DataTrader: Buying the Selling in Pricesmart Inc.
Pricesmart Inc. (PSMT) is a newer player in the members-only, warehouse club business, an industry that companies like ^COST^ and Sam’s Club have put on the map. And speaking of maps, what makes Pricesmart interesting is that its members-only warehouse clubs are located principally not in the United States, Europe or Asia, but in Latin American countries like Panama and Costa Rica. A first warehouse club is expected to open in Columbia this fall.
From a trader’s perspective, what really makes PSMT potentially worth paying attention to is the way the stock has sold off in recent days. Shortly after rallying to all-time highs in mid-September, traders and investors began taking profits and, weeks later, have yet to ease their selling.
Profit-taking like this after major new highs is no surprise to traders who have seen the data. It’s a common sense reaction – and sensible money management – to lock in gains after a long run. But with Pricesmart closing lower for nine out of the past 10 trading days heading into Tuesday’s session, that same data suggests that the selling may be overdone and, further, that a short-term bounce may be near.
How so? While the current sell-off in Pricesmart is a relatively new event for this high-flying stock, the fact of the matter is that by dropping the way it has in recent days, PSMT is emulating the same sort of behavior we’ve seen in stocks for years. What we’ve seen – and what the data show – is that after stocks that have been trading above their 200-day moving averages pull back sharply, the likelihood of those stocks making significant short term gains is statistically signifcant.
How statistically significant depends on the overall market and the degree of the pullback.
But traders looking for opportunities to buy uptrending stocks that profit-taking and a overall bearish market have put on sale, stocks like Pricesmart can be a good place to start.
Pricesmart Inc. was selected for this report using a trading tool called PowerRatings. for more information, visit us at TradingMarkets.com