For many portfolio managers, this important 10 dollar support-level is a natural shorting area (specifically if they had a core position higher) because stocks which trade under $10 from higher prices rarely get back over 10 through the life of the stock.
Statistically, when stocks close under $10 they rarely come back. It is a staggering fact that breaching the $10 support level for these type of stocks are more likey to trade $5 per share than if shares ever closing again above $10. Many traders call this the “hat size” trade–meaning when shares get below $10, they trade in hat sizes like 5¾ or 7⅛. Which came from 1980’s trading, where stocks traded in eighths and sixteenth’s long before decimalization.
This is old trader lore, but it still rings true for those who have sold a stock short above the 10 dollar level and profited. Many looked to jump on apparel maker Vera Bradley and the setup was ammunition for bragging at a holiday cocktail party about how they clipped a retailer, especially where everyone knows the brand followed by the too obvious hey-look-at-her-she-is-wearing-one-right-now gags.
Vera’s Got a Brand New Bag
But, Vera caught them all leaning the wrong direction. Vera Bradley spied a bunch of these short mongers pressing the stock and did an about-face closing yesterday above $16, and actually forced some shorts to cover into the high’s at $17.50 (which is a December nightmare for many of these traders looking for a Christmas gift in the form of a Vera Bradley handbag).
Vera Bradley designs, manufactures, and sells handbags, accessories, luggage, and travel items for women of all ages under the Vera Bradley brand. The company offers totes, cross bodies, satchels, clutches, and backpacks bags, as well as baby bags and lunch bags; accessories, such as wallets, wristlets, eyeglass cases, jewelry, and scarves; and travel products comprising rolling luggage, cosmetics, and travel and packing accessories, as well as travel bags consisting of duffel and weekend bags.
The company sells its products through two segments: direct and indirect. The direct segment sells Vera Bradley branded products through the company’s factory outlet stores in the United States, verabradley.com, and direct-to-consumer eBay sales, as well as through its annual outlet sale in Fort Wayne, Indiana. The indirect segment offers Vera Bradley branded products to approximately 2,700 specialty retail doors located in the United States, as well as department stores, national accounts, third party e-commerce sites, and third-party inventory liquidation. As of January 31, 2015, the company operated 96 full-line stores and 29 factory outlet stores. Vera Bradley, Inc. was founded in 1982 and is headquartered in Roanoke, Indiana.
Grab a holiday bag for the little lady in your life, but tread very carefully if you are attempting to crush Vera into a hat size – she is laying in wait for you, ready to strike.
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