In a typical bull market, stock like IPHS would gap up significantly on earnings (as it did) and from there it would continue to rise. Not in this non-trending environment, where most earnings’ breakouts don’t see an immediate follow through and correct. 13% of IPHS float has been shorted. Now, the stock being close to its all time high, most shorts are under water. That should have added more fuel to the upside momentum. Unfortunately, market doesn’t always agree with my analysis. This is why stop losses and position sizing were invented.
I have said it many times before, that during bearish markets and during non-trending periods is not a wise idea to buy a stock after it gaps up 20%, disregarding how good the earnings were. In many cases, such big move is partially faded away, giving savvy traders a very low risk opportunity to enter and make a quick profit.
On Thursday, Innophos had reported second-quarter earnings of $2.74 a share, compared to a loss of 25 cent a share a year ago. Net sales for the quarter rose about 74 percent to $264 million.
Analysts, on average, expected the company to earn 73 cents a share, excluding exceptional items, on revenue of $211.9 million, according to Reuters Estimates.
Friday, IPHS rose 27% on 5 times the average traded volume.
The stock reached an all time high and will be an appetite bite for momentum investors in the following weeks.