Buca Inc (BUCA)

Company. Buca operates two chains of Italian restaurants under the names Buca di Beppo and Vinny T's of Boston. (company website)

Buy. I bought Buca way back in August 2003 after it had consolidated around $6.50. Indeed, just a few days later BUCA shares reached a new high of $7.38. Mangia, mangia! BUCA pulled back to $7.00 where it appeared to be gathering strength for another push upward.

Alas, BUCA pre-announced that the company would miss Expectations on earnings, causing an immediate and severe case of investor indigestion. BUCA plummeted two dollars! Although it did climb back up a lot that same day, the damage had been done.

Sell. I've been hanging on to BUCA, hoping that the price would go back up, and it did climb back nearly to where it was when I bought it. But after a week of solid gains, BUCA suffered three consecutive down days, and opened much lower again this morning.

I decided to close my position and take a small loss of 2%. The folks at Market Edge currently recommend a "buy" on BUCA, but I'm sceptical: in the past few days, the +DI line (buying pressure) has taken a sharp turn downward and the -DI line (selling pressure) has turned sharply up. Furthermore, the trend is weakening (ADX line has turned down).

Maybe this will be a temporary pullback. Or maybe not. BUCA earnings are due out again next week, and I don't feel like taking the risk of another negative surprise.