Short Opp: ZBRA Potential Double Top Setup

2017년 4월 17일

In my quest to better understand trend following and TA, I am embarking on publishing more ideas with strict regard to TA first, followed by fundamentals. I am doing this because I usually do the reverse. Normally I will look at a company that I believe is undervalued or overvalued, and then I will look to the charts to see when a setup could be had. This time is different.

Using FINVIZ, I quickly scanned for double chart patterns and came across Zebra Technologies (ZBRA). After looking at the weekly chart, there does appear to be a double top in the weekly chart, and even more importantly, there appears to be a heavy line of support coming up, that if broken, could send the share price plummeting.

I am also trying to use weekly charts more, and stick to mainly weekly and daily charts. I tried working with hourly and 30 minute charts, but they simply don't fit my personality style. Hear me out, I am by no means dogging those chart times, nor am I saying money can't be made looking at those time frames. I am simply saying the daily and weekly charts fit my personality, and they fit my trading style as a global macro trader.

Moving on to the fundamentals of ZBRA we find a company that appears to be in overvalued territory. After rising more than 35% over the last year, ZBRA's balance sheets don't convince me of future growth, especially at current valuations. ZBRA is taking on loads of debt which is shown in their cash - to - debt ratio of 0.06, ranking them lower than 94% of the companies in their industries.

Also, over the last two years, ZBRA has failed to make a net income profit, losing $158 in 2015 and $138 in 2016. Now I know companies like TSLA can borrow wheelbarrows full of debt and still find ways to raise share price, but they are the unicorn.

ZBRA has negative ROE of -16% and negative ROA of -2.84%. I just don't see the value at these levels, and frankly, I don't see the future value creation. ZBRA is trading nearly 6 times book value.

There are some positives to this stock however, and I recognize these factors. For instance, ZBRA has a projected forward PE ratio of only 13, and they are trading about 50% to their median P/S.

However, at the end of the day, I don't like their debt levels to their cash, and I like the short setup that the weekly chart is presenting. Entry point for this short would be right below the support line at $84. My stop loss would be placed roughly right above the resistance line at $94. In terms of profit taking marks, I like to start taking profits right after the 15% mark. I do this for a couple reasons, both of which I want scrutinized and commented on to see if there is room for modification or improvement. First I do that to ensure that on each winning trade I am beating the average for the market. Mentally it helps me and it also prepares me for one day managing others money, to let them know that with each winning trade, you are at least beating the market. Secondly, I do it to ensure that I am getting a good risk reward ratio on first profit taking.

Anyways, I'll monitor how this one plays out.

All the best,
RC