Taser, a bright spot in this earnings season


Taser (TASR) reported first-quarter earnings on April 30. The stock beat Wall Street’s estimates on both top and bottom lines by a wide margin and hit a 10-year high. Earnings and sales growth were also strong which caused the stock to gap up on massive volume. Each earnings season will present some major surprises that will caught the market by surprise. It’s one’s job to find them. Real surprises are rare, and you will need to go through some earnings seasons in order to distinguish the genuine surprises from the rest. Be aware that you need to jump over the companies-analysts game. After seeing thousands of earnings releases through the years, I got a very precise idea of what works and doesn’t work. In a market where stocks have stalled or broke down after earnings, Taser had a nice follow-through, which is exactly what we want to see.
The best trades are the ones that work immediately out of the gate. If a stock breaks out and starts to hesitate, moving in an erratic fashion, a warning flag should be raised. Many stocks will behave like that, and eventually will resume their uptrends but the real good ones won’t retreat and go straight north. This up move must be in very high volume, indicating that big money is jumping into the stock. In just four days the stock surged around 20% hitting resistance at $35 (in an environment very adverse for stocks).
Two conditions helped this huge move. The stock has a very low float (51.90 Million shares) and was highly shorted (anything less than 100 M is ideal). According to NASDAQ’ site, as of April 15, more than 12 Million shares were shorted which means that around 30% of the float was shorted.
With such a surge in demand, buyers created an enormous buying pressure due to the small number of shares available. As the price went up, shorts were caught in a trap and had to cover their positions to minimize losses. Covering added even more power to the move and the stock soared in a short period of time. At some point these stocks will sell-of or pause due to profit taking. This happens over and over and if you know how to spot these stocks, you can truly benefit from this recurring pattern. Have in mind that in order to trade these setups, you should have a well-defined risk management model with sound proven rules.

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