Time to Get Some Garmin?

To say that shares of Garmin Ltd (NASDAQ: GRMN) have been on a tear over the past few months is an understatement. From their low in October 2011, GRMN has gained more than 50% – including a sell-off in February and March that has taken the stock lower for six out of the last seven sessions.

And from the company’s blow-out earnings from late February to news that Garmin has expanded from its GPS-basis to include health and fitness products that leverage the company’s technological edge, it is no surprise to find GRMN on any number of “hot stock” lists heading into March.

For traders and active investors who have bought the Garmin Story, the current pullback in the stock should be seen as a potential godsend. Garmin, which reached new, 52-week highs in the second half of February, has experienced aggressive profit-taking ever since punking analysts with a major earnings beat. This selling has taken the stock to its lowest levels in a week, but has not closed a gap caused by GRMN’s big run-up ahead of its February 22nd open. And whether or not you are in the camp that believes that “all gaps will eventually be closed” or tend to think that gaps are relatively meaningless in the overall scheme of things, it will be interesting to see how traders respond if the stock continues to drift lower and closer to the level where GRMN made its major move higher last month.

For its part, the sell-off in Garmin has produced a ratings upgrade to a “consider buying” 8 out of 10 ahead of trading on Monday. But the modest, short-term edge in the stock – under a quarter of a percent – suggests that traders may want to wait for further weakness before taking a position in GRMN, or to use a sizable intraday entry of at least 3-5% (read more about intraday entry strategies here). Either approach will allow traders to take advantage of potentially lower prices which, despite the current correction, still seem somewhat likely in the near-term.

Many traders and investors will look at the rapid rise of GRMN, especially over the past few months, see a bubble, and think that the time is right for a short sale. There is nothing in the data right now that suggests that the edges on the short-side are significant (again, the stock has a 9 out of 10 rating and a positive, if small, short-term edge). But any selling that takes place in the near-term, be it profit-taking or short-selling, could be a boon to those waiting on the sidelines to participate in GRMN’s next move higher.

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David Penn is Editor in Chief of TradingMarkets.com