Trade of the Day: Getting Speculative With P - 10/31/13

Posted on Oct. 31, 2013, 1:08 p.m.
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Long

Pandora Media (P)

Thursday, October 31, 2013


CompanySymbolIndustryRatingYTD % GainTargetStop
Pandora Media Inc P Broadcasting 7.7 +178.75%   $28.00 $23.23


The Trade:


Halloween is an exciting holiday, so I figured today I would introduce an exciting trade - Long Pandora Media (P). P is the definition of a "speculative mover," as the stock swings violently pretty much every day. While P is clearly a favorite of the fast money, that doesn't mean it's off-limits, it just means that we have to know what to expect  

Looking at a daily chart of P (see below) reveals that there is a clearly defined trading range currently happening. The bottom begins at the mid-September gap higher (which was tested and held on October 9th), while the top is right around the $28 area. This chart doesn't look too crazy, but when you look at the severity of the range, it's easy to see why P is quite the speculative play - From bottom to top, the range represents a +21.65% difference!  

P has travelled from the bottom to the top in just eight sessions of trading from October 9th - 18th. It also did it in nine sessions from September 24th - October 4th. This stock moves in fast, extreme spurts, and it moves often. The goal here is to catch a retest of the $28 area. And, considering P doesn't report earnings until December 3rd after the close, what else would the fast money do in the meantime?! I'm kidding, but the point is that given the recent action on this trading range, P could very well test $28 early next week.

Another thing working in our favor is the current trend channel. While P's moves have been quick and exaggerated, there is a clear uptrending channel forming on a closing basis. Even though the slope seems slight on a chart, the result is of going from bottom to top of this channel is significant.

Regarding the stop, there are really two ways to play - You could either use the channel's low end as a stop as the more conservative route, essentially setting your stop at yesterday's low ($25.00) to ensure you're not sitting for a ride to the low end of the range. Or, you could play aggressively and use the low end of the range as your stop ($23.23). Giving P some lee-way makes sense, but understand that it's quite a ways down to that price, even if it doesn't look like much on the chart.

So, if you feel like having a bit of fun this Halloween, P looks to be a quick ride from current prices to a retest of $28, potentially netting +9.15% in the process.

We Would Enter the Trade:

Buy at the current price (~$25.58).

We Would Exit the Trade:

At a close below $23.23 (Breakdown)  /  A close of $27.50 or above (Profit-Taking)




Company Profile:

Pandora Media, Inc. (Pandora), is an Internet radio in the United States. As of January 31, 2012, it had over 125 million registered users. The Music Genome Project and its playlist generating algorithms predict listener music preferences, play music content suited to the tastes of each individual listener and introduce listeners to music they will love. When a listener enters a single song, artist or genre to start a station, a process it calls seeding, the Pandora service generates a station that plays music it think that listener will enjoy. It generates revenue from advertising. It also offers a subscription service to listeners. The Company’s service enables its listeners to create up to 100 personalized stations. Pandora provides service through two models: Free Service and Pandora One.

Stock Rating:

The Stock Rating indicates the combined score of our proprietary Earning Strength and Company Performance models. The rating scale is 0 - 10 with 10 being the highest.

Disclosure:

At the time of publication the editor and affiliated companies own the following positions:None

Note: Positions may be bought or sold while this publication is in circulation without notice.

Pandora Media Inc -Last 30 Days

Pandora Media Inc -Last 3 Months

Pandora Media Inc -Last 6 Months



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Dave & Donald Moenning

Dave and Donald Moenning are a father-and-son duo who specialize in growing their clients' portfolios in any market condition.

Dave is a full-time money manager and the President and Chief Investment Strategist of my Chicago-based Registered Investment Advisory firm. He began his investment career in 1980, and have been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than two decades.

Donald Moenning, Dave's son, is the head of equity research at Heritage Capital Management, a Chicago-based investment management firm. Donald holds degrees in economics and business leadership from the University of Puget Sound, lives in Denver, and is an avid snowboarder.