Wednesday, May 6, 2009

HOTT: Short the retailer (UPDATE below)

HOTT on the daily chart shows a rolling over pattern after a stupendous run with all the retailers.  From a technical standpoint this looks overbought and ready for a pullback.

Eric wanted me to look at a retail stock that could falter with a market correction or pullback.

HOTT trades at a rather high PE of 27 trailing earnings and 19 forward, expecting a 15% earnings growth rate.  

The bullish case can be made that it has a teen clientele which tends to be recession- proof and the stock has high short interest ratio of 7.9 days.  Also, analysts have recently increased their earnings projections for next year.

HOTT on the 65-minute chart shows a steady down trend with a low volume bear flag developing today.  Careful traders would wait for this to break below 12.14 to enter a small short position and add to it below 11.60.

The next support is 9.00 if the retail market melts down.

UPDATE  6:00 pm 5-6-09:  HOTT dropped 14% after hours, I took profits.

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