Cost Plus (CPWM)

Company

"Cost Plus, Inc operates 274 stores in 34 states under the names "World Market" and "Cost Plus World Market." The stores feature an ever-changing selection of casual home furnishings, housewares, gifts, decorative accessories, gourmet foods and beverages offered at great prices and imported from more than 50 countries. Many items are unique and exclusive to Cost Plus World Market. All are regularly supplied by an international network of individual and regional artisans developed over the Company's 40-plus years in the import business. The value, breadth and continual refreshment of products invites customers to come back throughout a lifetime of changing home furnishings and entertaining needs." (company website)

Buy

11-Sep-06. Cost Plus has been in a long-term downtrend since the end of 2003. The stock was slammed again after the most recent report on 17-Aug, eventually reaching a new low of $9.04. It bounced back a bit, but failed to break above the 1-month moving average.

• Price momentum (PPO) — leveling off after brief increase
• Trend (ADX) — strong, with selling pressure (-DI) above buying pressure (+DI)
• Money flow (CMF) — flowing out for most of past three months
• Relative strength (RSI) — neutral at best, and stochastic RSI indicates it is overbought and likely to lose strength
• Volume — huge volume on the slam, with much smaller volumes on the rally

Sell

28-Sep-06. Oops! When I sold Cost Plus short, I thought I was looking at a stock that had sorely disappointed the market and was probably going to continue a long-established downtrend to even lower lows. I expected that after approaching the 20-day moving average it would follow it down. When it plowed through that, I thought the 50-day moving average would provide stiff resistance. Unfortunately, CPWM didn't get the memo! After poking above the 50-day average yesterday, CPWM gapped up to open today, stretching the upper Bollinger band.

Should I have seen this coming? Alas, I think the answer is yes. In the days just before I sold short: momentum (PPO) had picked up smartly; buying pressure (+DI) had picked up smartly; money flow out of the stock was slowing rapidly; there had been a price jump on heavier-than-normal volume; and relative strength was increasing. Clearly, I allowed Market Edge's "short candidate" rating and the over-bought condition (StochRSI) to outweigh obvious warning signs in the chart.

Ouch!