The latest teaser ad for Jeff Clark’s S&A Short Report is getting a lot of attention from my readers — it’s all about something they call a “Special Earnings Announcement” (SEA), which essentially means an earnings announcement that stands out as likely to cause an outsized move in the stock, either up or down.
Here’s how the ad launches:
“THE MOST IMPORTANT FINANCIAL PREDICTION OF 2009
‘On November 19, 2009, An Incredible Event Will Take Place Which Could Make You 142% Richer'”
And yes, that November 19 “incredible event” is an earnings announcement — one that Jeff Clark think swill probably line up to produce huge gains from his subscribers.
Sorry, I meant for his subscribers — Freudian slip?
The letter gives a little outline for the method to this mania — first a couple examples of how rare and special these “special earnings announcements” can be:
“Last year, in fact, there were 35,168 total earnings announcements.
“But according to our millionaire trader [Jeff Clark], only about 16 of them could have really made you a tremendous amount of money – and it essentially happened overnight.
“So to the average investor, finding the earnings announcements worth paying attention to is like finding a needle in a haystack.
“But let me assure you… it’s a search worth pursuing…
“For instance, this gentleman told me about one such ‘special earnings’ event that took place this summer…
“He personally took a stake in a company called Netease.com (NTES). As planned, the company announced its earnings to the general public. And my contact pocketed 62% in just 4 days.
“Two weeks before that – same thing. The Colgate-Palmolive company made a ‘Special Earnings Announcement’ – and my contact made 60% in 3 days.
“And one week before that – yet another:
“Riverbed Technology Inc. (RVBD): My contact made an incredible 157% return in only 3 days.
“And before that…
“Akamai Technologies, Inc.: 101% return in 17 days.
“What’s really impressive is that my contact wasn’t just cherry-picking the year’s top trades to support his theory. He was actually using his own funds… and when you average out the trades above, he’s made a 95% average gain with an average holding time of 6.75 days.”
Nice, eh? No mention of the ones where his trading technique didn’t work, or didn’t identify the “special-ness” of the earnings announcement beforehand, which must mean that he’s nearly perfect, right? (insert skeptical little smiley face here). And of course, giving us the average of the “trades above,” all of which sure sound nice, could be very different from giving us the average of all of his trades.
And then the ad goes on to tell us about the three events that help him pick out these trading opportunities:
“EVENT No. 1: “A Breach of the “30-15 line.”
“Before Palomar Medical Technologies was scheduled to announce earnings, a much less publicized event took place…
“My contact calls it a breach of the “30-15 line.”
“You see, roughly 90% of all stocks trade somewhere in the range of 15-times earnings and 30-times earnings.
“This simply means that the vast majority of equities are moderately priced (as determined by the stock market).
“The ones that aren’t – the stocks that cross this important line – are SUSCEPTIBLE to dramatic price swings (and therefore huge opportunities for traders to profit)…
“Why? Because there is a very strong interest in the stock in the investment community… either on the negative or positive side.
“Take Palomar Medical Technologies…
“By June 2008, nearly a full two months before its scheduled earnings release, Palomar crossed that important line in the sand. It had breached the 30-15 line.
“This is what first put it on my contact’s radar screen.
“But here’s the thing…
“As I’m sure you know, stocks can remain very expensive or cheap for months and years at a time.
“That’s why the next event is so important…
“EVENT No. 2: Public Interest Reaches an Extreme
“The second KEY event leading up to a “special earnings announcement” happens when public opinion about a stock reaches an irrational extreme.
“In Event No. 1, there is very strong interest. In Event No. 2, this interest reaches a dramatic extreme.
“This can push an already mispriced stock even closer to a dramatic and violent (and profitable) move…
“That’s what happened with Palomar Technologies…
“It started when the company missed a couple Wall Street earnings estimates. There was nothing wrong with the data it had reported. The numbers simply didn’t match up with what the high paid analysts on Wall Street had predicted.
“That’s all it took for the public to begin turning on the company. Zack’s and the Street.com moved the company to a hold. Investors stopped buying shares. Many began selling what they had.
“It was a fast and violent reaction. Here you had a fundamentally inexpensive and valuable stock that was entering an extreme in investor sentiment.
“They had unwittingly pushed Palomar to the brink of a major movement.
“All the stock needed was one more event to push it over the edge…
“EVENT No. 3: Palomar’s “Dark Chart” Reveals Most Important Secret
“Most investors don’t realize this, but for every stock chart you see on Google or Yahoo! Finance, there’s a second chart you almost never see…
“These charts typically reveal something very different (and quite telling) from what most of the general public observes…
“Because these charts reveal information most investors have no idea exists, my colleagues and I call them ‘Dark Charts.’ They were discovered by Gerald Appel, an American statistician, in the 1960s.
“Every publicly traded company has one. In the case of Palomar Medical Technologies, its “dark chart” revealed a very telling pattern – nearly 2 ½ months before its earnings announcement came out.”
OK, so it has to be either cheap or expensive based on earnings, it has to be either loved or hated by “the public”, and it has to have a “dark chart” that is moving in the opposite direction of the share price (or something like that).
Before we go on, I can at least tell you that those “Dark Charts” appear to be the MACD chart, a very popular technical analysis tool. MACD stands for Moving Average Convergence/Divergence, it can be used with different time periods and lots of traders tinker with something similar, but most people use it to identify when the short term moving average is either converging with or diverging from the longer term moving average (generally using 26 days for the longer term, 12 days for the shorter, and using exponential charts). I don’t do much charting or technical trading and I’m not an expert on this, but if you want a fuller explanation the Chart School at StockCharts.com does a pretty thorough job.
We then go on to get a few clues about which company this might be, but they also use broad terms (“internet”, “e-commerce”, “small”) that have proven to be very malleable in the hands of Stansberry’s copywriters, so it might be that I won’t be able to exactly identify this company … let’s see what we can do.
“On or about Thursday, November 19, 2009 a small American Internet company is due to release its third quarter earnings. They have not released an exact date yet, but following the pattern of when this company usually releases an announcement, it should be the 19th.”
OK, so that’s a start. More?
“Over the past four years, 45 of Jeff’s SHORT REPORT recommendations have resulted in opportunities where you could have doubled your money (or more).
“Jeff believes the ‘S.E.A.’ event taking place around November 19th will certainly become #46.
“‘It’s quickly becoming the perfect set-up,’ he wrote to me the other day.
“‘All three of our trigger events have already fallen into place. Now we’re just waiting for the announcement date to approach. Once we get a little bit closer, I’ll issue an official recommendation with a very specific set of instructions on exactly what to do to get involved.’
The target is a US-based e-Commerce company. They have a great product, according to Jeff. But here’s the problem (for them)… and the great thing for you…
“EVENT #1: The company has most definitely breached the ’30-15′ line. They didn’t just cross the line, they skyrocketed over, landing many miles beyond. At 144-times earnings, this is one bloated pig of a stock. Remember, according to our first rule, a stock is considered overpriced if it’s trading at 30-times earnings or higher.
“EVENT #2: The public loves this stock. Way too much. They love it simply based on the rumor that Larry Ellison – the billionaire founder of Oracle – might buy it some day. That may be true, but Ellison didn’t get rich by being a dummy. The company is way too expensive to acquire any time soon. Wall Street is so convinced of an inevitable buyout that investors have bid the stock up to unreasonable levels. By doing so, they’ve created an opportunity for investors to capture some short term gains…
“Because it looks like EVENT #3 is lining up too.
“Which means a stock everyone thinks is rising on news of a buyout is really going to do the exact opposite. I predict it’s going to fall hard. And if that happens, you’ll have the opportunity to make a fortune.
“What’s going to trigger this tumble?
“The special earnings announcement around November 19th. It’s the culmination of three events listed above. It’s the final catalyst that will trigger the trading opportunity.”
Surprisingly, after all that evidence that this stock is destined to collapse, the trade that is apparently in the works for Clark’s subscribers is a more cautious one:
“No matter what this stock does on the earnings announcement, Jeff has structured a play where you could make money if the stock goes up, down or stays the same…”
So all that really tells us is that there are options available on this stock, though it’s tough with most options strategies to make money if a stock stays the same — and we already knew, given the fact that Jeff is primarily an options trader, that this one was almost certainly an options trade. And of course, we all have dictionaries and know that “could” is different than “will.”
With all that given, what’s the company we’re looking for today?
As I suspected, it’s not possible for me to be 100% certain on this one, not even 99%, which is what I typically like to see before I write about these stocks — but we’ve come this far, so let’s get some guesses on the table. There are two companies that are relatively decent matches, but both are solidly mid-cap firms (small compared to some, of course), and I think the most likely one is …
CRM is not an e-commerce company, not really … and neither is the other good candidate based on the other clues, NetApp (NTAP). So it’s possible that I’m missing some kind of little internet e-commerce firm that’s a possible Larry Ellison buyout candidate, and that is releasing earnings sometime near November 19. So that’s the caveat.
But still, CRM is a decent match — they will be releasing earnings on November 17, actually, but didn’t announce that until last week, so that’s actually one that favors NTAP, which will release on November 18 (and released their last quarter on August 19, which would have provided a solid “three months later” indicator before they announced the date of the next release). And while NetApp and Salesforce both would fit nicely into the Oracle universe, Salesforce was actually the recipient of seed funding from Larry Ellison (Marc Benioff was one of his many proteges that went off to start their own company, and Oracle has eaten its young several times before). Their relationship doesn’t seem to be so close anymore, I don’t think Ellison still owns many, or perhaps any, CRM shares, but they are certainly in the same business on some levels, and they certainly compete with one another. Salesforce.com has been a rumored takeover target several times over the past couple years, with the rumored acquirers generally being Oracle, Google, and IBM — with Oracle being a nice match, business-wise, and the the others being feasible acquirers in similar businesses who could easily swallow a $10 billion acquisition without coughing.
And both also have trailing twelve month PE ratios of near or above 100, so they’re clearly in that highly valued “priced for growth” category, but CRM is the one whose valuation seems totally wacky, with a forward PE of 75 (NTAP has a forward PE that sounds much more reasonable at about 19).
As I said, however, it seems a bit odd to refer to either of these companies as “e-commerce” or “internet” companies, though both words could be applied without a huge argument. As I understand it, Salesforce primarily helps companies manage customer/salesman relationships and data, NetApp primarily helps companies store data. They’re also both solidly midcap companies, a bit less than half the size of Oracle’s $20 billion market cap, so it’s certainly possible that there’s a missing firm that I haven’t identified yet.
And if you’re a believer in the MACD stuff, the MACD line has been trending down for CRM in the last few weeks, as the share price has been trending up — so that’s another possible match, though it’s not necessarily as clear as some of the examples from the ad.
CRM has a wide array of options available, but the options expiry date for November is just a couple days after the earnings release, so I’m not sure whether or not he’d be aggressive enough to trade the November strike date — there are also options available for December, which would seem to match up well with more of his trades taking a week or two. But if you do think the earnings release will be a dramatic one and play into the company’s collapse (assuming that my guess of CRM is right), then the options are certainly cheaper if you’re willing to give up that extra month of time. The company has beaten estimates every quarter this year, but you certainly need to count on that if your stock is trading over $60 and the analysts only think you’ll earn 80 cents per share next year.
So what do you think? Have a better guess at a short term options trade target based on the clues given in the Jeff Clark ad? Have an options trade that you’d suggest on Salesforce.com or on NetApp for their mid-November earnings? Think this event or another will “rock the financial world?” Let us know with a comment below.
I don’t know anything about Jeff Clark’s track record, other than what I’ve been told anecdotally by a subscriber here and there, and what folks have submitted on the Reviews site — it sounds like he had an awful year last year, but perhaps this market rally has lifted the spirits of his subscribers, if you are a subscriber, please let us know what your experience has been by clicking here to submit a review.