Pandora (NYSE:P) crashed over $3 per share on March 7, 2012, and had been trading in a narrow yet declining range since. Since settling down from its initial IPO, the equity had been a decent play for traders as it would settle down toward $10 per share and then climb back toward $15. Savvy investors could make a killing on both the up side as well as down side.
A month later, On April 5th, the stock gave up a month long battle to stay above $10 per share and dipped below what could only be termed as psychological support. At that point it became a target for renewed short interest as the bears felt that the business model, one of Pandora's red herrings, would be fully exposed with no positive catalysts to hold back another plunge.
When looking at the potential investment into an equity one of my favorite gauges is the trend and volume. It is simple, quick and often gives a decent indication of what may happen in the shorter term. What I saw happen this week was volume that was lighter than average. What this indicated to me was that there were many out there who simply were not willing to short the equity with REAL money. In other words the support for a continued downward move was not likely to become a trend.
The trading action on April 12 saw a reversal of the downward trend and a pull upward to about $9.00 per share, a new psychological level. The volume to make the upward move is still lighter than normal, which to me indicates a lack of conviction by the street to the upside as well. Perhaps what we have happening is a new trading range in the equity between $8.50 and $9.50 in the shorter term.
With a much narrower trading range, the volume on the equity may begin to lighten. This would mean that traders are moving on to greener pastures that present more range. The mantra of sell approaching $14 and buy below $11 seems to be yesterday's strategy now and will be replaced with a buy at about $8.50 and sell at about $9.50.
The key here is the news flow surrounding the company. Any perceived negative could break support at $8.50 and any perceived positive could send the stock above $9.50. At current levels around $9 a battleground between short speculators and long speculators should take shape. The longer this battle lasts the more likely Pandora will sit in a narrow range.
Pandora is releasing monthly metrics now and they seem to indicate continued consumer interest in the company. However, each listener costs Pandora money. It is kind of a catch 22 at this point and makes speculation on this equity riskier than investments into other audio entertainment companies.
The long and short of it is that Pandora is not going to make short or long speculators rich at this point. Watch the volume, watch the consolidation, and watch the news flow if you are making a play with this equity. Your first hints will come by observing the volume of shares traded. Making a big score with Pandora in either direction has suddenly become more difficult.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.