Tuesday, August 7, 2012

WFM - After Action

This is my after action report for WFM.

**Quick disclaimer: as I just started this blog, there will be several entries that are only after action, as I had already purchased the shares.  I am not trying to make myself look better than I really am by only reporting good trades.  I will put every trade I make on this blog, good or bad.**

WFM was bought June 19, 2012 at $95.  This trade was entered based on a new high in prolonged up-trend, combined with the possibility for the $100 dollar roll and the probability for excellent quarterly results.

WFM was sold on July 20, 2012 at $84.86, for a loss of $10.14/share or -10.6% before commission and taxes.  The sell was triggered as there appeared to be a complete character change in this issue.  I was taken off guard by the correlation that this stock ended up showing with CMG.  On July 19 CMG announced in the market after hours quarterly results that were disappointing.  WFM had already been showing some weakness that whole week.  Not enough to sell yet, mind you as the trend line was still intact and my call for a strong quarter was still in play.  Nonetheless, the poor quarter by CMG helped to push Whole Foods off the cliff.  In a logical world, poor results in the restaurant should not have this tight of correlation with the grocery business.  Certainly there is a relationship, but WFM should have seen a minor dip, not the major correction it did.  Regardless, I should have handled this one better.  Once the 50 day was crossed (on July 19), I should have bailed, which would have saved me some capital.

The other mistake I made with this one was that as I recovered I thought that the August call options would have been an easy play to regain some of my capital.  This would have been the right play as my thesis of strong quarterly results was still in play.  Indeed given the four day beating this stock took, the calls were cheap and then took off like a rocket when the quarterly results were announced.  Unfortunately life conspired to keep me out of that trade, so I missed it.

I would rate myself 4/10 on this particular trade.  I had sound reasoning for my entry but let the exit get away from me.  I followed my position sizing guidelines and obeyed my risk rules.

This material is provided for informational purposes only, as of the date hereof and is subject to change without notice.  This material may not be suitable for all investors and is not intended to be an offer, a solicitation of any offer to buy or sell any securities.  Following me in trades will lose you money.

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