NEW YORK (TheStreet) -- Good day, traders.
1. First we have Overstock.com the online retailer.
Overstock shares traded up nearly 16% on Thursday and closed at $16.19.
- Wednesday's range: $14.00 - $16.67
- 52-week range: $13.82 - $35.57
- Wednesday's volume: 1,061,239
- 3-month average volume: 289,821
Overstock looks good from a technical standpoint, as Thursday's volume was three times the average volume, shares traded up almost 16% and the chart is in a rounded-bottom breakout. Thursday's big move was from the 52-week low of $13.82, and the stock closed above the 50-day simple moving average. The price will likely pull back a bit Friday, as often when a stock makes such a large gain, there will be profit-taking and some consolidation for a few days or a week afterward.
I'd look for an entry above the 50-day simple moving average at $15.39. Depending on your entry, I would set a stop a safe distance below the 50-day simple moving average. I would target the 200-day simple moving average at $21.65, which is 25% to the upside from yesterday's close.
There is overhead resistance at about $16.96-ish, $18.33 and about $20.68, so watch for a pullback or consolidation at these levels. Stay long until you see a confirmed sell signal, or a close below the t-line.
2. Now we have Walter Energy, which produces and exports metallurgical coal for the steel industry.
Walter Energy traded up 4.95% on Thursday, closing at $5.94 per share.
- Wednesday's range: $5.60 - $5.97
- 52-week range: $4.25 - $19.50
- Wednesday's volume: 3,009,810
- 3-month average volume: 4,565,040
Walter Energy looks good technically, as it was a rounded-bottom breakout that has been confirming for a few days. I entered this position on July 18, when the share price engulfed the previous day's candle and closed over the 50-day simple moving average. Walter Energy reached its 52-week low on June 3 and has gained 38% since then. Now it has been consolidating over the 50-day simple moving average, as the price action is trying to clear the $6 resistance level.
I'd look for an entry anywhere above the 50-day simple moving average, which is at $5.48. I'd also set my stop just below the 50-day simple moving average, say about $5.39, as to not get stopped out prematurely. I would target the 200-day simple moving average, at $10.68, which is a whopping 79% to the upside from Thursday's close. This is why I like the rounded-bottom breakout so much -- big potential.
Stay long until you see a confirmed sell signal, or a close below the t-line.
3. Lastly, lets look at ZIX, which provides email encryption, data-loss prevention and Bring-Your-Own-Device solutions to the health care, financial services, insurance and government sectors in the U.S.
Zix traded positively on Thursday, closing up 2.7% at $3.46.
- Wednesday's range: $3.28 - $3.49
- 52-week range: $2.90 - $5.03
- Wednesday's volume: 533,414
- 3-month average volume: 358,878
Zix is also a rounded-bottom breakout pattern. Zix has traded up 19% in the last few days, and reappeared on the rounded-bottom breakout scanner on Wednesday when it closed over the 50-day simple moving average. Thursday's trading confirmed the breakout, as the price remained above the 50-day SMA. This stock has been trying to clear the 50-day SMA for the last month and a half and has been unsuccessful. On Tuesday Zix reported positive earnings, and investors appear to have interest.
I'd look for an entry above the 50-day simple moving average, at $3.33. I'd set my stop at about $3.29, and if you get stopped out, you can alway re-enter a position when the price comes back. Again, I would target the 200-day simple moving average, which is at $4.09, 18% to the upside.
Price action is sitting at a resistance level, so watch for consolidation for the next few days, and look for the cheapest entry above the 50-day SMA. Stay long until you see a confirmed sell signal, or a close below the t-line.
Good luck, traders!
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At the time of publication, the author was long WLT, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Now let's look at TheStreet Ratings' take on some of these stocks.
TheStreet Ratings team rates OVERSTOCK.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate OVERSTOCK.COM INC (OSTK) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- OSTK's revenue growth has slightly outpaced the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 9.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, OVERSTOCK.COM INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- OSTK has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- The gross profit margin for OVERSTOCK.COM INC is rather low; currently it is at 18.78%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.16% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$29.68 million or 1695.46% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: OSTK Ratings Report
TheStreet Ratings team rates WALTER ENERGY INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate WALTER ENERGY INC (WLT) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, generally disappointing historical performance in the stock itself and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 86.4% when compared to the same quarter one year ago, falling from -$49.44 million to -$92.18 million.
- The gross profit margin for WALTER ENERGY INC is currently extremely low, coming in at 12.11%. Regardless of WLT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, WLT's net profit margin of -22.27% significantly underperformed when compared to the industry average.
- The debt-to-equity ratio is very high at 4.38 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, WLT's quick ratio is somewhat strong at 1.29, demonstrating the ability to handle short-term liquidity needs.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 55.22%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 86.07% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, WALTER ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: WLT Ratings Report
Aaron Burt is based out of Sonoma County California, and is a contributor for hitandruncandlesticks.com. He focuses on short-to-intermediate term trades using candlestick analysis as his baseline for his trade ideas. He is a ghostwriter for candlestick analysts. He trades daily and analyzes charts daily. He trades charts, not news; news is subjective, but charts are factual. Follow him on Twitter @aarongallaher.