A Pina Colada at Trader Vic's

...just sayin'...

..TS.

Hurry Up and Wait Please

Photo by Karina Gerbst

My patience on Sketcher's (SKX) seems to be working. It was up nicely yesterday. The news from Nike (NKE) , Crocs (CROX), Timberland(TBL) et al are boosting interest in this sector.

Sketchers is a battered down value stock. Other than defining the idiom "A rising tide lifts all boats", what else is happening here? Well, I do see change. Sketcher's main customer Brown Shoe (BWS) had a good earnings report last week. I hope this is a sign that the stuffed inventory channels are thinning out. Sketcher's has its own e-commerce shoe website. Its shoe prices for their "Toner shoes" seem to have come down slightly. I am hoping that their new pricing is the adjustment needed to boost demand. Looking at the upcoming seasons, the "Back-To-School" and Christmas sales will help tremendously.

Sketcher's is the only publicly traded company that sells the "Toner Shoe" style. Reebok & Asics are the other main sources of this style of shoe and are privately owned. If you want a stake in this new market and you're not Warren Buffet who can buy the whole company when he likes an equity, then SKX is your only choice.


 The controversy seems to be that Sketchers is now trying to enter and compete within the crowded fitness shoe arena. “Skechers Fitness has grown from a single style into a performance running line, training line, and an everyday toning line,” Skechers President Michael Greenberg said in a statement. "The apparel collection will build on the company’s Sketcher Fitness Footwear line, which now includes technical running shoes as well as styles designed for training and all-day wear." The new line is coming in 2012.

According to SeekingAlpha

Sketchers’ current attempt to expand the recognition of its brand into other realms of footwear may invariably diminish the perceived and/or actual focus of the brand on providing products appreciated by loyal consumers. Skateboarders and individuals who wear toning shoes appear, at least at first glance, to be unrelated groups of consumers....

How can you rate the current sentiment?
Comparing the current quarter earnings to last year's quarter, the results will be more of a measure of progress than an actual beat; However, the current consensus is that there will be vast improvement in the last half of the year.

The next earnings report is July 25th. Barring an early press release announcement, what could you use to read the current sentiment on SKX? The July 2011 options expire on July 15th, before the reporting period and the August 2011 options expire after the report.

Using the premise that an option straddle is a hedged bet composed of calls and puts can a price range be defined by the break-even points? I would like to experiment with a weighted blend of prices for a range of options for the next 30 days. Just like the VIX, would you be able to find a range of prices, and actually measure the incremental wisdom of the total crowd? The VIX volatility index is used by options traders to calculate options premiums (i.e. options prices), and also by S&P 500 traders to determine the expected daily range for the S&P 500 stock index and futures market. Only I would be doing it for one stock. The math may be over my head. Need to do more homework....

It seems to be a very volatile range. Prior to yesterday's run-up the range was quite different than this morning. But a simplified historical range of stock prices might be a more powerful piece to the puzzle that I thought.

Volume Indicator Experiment

Let's turn up the Spinal Tap Amps here...
In the equities market, high volume can occur from capitulation or irrational exuberance. In fact, conventional wisdom has traders looking for equities with volatility spikes as a trigger. The problem is that high volume can occur anywhere along the cyclical range of an equity. It can occur at the bottom of the range, the middle run, or the top of the range.

What started this First Experiment
This thought process started with the idea that price, volume and $volume [price * volume] give different information to a trader; However, can the same technical indicators for price be used for volume or $volume?

There are several forward looking technical indicators for price volatility, such as the S&P volatility index ($VIX) &  CBOE Nasdaq Volatility Index ($VXN). There are several backward looking technical indicators for price.

First Experiment
What if the key to volume analysis is not the high volume signal, but the appearance of a low volume tick. Low volume indicates indecision or indifference. This volume data should be looked at in relative terms.

A backwards indicator for price is the relative strength indicator (RSI). I took the RSI indicator and used it on an equities' historical volume data. The volume data is very erratic but it did show a trend. Volume can vary tremendously from one day to the next or it can remain constant for months. What was interesting was to  increase/decrease the time period averages to de-emphasize/expose a volatility spike. For example, using the standard 14 period average seemed too long for the volume data trend.

Second Experiment
I'm in the middle of taking the S&P ($SPY) historical volume data RSI and comparing it to an individual equities' volume RSI. It is requiring  longer time frames to even out cyclical trends. For example, the S&P could be at the top of its periodic range and the individual equity could be at its bottom.  Maybe I could work out a correlated volatility of the broader market as a whole. Sort of like a Beta of volume volatility. Send me a note if you think of something.

Conclusion
With a quick glance towards the equities market, it appears that low volume is a forewarning of a spike in volume. Barring any external events, does the length of the relative calm indicate indecision or indifference?

What about a forward looking indicator? Can you think of a predictive volume indicator, usually based on another criteria, that can be modified?