Pep Boys (PBY)

Company

"Pep Boys has approximately 6,000 service bays within over 560 retail stores located in 35 states and Puerto Rico. Along with its fullservice vehicle maintenance and repair capabilities, the Company also serves the commercial auto parts delivery market and is one of the leading sellers of replacement tires in the United States." (company website)

pby(3-1)
PBY 4-month chart
pby(3-1)_1yr
PBY 1-year chart

Sell short

In advance of earnings two days ago, Pep Boys jumped dramatically on heavy volume, testing chart resistance. Yesterday, it fell back to close the day at the 50-day moving average, on even heavier volume, that I read as people either (a) taking profits from the big jump or (b) getting out with a smaller loss.

Since peaking in July, PBY has been following a clear downtrend. Although the company beat earnings Expectations by a penny, they did so by slashing expenses — revenue dropped.

I'm betting on the downtrend continuing, selling short. Cost-cutting works in the short-term to drive up profits, but over the longer term you eventually have to increase revenues to capitalize on the profit margin. I could, of course, be sadly mistaken, so this one will bear watching closely.

  • Percentage price oscillator (PPO) — crossed sharply above as a result of the price surge, but the divergence from the signal line is not growing
  • Volume — huge surge in volume after steady declines for the past several months

Based on technical analysis, MarketEdge calls PBY a "short candidate" in a "weak downward trend" and notes that it is "overbought" and at a "good entry point."

Buy to cover

gain Bottom line
-6%

The Market has decided otherwise. My arguments to the contrary, Pep Boys has broken above the short-term downtrend line, and I covered the short position with a tolerable loss.