YRCW Could be Your Best-Performing Penny Stock – Do you know how to Play its Earnings?

Posted by on Aug 02, 2010 | No comment

On August 3, the showdown between the bulls and bears will take its next step in the saga of survival of YRC Worldwide (Nasdaq: YRCW).

“The entire small-cap market is betting on which way this will play out,” an old friend and veteran trader told me in an e-mail to me on Friday night.

This stock has one of the largest followings in the “under a buck” plays, today.  And everyone wants to know how to play YRCW on Tuesday.

Now that more than 60% of the companies comprising the S&P 500 have reported, have traders left us any clues to the YRCW trade on Tuesday?

Traders have provided plenty of clues to the YRCW trade, according to statistics provided by Bespoke Investment Group.

Of the 308 earnings reports of the total 500 expected to post this earnings season, 78.2% (241 companies) have beaten earnings estimates.  Of these 241, traders opened the stock up 1.01% from the previous day’s close, but sold the stock off, on average, by 0.66% by the close of the day of the report (opening price to closing price).

On the other hand, companies that posted worse-than-expected earnings have opened lower by a whopping 2.89% from the prior day’s close, and then continued dropping another 1.16% (from the opening price) by the close of trading.  This suggests that an S&P stock which reports disappointing earnings has dropped, on average, of 4.05% from the previous day’s close.

Bespoke concludes that, so far, “traders have been selling earnings strength and weakness throughout the trading day.”  It also suggests that buyers looking for a quick profit at the open will have, at best, 3:1 odds against them, at worst, nearly 10:1—depending upon the time of day the trade is sold.

As another friend noted, people naturally sell on this [earnings] news no matter what number comes out.  He warned that irrespective of YRCW’s report, it could be a “wild horse” of a trade on Tuesday, and directed me to take a look at the beta on the stock.

YRCW’s beta is 2.31 (a measure of volatility of more than twice the average stock in the S&P), according to Yahoo Finance.  Applying YRCW’s beta of 2.31 to Bespoke’s findings suggests a downside potential of nearly 10% on Tuesday from Monday’s close if the beleaguered trucking company doesn’t report evidence of  an earnings turnaround just yet (if ever).

One way to play this “wild horse” is to assume earnings or outlook doesn’t impress traders.  This is potentially the worst case scenario, and the scenario that could hurt traders badly if they’re not careful.  Traders should assume the worst-case scenario and place trades accordingly.

“I would look to have limit buy orders in at 10%-20% below whatever the closing price is on Monday,” my friend wrote in his e-mail regarding YRCW.  “If the shares quickly snap back and rally, you will make a fortune.  If the number is truly awful—and heaven forbid YRCW is going bankrupt, you will leave with a loss, but not nearly as bad as if you bought before the earnings come out.”

Considering YRCW’s technical indicators are about to flash an overbought condition on any further advance in the stock’s price, the advice may be the statistically prudent play at this time.

yrcw

The MACD is clearly showing that the rally, following the announcement that the company expects to turn the corner on EBITDA, could be running out of steam.

The reverse head-and-shoulders formation at $0.25 shows a breakout to the upside on July 22 (the day chief rival FedEx raised guidance, suggesting the industry is improved.)  Since then, YRCW has rallied strongly from its breakout at $0.25.

However, chartists will tell you that most breakouts tend to retrace back to the breakout level to test it as a new support level.  YRCW has not yet had a selloff since breaking $0.25 to test it as support.  Odds are that it will test $0.25.

There’s too much evidence that lean toward an initial selloff during the day of as much as 10% to 20% and a rally from a much lower level from there (if the stock rallies at all).  While my trader friend doesn’t have a crystal ball, he does have a track record and experience that’s kept him in this game for many years.  Anything can happen Tuesday, but buying too high in a stock like YRCW could be fatal.  Buyers should wait for the probable selloff before considering any purchases.

About BeaconEquity.com

BeaconEquity.com is committed to producing the highest-quality insight and analysis of small cap stocks, emerging technology stocks, hot penny stocks and helping investors make informed decisions. Our focus is primarily on the underserved OTC stocks market, or “penny stock” market, which has traditionally been shunned by Wall Street. We have particular expertise with renewable energy stocks, biotech stocks, oil stocks, green energy stocks and internet stocks. There are many hot penny stock opportunities present in the OTC market everyday and we seek to exploit these hot stock gains for our members before the average daytrader is aware of them.

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This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Beaconequity.com is a wholly-owned subsidiary of BlueWave Advisors.
While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

About BeaconEquity.com

BeaconEquity.com is committed to producing the highest-quality insight and analysis of small-cap stocks, emerging technology stocks, hot penny stocks and helping investors make informed decisions. Our focus is primarily OTC stocks in the stock market today, which have traditionally been shunned by Wall Street. We have particular expertise with renewable energy stocks, biotech stocks, oil stocks, green energy stocks and internet stocks. There are many hot penny stock opportunities present in the OTC market everyday and we seek to exploit these hot stock gains for our members before the average daytrader is aware of them.

Beacon Equity Group Disclaimer

This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Beaconequity.com is a wholly-owned subsidiary of BlueWave Advisors.

While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

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