Building a Technical Swing-Trade with WOOF

Long

VCA Antech Inc (WOOF)

Wednesday, October 16, 2013

The Trade:

A lot of swing trading is more about knowing how to pick levels and stick to your discipline, rather than crafting a lofty reason why you love a particular stock, and why it should or should not move in a certain way. Let's face it - as individual traders, it is rare that any of us ever have privileged information about a stock, and a lot of the time our "best ideas" are already priced in. Beyond that, even some of the best analysis simply doesn't work out. You may have 99 reasons to fall in love with Stock XYZ, but a similar company missing earnings could generate a sympathy move that would ruin your darling's quarter. Thus, my rule for short-term trading is - Start with a universe of charts with great technical set-ups. You may not have an expert handle on the company or the industry, but if the stocks you are looking to trade are technically healthy, that means they are successfully going up in price, which really is the most important aspect of short-term trading.

Picking spots and managing trades is an important part of a trading repertoire, so today, take a look at a stock that is not widely talked about - VCA Antech Inc (WOOF). By using trends, levels, and other technical analysis, the goal is to set up a low risk, high reward trade in something of a "black box" (mechanical) approach.

WOOF's technicals in a nutshell - While Health Care has fallen out of favor in recent weeks, it has generally been the downside volatility in Biotech that has dragged on the sector. Facilities and Managed Health Care are still strong sub-industries, and their constituents certainly look like solid charts. WOOF has been trending higher since early November of 2012, with brief but significant pull-backs along the way. Following these short phases of decline, then consolidation, WOOF tends to spike higher, making higher highs and higher lows on a weekly basis. Recently, the stock hit intraday highs just north of $29.50 on August 13 before pulling back and forming a solid base just above $27. The $27 area support has been tested 3 times over that past month and a half and has held, which is good news for WOOF. The stock has also recently climbed out of its oversold stochastic, which is a favorable sign. Finally, on a weekly basis, the stock has formed a nice pennant pattern since July.

WOOF is currently sitting at a great entry point, slightly above its crucial support. So, buying WOOF at current prices ($27.45) and setting the stop ($27.10) to just below the tried and tested support would yield a downside risk of losing -1.29%. The target price would be up towards the mid-August highs at $29.38. All technical signs point to WOOF making a run back to this level, so assuming it happens, the upside here is +7.03%. Thus, the reward to risk ratio on this trade is roughly 5 to 1, which is pretty good.

At current prices, WOOF creates a favorable short-term trading opportunity. It would be wise to closely monitor its activity while near key support at $27.10, but ultimately look for a run back to mid-August highs at $29.83. A trade like this is about picking levels, and executing based on the parameters set. It isn't always the "best play" or the "easiest way," but getting comfortable with this style of trade management is helpful, especially during environments of heightened volatility and uncertainty.

When to Enter the Trade:

Buy at the current price (~$27.45).

When to Exit the Trade:

At a close below $27.10 (Breakdown) / A close above $29.00 (Profit-Taking)

Company Profile:

VCA Antech, Inc. is a national animal healthcare company operating in the United States and Canada. The Company provides veterinary services and diagnostic testing to support veterinary cares. The Company operates in two segments: animal hospital and laboratory. Its all other category includes Vetstreet and Medical Technology operating segments. The Company's animal hospitals offer a range of general medical and surgical services for companion animals, as well as specialized treatments, including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology. On January 31, 2012, it expanded its operations into Canada with an increased investment in Associate Veterinary Clinics (1984) Limited (AVC), which operates 44 hospitals in three Canadian provinces. On February 1, 2012, it acquired ThinkPet's, Inc. (ThinkPets). In 2012, it acquired 79 animal hospitals, including 44 with the acquisition of AVC, one laboratory and ThinkPets.

Stock Rating:

The Stock Rating indicates the combined score of our proprietary Earning Strength and Company Performance models. The rating scale is 0 - 10 with 10 being the highest.

Disclosure:

At the time of publication the editor and affiliated companies own the following positions: WOOF

Note: Positions may be bought or sold while this publication is in circulation without notice.

VCA Antech Inc - Last 30 Days

VCA Antech Inc - Last 3 Months

VCA Antech Inc - Last 6 Months

The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided 'as is' without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in our websites and StateoftheMarkets.com publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Index returns are price only and do not include the reinvestment of dividends. The S&P 500 is a stock market index containing the stocks of 500 large-cap corporations, most of which are US companies. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 is used in reference not only to the index but also to the 500 companies that have their common stock included in the index.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.