While this may seem like searching for a scapegoat for a stocks price motion, it’s meant to reflect a timeline of events that in all actuality are random, as compared to past events. The probability of this particular event even seems foolish.
If you asked someone if they would invest in a company that has averaged between 58% and 98% return on investment over a specific period of time consecutively for the past five years, you would think that they would be interested in that opportunity. Most investors are looking for opportunities that offer low risk high reward circumstances.
Previously analyzed, LEAP Wireless International has such an opportunity laced within its technical chart history. This past year LEAP has been followed closely during this time frame of expected returns to see if the roulette wheel will hit 6, as the past five years have yielded the results stated above.
Still attune to the chart history of LEAP, this timeline will begin very ordinarily, as LEAP rallied off its lows in August 2010 until mid November where it began correcting 15% from its recent high. Almost immediately after LEAP met this turning point low in price as well as time frame, “randomness” began.
December 1, 2010, LEAP was trading as anticipated into a seasonal swing point. The stock, although not performing well on a 2% up day for the markets, closed above its long term uptrend line with a heroic 2.5% move higher mid day. Showing great strength and seemingly showing its hand that 6 for 6 could still be in the mix.
December 2, 2010 Piper Jaffray issued a downgrade of the LEAP to neutral and cut the price target by 1$. A price target 24% below the closing price that day. The stock gapped down 6% at the open while the broader markets where in an all out bull move 2% higher.
It now seemed that the lack of performance the prior day may have been a leak of the news to those “in the know”. Regardless of what was happening and what was expected, the question should have been is this not random?
What has happened in the past can not appear as random when viewed in the present. But if so, could the 100% correlation to performance over the past 5 years become more random because of the timing of this downgrade?
The timeline of events needs to be compressed into a thought so that the trader can decipher their means of action: After 5 years of over performance during this time frame, after a 15% present time frame decline, after long term support has been regained, two days after a key calendar date, an analyst makes a downgrade and 24% price cut on one of the largest bull days of the year.
This was an opportunity to capitalize on possible market manipulation and the probability that traders and investors were going to be fooled by this random event and miss out on the profits that they believed were a sure thing.
Now you have sellers and you have weak hands (those without conviction or awareness) holding the lid on a swarm of fireflies after midnight. Eventually they get out and those around can see, under their light, the mistakes that they were fooled. Auriga was fooled, they downgraded LEAP to hold on December 6, 2010.
It was not long however, before the chart and bigger buyers, possibly including Piper Jaffray and Auriga realized their mistake and made sure that this “random” five year event had a sixth leg to it (chart).
It should not go unsaid that perception of LEAP (the seasonal chartist can disregard this fact) is that of a miserable company at the moment. It has falling profit margin, falling net income, falling operating income, and struggling consumer base which “we do not think…will be sustainable,” as Piper Jaffray stated.
If you realize what can occur when someone is pressured by the boundaries of their employment or knowledge to do what is plausibly right even though it is probabilistically very wrong, you may also understand what is meant when it is said- trade to be profitable, not right.
Although easily traded as a random event of the past, any intellect that ran through the timeline of events would have to believe that this event was foolish. So much so, it could be said that it was anything but random. For those aware of the price history of LEAP, knowingly or unknowingly, things presently remain very profitable and orderly for holders of LEAP.
LEAP has already rallied 19% from the 10.53 low caused by the randomness. The 200 day moving average is closing in, and is relative to the short term price target set at 13.17 for 25% profit.