We made the right decision on Tuesday not to add any new positions. The -266 point drop in the Dow and +319 point rebound could have been hazardous to new entries.
The rebound today suggests the worst is over and we are not going to retest the lows. There is no guarantee but today would have been a perfect opportunity for the bears to pile on and give us that downhill push.
The trailing stop losses on any long plays from the February drop were erased and portfolio managers with cash burning a hole in their pocket were given a buying opportunity.
I am only adding one long today with a high entry trigger just in case the market rolls over again. We should know relatively quickly if the resistance at 1,950 on the S&P is going to break or hold. That will give us the eventual market direction.
We only lost one position in the morning drop and that was GoPro and we exited with a gain.
NEW BULLISH Plays
ACAT - Arctic Cat - Company Profile
Arctic Cat makes snowmobiles, all terrain vehicles (ATVs) and recreational off-road vehicles (ROVs). They reported a bad quarter because of the exceptionally warm weather and lack of snow. Sales declined -14.3%. Of that 4.9% was due to the strong dollar. The brand is one of the most wildly recognized brands of off-road equipment.
Arctic Cat has been in a restructuring program for several quarters to revamp their dealer network, eliminate debt, reduce inventory and produce new cutting edge vehicles.
In Q4 they reduced long term debt by $15.8 million. They suspended the quarterly dividend to save $6.5 million in cash for the restructuring. Inventory decreased -$25 million sequentially. They generated approximately $27 million in free cash flow.
The company expects to see the benefits of their restructuring in the next two quarters with sales expected to rise +40% in the current quarter. New models and new products coming out this summer are expected to boost sales as well. They are announcing a new "single ski" snow bike at the snow dealer show in March.
While the outlook is far from exciting the company shares have rebounded from the low of $9 on January 28th to $16.45 today. The stock momentum is strong and it reached primary resistance at $16.50 this week. If the stock breaks through this resistance it could trigger additional short covering with the next resistance at $22.25. I am recommending a long position on a resistance break and an exit before we reach that higher resistance at $22.
Earnings are May 12th.
With an ACAT trade at $17.25
Buy ACAT shares, initial stop loss $15.00
Buy June $20 call, currently $1.40, stop loss $15.00
NEW BEARISH Plays
No New Bearish Plays