3 Sharp Movers You Shouldn't Mess Around With

Includes: GMCR, NFLX, SHLD
by: Bill Maurer

We've seen a nice rally to start 2011, and volatility levels, as tracked by their respective indices, are at very low levels compared to what we have seen in recent years. However, that doesn't mean that individual names aren't moving very much. In fact, so far this year, we've seen some really big names have really big percentage moves.

For those who are new to this market or looking to get in, you might wonder how to be successful. Knowing how to interpret financial statements. That's good. Knowing what the company actually does. That's always a plus. Some even say that luck is a huge part of their success, and that can be true. One thing I always struggle with is timing. I buy something, and two minutes later, it's a dime below where I bought it. This market can be frustrating at times, and that can keep people away.

So what is my main point? Well, if you are afraid to take risk, or are new to this game and unsure what to do, here are three names you might want to avoid, and some unique reasons why.

Sears Holding (NASDAQ:SHLD): Sure, you've shopped at Sears at some point in your life. You might even remember when they merged with Kmart. That was supposed to be good for the company. Lately, it hasn't been good for investors.

In 2007, Sears traded at almost $200 per share. Within the past year, it traded as high as $95. However, starting in late October, the name went from more than $85 to a recent low of under $30. Yes, I said $30, and many analysts think this stock is only worth single digits.

Just in the last two weeks, Sears has had a huge run, and the reasons aren't 100% obvious. Most agree that this is a short squeeze, more on that later. Some say that the store closings to be announced shortly will help the company. Others say that they have gotten needed financing, while others believe the stock is about to be bought out.

For this argument, let's focus on the short squeeze. Just two weeks ago, this stock was at $29. Last Friday, it closed at $49. Monday morning it opened and shot higher again, and the name traded as high as $54.76. But anyone that bought above $50, $52, even $54, and still holds the stock going into Tuesday, they are not feeling well. Why? Because short squeezes like this create bubbles, and we saw a bubble burst in Sears on Monday. The stock closed Monday at $47.39, and was below $47 right before the close. That means you could have lost more than $7 intraday on the name. The way Sears has been lately, you need to have some sort of stomach medicine to trade it.

Green Mountain Coffee Roasters (NASDAQ:GMCR): Just because everyone is using a product doesn't mean that the stock is an instant one to own. Consider the following theoretical conversation:

Husband: I just bought our first stock today.
Wife: Great. What did you buy?
Husband: I bought Green Mountain, since we sure drink enough of their coffee in the morning.
Wife: Sounds good. How's it doing?
Husband: Well, I bought 100 shares early this morning. We've lost more than $300 so far.

You can probably imagine where the rest of this conversation is going. Green Mountain opened higher Monday, up nearly 2% at its high point, but quickly lost all of its gains and then some. The stock finished down almost 5%, and was lower at times.

This isn't exactly a new scenario for Green Mountain. Just ask investors who bought it above $70 before last quarters' earnings, or ask anyone who bought it above $95 before David Einhorn's short presentation come out. Green Mountain is currently projected for 85% quarterly revenue growth, and they missed last quarter by $50 million dollars. If they don't get the high sales baked into this stock, it will be watch out, below. Again.

Netflix (NASDAQ:NFLX): Everyone knows that Netflix had a great start to 2011 but a terrible ending. However, unless you are a very short term trader, you really will not like the moves in this name.

The following table shows the percentage move, in either direction, over the stock over the last 6 months, roughly since the company's fall started. The average move was 3.7% and the median move was 2.7%.

Move Count Percent
<1% 26 20.63%
1%-2% 19 15.08%
2%-3% 26 20.63%
3%-4% 9 7.14%
4%-5% 19 15.08%
5%-10% 21 16.67%
>10% 6 4.76%
Click to enlarge

What do these numbers mean? Well, it means that Netflix moves at least 5% once a week. Also, the name moves more than four percent 46 times, which equals 36.5% of the time. Netflix hit a low of about $62 at the end of November, and was just at $105. With earnings coming out Wednesday, you really should look to avoid the name.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.