I Caught a Falling Knife
I was able to escape the fall of Verisign (VRSN) and Western Refining (WNR) but I caught the falling knife on patriot coal (PCX). If you follow my previous posts you knew that I was lucky enough to escape the free fall on VRSN and WNR. I bought VRSN at around $19.06 and WNR at around $8.18 and I was able to get out with a small profit. VRSN is now at $18.52 after falling to $17.54 earlier. WNR fall to $7.63.
I wasn’t so lucky on patriot coal. Yesterday when I set up the buy order at $7.55 PCX was still trading at above $8. It stood at that level nicely in pre-market. Since it had the secondary offering price at $7.90 I thought it would be safe to set the buy order at $7.55. I was thinking $7.50 would be the support line. The minute when the market open it fall to $7.03. I was watching it fall only could not cancel my order fast enough. Now I am stuck with it. Yesterday it was close at $7.10. I thought about increasing my bet on it but luckily I didn’t. Now it stood at $6.55. I am having that thought to increase the bet again. If you have an opinion feel free to let me know. PCX has been falling for 5 consecutive days from $9.30 to $6.55. That is 30% drop in five days.
 Patriot coal price graph |
The coal energy sector is not doing well but seems to me PCX is falling too much. Its trailing twelve months P/E 2.53 sounds extremely low to me. Anyhow I have lost more than one thousand dollar on PCX at today’s closing price. Today my sold put positions went up nicely because BAC and USB went up. I sold BAC at $12.90. So my account balance actually went up. It stood at $29,217.36
 Account balance 20090618 |
Account Balance Changes: +$409.27
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I am a bit curious but no offense. Why did you decide to buy into this stock? From its earning history in the past 12 months there is one word for it - “sucks”. It’s earning keeps declining and has been missing estimate 4 quarters in a row. If you buy it just because it’s P/E is 2.58, then be careful, coz this 2.58 is probably historical.
Right now I am holding EXM and SUN.
Thanks for asking. Several thoughts caused me to make that decision to buy.
First I thought natural resource companies would be like oil or gold companies. They should keep well when inflation expectation is high.
Second I did look at its income statements for the past few quarters. I used the information on yahoo. I am not sure if those information is correct but I trust it anyway. It shows that it was able to make profit for the past few quarters
http://finance.yahoo.com/q/is?s=PCX
Third it has dropped quite a lot when I looked at it and its secondary offering price was set to $7.90. I thought when the investment bankers set the price it wouldn’t be too far out of line. In many secondary offering cases stock price would stay above offering price. I had that experience with BAC and WFC. I was betting similar could happen on PCX
Fourth I thought I set the price low enough. I was betting if it dropped below $8 then 7.50 will be its support and I wouldn’t keep it for long. In fact I didn’t mean to buy it because I really didn’t expect it will drop that low. When I failed to cancel my order I hope it would bounce back but it didn’t.
Anyway when it dropped it dropped really fast. It went from above $8 to $7.30 in less than 15 minutes I think. I didn’t want to stop lose and kept hopping it will bounce back till now.
I still feel certain event could easily trigger it to bounce back but not sure when.