Sector: Retail – Department Stores (Home Furnishings)
Every stock has a story, as they say. Here’s CPWM’s story. The charts below are the weejly chart, then the daily chart at the first breakout, then the daily chart at the 2nd, 3rd, and 4th breakouts.
The move of 963% in 2010 was preceded by a year-long bottoming phase in 2009. The stock was coming off a six-year decline since late 2003 and finally bottomed out in 2009 below $1 per share. In March 2010, after building a bottom for nearly a year during which the price was between $1 and $3 per share, the stock raised earnings guidance for the Q1 2010, projecting a smaller loss for the quarter than expected. The stock doubled in the month after this news to $6 per share.
After the stock doubled in March/April 2010, it pulled back about 40% and formed what would become the lows of the cup near the 200-day average in August 2010. The stock made a 40% move off the 200-day average as it formed the right side of the cup. Volume was very low for 6 months during the formation of the cup pattern. The stock began forming a tight flag on low volume in mid-September 2010 after rallying 50% plus off the 200-day average.
Now at end of September the stock was at about $4 per share and had been in a tight base for about 10 trading days. This base resulted in the first of 3 breakouts in the next 3 months for the stock as follows:
10/3/2010: Stock had a 4% breakout on $1.6M $volume, through the $4 area, and rallied 18% in a 3-day burst. This breakout occurred in the bottom half of the cup so would likely not have been viewed as a favorable breakout from c&h view. But great setup for STIB type trade. After the 3 day rally, the stock formed another tight base for about 6 or 7 weeks heading into November eps report.
11/19/2010: The Company announced earnings better than estimates. Also they said that same store sales rose 9% y/o/y after a 9% drop in same last year. The company also extended its credit agreement. This positive news sparked an extremely high volume breakout of the 6-7 week tight base on an EP day, with $13M $volume. The stock rallied 42% from breakout point in 2 days, and then had a 6-day orderly pull back on low volume at the $8 range.
12/2/2010: After a 6-day sideways action, the stock broke out for the third time at around $8. Dollar volume was $6.5M on the breakout. The stock moved up 50%+ over next 18 trading days with a couple of 2-3 day pullbacks mixed in. The stock reversed at $12-$13 area in late December 2010.
This December 2010 rally completed a 300% move from the initial breakout point in October 2010 and a 170% move from November breakout point. The largest move came on the December breakout, which was the first breakout after the cup & handle breakout. The second and first breakouts were smaller respectively. This December breakout was last as stock broke down in late December after 50% move.
Other notes about the fundamentals and technicals:
- The stock bottomed out at less than $1 per share after a long period of decline (6 years).
- The stock made largest part of move that was tradable after it had formed a 6 month long base following a strong rally off the bottoming pattern.
- The stock’s trend intensity was at about 125 at the October and November breakouts, then hit 151 in December breakout. TI topped out at 172 in late December before the reversal.
- The stock spent the year prior to the move building a bottoming pattern in the$1-$4 area.
- The company’s first eps and sales acceleration was in Q1 2010 (May eps report). EPS/Sales growth was 75/3, 66/5, 62/7 in the first 3 quarters of 2010. The sales figures were good for retailer.
- There has been only one analyst covering the stock for couple of years – decline into 2009 was so severe that analysts abandoned the stock.
- The company’s first profitable year in a while is forecast for FY 1/2011. Earnings announcement is expected to be in February 2011.
- Stock has had 2 quarters of increasing fund ownership as of 1/2011.
- IBD rating and RS ratings were: 14/10 in January 2010, 54/96 in Aug 2010, and 67/99 in January 2011.
- RS rating was in high 90’s well before the first breakout in October.
- The retail sector has been in favor since the summer, and the group of stocks in CPWM group have also performed relatively well (WSM, PIR, BBBY). Those stocks have not performed to the extent of CPWM though.
- Short interest was about 12% in Nov 2010 and it dropped to 7%-9% by early 2011.
- The stock had negative ROI, Margins. P/E was negative and d/e was over 1 so debt was an issue.
- Float was 16M.
- No notable insider buying in 2010. One sale in early 2010 near lows.
- Dollar volume was 1.6M, 13M, and 6.5M on the Oct/Nov/Dec breakouts respectively. Note the last breakout in December was on lower $volume than the November b/o. Smaller base came along with that last Dec b/o.
Summary: Why did CPWM move up by 200% or more in a year?
This stock’s move seems to be fueled by a few factors:
1. Long period of neglect and a chart pattern that confirms it. Analysts stopped covering the stock in droves in late 2009 as the stock neared its 2009 bottoms below a dollar per share. The company’s earnings sucked for years going into 2010. Volume during the basing in 2010 was nonexistent.
2. The company’s extension of its credit agreements and same store sales news in November stands out as the continuation catalyst with a long 6-month c&h pattern supporting it.
3. The stock is a pure recovery play. It is forecast for profitability for first time this FY 1/2011, so some anticipation of that may have contributed to the recent rally as well. But with such a long period of neglect before bottoming, and then turning profitable as earnings and sales strengthen, it’s no shock that the stock rallied.
4. Sector strength was likely a factor also – others in sector did well. This was one of low float stocks in sector and made largest move.
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