Avoiding the chase

  • CIR up roughly 100% since late September
  • Shares up 25% intraday Monday, extending breakout
  • Former resistance level a shorter-term target?

On days when the broad market is struggling to stay positive, stocks with double-digit percentage gains tend to stand out. Such was the case yesterday morning for Circor (CIR), which was one of only a handful of stocks trading above $10/share that appeared on the LiveAction scan for biggest percentage gainers:

Chart 1: LiveAction scan: Biggest percentage gainers. Strong gain on a weak day.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The stock gapped higher and gained as much as 25% intraday after topping its headline earnings numbers1—a move that pushed shares of the specialty machinery maker to $27.09, their highest level since April 1.

The jump also confirmed CIR’s breakout above a resistance level that had turned back multiple upswings since May, and extended the stock’s rally off its late-September lows to 100%:

Chart 2: Circor (CIR), 2/15/22–11/14/22. Circor (CIR) price chart. Breaking out, gapping higher.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

That’s a sizable move—one of the stock’s seven biggest, and its largest since November 2020—and it also happened to push CIR nearly 18% above its average Street analyst target of $23.2

While trading and investing are distinct disciplines, situations like this one show why they’re not always at odds with each other, even when they appear to present conflicting forecasts. For example, some investors may view a stock’s ability to extend a breakout above a well-established resistance level—while more than doubling in price in less than two months—as an indication that bulls may be recommitting to the stock.

That could very well be the case, although we won’t know until a great deal of time has passed. Meanwhile, many traders (including those who may agree with the long-term bullish case) will look at the breakout level as a potential shorter-term inflection point—i.e., a price level the stock may pull back to test, even if it eventually builds a longer-term rally.

That perspective isn’t just potentially useful for traders, since long-term investors also have to be wary of chasing the market.

A note on options: Although CIR’s December options implied volatility (IV) was much higher than average yesterday (119% vs. 70%)—suggesting those options may have been potentially overpriced—CIR is a relatively low-volume stock (126,000 shares daily, on average) with sparse options activity. That can mean bid-ask spreads, when they exist at all, may be very large. As of midday, only eight December options had traded, despite the stock’s sizable rally.

Market Mover Update: Recently we’ve covered a few stocks, including GoDaddy (GDDY) and Green Plains (GPRE), that pulled back to test long-term support levels. Add another to the list: Ritchie Bros. (RBA), which kicked off the week with a solid rally, extending its rebound off last week’s post-earnings sell-off:

Chart 3: Ritchie Bros. (RBA), 3/23/20–11/14/22 (weekly). Ritchie Bros. (RBA) price chart. Tested long-term support.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Today’s numbers include (all times ET): Producer Price Index (PPI) and Empire State Manufacturing Index (8:30 a.m.).

Today’s earnings include: Advance Auto Parts (AAP), Home Depot (HD), Walmart (WMT).


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1 StreetInsider.com. CIRCOR (CIR) Tops Q3 EPS by 20c. 11/14/22.
2 TipRanks.com. Circor International Stock Forecast & Price Target. 11/14/22.

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