Sunday, February 24, 2013

Crocs (CROX)

BUY signal the week of 2.19.13 (Friday) at $15.43. My first stop is $12.46, so my initial risk (R)/share will be $2.97. 

History (beginning in 2006):
Winning Trades: 2 | 66.7% | +$20.41/share avg.
Losing Trades: 1 | 33.3% | -$5.43/share avg.
Average Trade: +207.9% | +$11.79/share | Reward-to-Risk (R): +3.59

When this signal popped up Friday my first thought was that I shouldn't take the trade.

Of course, that's almost always my first thought. Which is why I trade and manage risk with a technical system. I'd probably never pull the trigger if left to my own devices.

But my real concern, apart from my somewhat bearish overall economic/market feeling,  was that Crocs would correlate too highly with Deckers Outdoor, a stock I picked up a week ago that has quickly dipped -6.9%.  

Surprisingly (at least to me), it turns out that Crocs and Deckers are not that highly correlated after all. My own calculations give a correlation coefficient of just .4787. Not bad. For the sake of comparison, Apple and Lululemon correlate roughly 96% of the time (.9649). Again, these are my own calculations.

Okay, so one problem solved.

My next thought was that Crocs would probably not be within the top 25 in my ranking system (mid-40s was my first guess). In general, I try to take every trading signal on stocks in the top 25, because those represent the 25 best opportunities for my specific trading system at that time (the rankings change every week). 

Alright, so where did Crocs actually rank? You guessed it: #25.

So here we are.

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