Barbie May Need a Second Job

NEW YORK ( TheStreet) -- Barbie and Ken haven't been spotted in the Hamptons this summer, but don't expect Barbie to pressure Ken to sell their Corvette anytime soon. After a metamorphic 400% increase since 2009 lows, shares in Mattel ( MAT) are down nearly 7% after missing earnings expectations.

Apparently, Barbie's A-list appeal isn't what it once was, based on the reported 12% decline in sales. At 54 years old, keeping up with generation Z is proving difficult; however, Mattel has bigger problems than Barbie's trying to stay young.

Hot Wheels cooled off, and Fisher-Price sales declined also. American Girl was the standout as the life of a rather dull party. American Girl's sales increased 14%, albeit after aggressively expensive marketing.

For shareholders, it's time to take some gains off the table, if you haven't already done so. It's not that Mattel's fortunes have changed, but fighting the tape is generally a miserable experience. For example, take a look at the charts for Verifone Systems ( PAY) and Lululemon Athletics ( LULU) after their recent gaps down.

They both represent classical price behavior after a sucker punch, but for entirely different reasons that I will cover in a moment. After a gap lower resulting from a change in expectations (lower profit in Mattel's case), the selling pressure can remain intense for one or two days after the gap-down day.

As unintuitive as it may appear outside of the context of historical norms, selling into any signs of strength today usually represents the best you can hope for during the rest of this week. When it comes to investing, your best option is to always think like a casino owner, not a casino player, and place the odds in your favor.

We can't predict the future, but we can predict the probability. After a few days of declining share price, investors can anticipate a pop higher, or what many on Wall Street call a "dead-cat bounce." Both Lululemon and Verifone exhibit this normal chart price pattern.

For Lululemon, the catalyst was the resignation of a successful and highly admired CEO. Lululemon's chart pattern more closely correlates with Mattel's bullish price trend. In Verifone's case, the gap lower began with a failure to deliver expected quarterly results, the same as Mattel's Boogeyman.

For all three companies, the net result is a serious negative shift in investor sentiment. Expectations have changed, and you can almost see the flurry of white towels thrown into the ring as the bid in Mattel remains weak.

The next chance Mattel will have to redefine sentiment is three months from now, when it reports again and furnishes insight into the critical holiday shopping season.

Looking through the eyes of a casino owner, a logical move is to take some money off the table and book a gain. Then look to repurchase the shares in a couple of months under $40. That's not practical for many, due to tax implications and other individual considerations, but there is another effective way to keep your money working for you.

If I wanted to maintain my Mattel position, I would look to sell near money covered calls against some of my shares. For example, the October $44s or $45 strike calls. For a better understanding in calculating the best strike price and expiration date for your particular situation, pick up a copy of Options Math For Traders by Scott Nations. It's a fantastic book that I recommend for options traders.

Expect continued turbulence for the summer, and keep in mind that Mattel remains in a bullish trend within the daily and weekly charts. While hedging through a tough quarter is advisable, Barbie and Ken remain an attractive couple for your portfolio.

At the time of publication the author neither had a position in any of the stocks mentioned nor owned a Barbie.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Robert Weinstein is an active trader focusing on the psychological importance of risk mitigation, emotion and financial behavior of market participants. Robert co-founded the investing blog StockSaints, where he writes a journal about his trading activity and experiences.

In addition to TheStreet, Robert also contributes to Real Money Pro, providing real-time trading ideas for stocks, options and futures.

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