More Sock Puppets: PetsMart

Do you remember the Pets.com sock puppet ads during the SuperBowl in the height of the dot.com era? A high flying company that made no money with a big multiple? Set a record going from IPO to liquidation in 268 days? What happened to that company? It was bought by PetsMart (ticker: PETM).

Below is a daily chart for PETM for the last 30 months.

Notice the strong uptrend over the last 2 years running from 14 up to 40. Notice also that when the Relative Strength Index (RSI) has broken above 70 the price has corrected back toward the trend line and the Simple Moving Averages (SMA’s). During the corrections the Moving Average Convergence Divergence (MACD) indicator fell below the trend line only once. This correction has often happened with a sideways move through time, but during the one MACD exception noted, it corrected downward. The MACD is currently at its trend line but price is not near its yet. I am not suggesting the same fate as Pets.com but a downward correction is about to happen again. Zoom in now to the same picture but just the last 8 months.

Three additional factors suggest this correction to be lower. First price has corrected some from the top but has recently fallen through the 50 day SMA. Second, Tuesday’s bearish engulfing candle suggests lower prices to come. Third, the RSI has not yet come near the 30 level where it has during all other corrections. The MACD is also continuing to grow more negative as it hits the trend line. This combination suggests a pullback to where the rising 100 day SMA is overlapping the rising trend line currently near 36.85 or even further to the 200 day SMA at 34.28. For a short trade a good place for a stop would be near the 50 day SMA at 38.97.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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