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  • Just a Hunch - Looks at WAMUQ, FDO, and STHG 0 comments
    Jul 8, 2010 12:34 PM | about stocks: FDO, WMIH
    Small cap stocks Stratton Holdings, Washington Mutual, and Family Dollar Stores are reviewed for trading potential.
    By James E. Brumley

    My apologies in advance. Most of the time I can look at a stock and immediately see it through journalistic - and quantifiable - glasses. This morning, however, I ran across a handful of small caps that gnaw at me for unquantifiable, non-specific reasons.... a hunch, of you will. Rather than fight it, the journalist side of me just said to go with it. So....

    Think bubbles can only excessively-inflate sexy stocks like those from the tech sector? Think again. And if you bought Family Dollar Stores, Inc. (NYSE:FDO) before late May, then you already know this to be true.... this small cap is down about 15% from its peak, and still selling briskly.

    What happened? Isn't the economy in shambles, and aren't consumers desperate for the bargains they can only find at deep-discount stores like Family Dollar Stores? Yep. There's only so much stock to go around though. And between February and May, that 25% rally just took the company's capitalization to levels that far exceeded its revenue and earnings capacity (on a retail-relative basis).  In other words, the expectations were too high, following months and months of the 'got to have it' buzz. It can happen to any stock, anytime; it's got nothing to do with share value.

    As for my 'hunch', I'm looking for the euphoria/hysteria pendulum to swing all the way in the other direction now. pulling FDO back under its 200-day moving average line (green), as we saw happen in the middle of last year - when (and despite of the fact that) this retailer was really drawing shoppers in. That deep dip will also not be reflective of the value of Family Dollar Stores shares though. This stock is simply being pushed around by over-thinking, and amateurs.

    If you're really a long-haul FDO investor, you don't care. If you're actually a trader professing to be a long-term investor, this could be excruciating.

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    Does anybody else start to fidget when there's a long period without any company news or without any real movement from a stock? It's often a sign that something big is brewing.

    I don't thank the recent quiet period from Washington Mutual, Inc. (PINK:WAMUQ) is an exception to that norm. And, if I had to guess, I'd say it's bullishness that's brewing for this small cap.

    The key will be getting and staying above $0.19, where the 100-day average line (gray) is now. It's also where Washington Mutual shares have been finding a ceiling lately (and as they did before the brief February rocket ride). The attack on that resistance line has been persistent over the last few weeks though, and as of June, the 50-day line (purple) has stepped up as support. It's all just a little too bullish to ignore.

    Will it be news-based?
    I don't know. Probably, but I'd be willing to jump on any healthy move above $0.19, anticipating the news to come out well after the trade-worthy jump was over. That's how it played out in February.... buy the rumor, sell the news.

    And finally - and this is really just a hunch - I'm looking for Stratton Holdings Inc (PINK:STHG) to give us a good rebound from here.

    It's got little to do with the company's merits, and almost everything to do with the fact that this small cap rallied too far in early June, and then fell too fast in late June. That wild swing should have washed out any of the volatile speculating and trading, leaving behind a small group of more predictable traders and investors. While I doubt they have the firepower to send STHG back up to$0.024 over a two-week span like we saw just a few weeks ago, I do think we'll see a good move higher to balance out the oversold condition that Stratton Holdings shares fell into last week.

    Maybe the $0.01 area before a headwind is hit? Don't know. I just know the imbalance is still a little heavy on the bearish side of the fence, and the chart is looking for a middle ground somewhere above where it is now.

    If you'd like to receive further updates and any changes in our opinions on STHG, WAMUQ, and FDO, be sure to sign-up for the SCN Newsletter today! It's FREE.

    For more articles like this, visit our website at


    Disclosure: No position
    Stocks: FDO, WMIH
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