luck.