Blue Nile Inc. - NILE - close: 34.09 change: +0.02

Stop Loss: 31.70
Target(s): 39.75
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
I am sure you noticed the big gap down in NILE's chart. The stock fell from $49 to $33 in one day following its earnings report. The company missed estimates by four cents and guided lower. That's not what you want to hear going into the holiday shopping season. Yet after the big sell-off NILE hasn't seen any follow through lower. The stock has been consolidating sideways. Is all the bad news priced in?

I suspect that if NILE can breakout from this trading range it could see a sharp, oversold bounce higher. I am suggesting we open small bullish positions with a trigger at $34.60. If triggered we'll use a stop loss at $31.70. Readers should consider this an aggressive, higher-risk trade. If triggered our target is $39.75. More conservative traders may want to exit at the 50 or 100-dma instead.

Trigger @ $34.60 (small positions)

Suggested Position: buy NILE stock @ 34.60

- or -

buy the 2012Jan $35 call (NILE1221A35) current ask $2.80

Annotated chart:

Entry on November xx at $ xx.xx
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 491 thousand
Listed on November 22, 2011