Monday, March 5, 2012

Dead Cat Bounce? Vocus Inc ("VOCS")

First of all what is called a Dead Cat Bounce? According to Wikipedia Website, the definition is as per below:
In economics, a dead cat bounce is a small, brief recovery in the price of a declining stock. Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on Wall Street, is also popularly used to any case where a subject experiences a brief resurgence during or following a severe decline.

Today in this post, I will discuss whether Vocus Inc or stock quote "Vocs" will rebound after an incredible dropped of more than 40% in 1 trading days.
First of all, we need to know whether the 40% dropped in Vocs share price is justifiable. Based on my analysis, it is not. The drop of more than 40% is due to Vocs acquisition of I Connect at a high price of $160 million. Although, the acquisition price is high, I believe in the long run, it will help Vocs to become one of the world largest PR company and it will bring the stock price to the sky in the coming future.
Based on the long term analysis, Vocs is currently at the crucial support of $13.50 level. Even the financial crisis in 2009 did not bring the share price of Vocs below the current level of $13.50. Therefore, I believe that it will be strongly supported and will not be breached in the coming future. Another reason will be that the dropped of 40% is accompanied by superb high volume of nearly 5 million shares traded. It makes up around 25% of the total paid up capital which is at 20 million. The reason I am bringing this up is to show that the majority shareholder who wanted to sell the shares would have sold already.

Based on the short term chart, the past 2 days trading shown a doji / small shooting star candlestick at the bottow which is a sign of a bullish reversal pattern. Those who have shorted the Vocs in the past 3 trading days accompanied by hiuge volume will have to buy back the share in the market today to cover back its short position. The 4 technical as indicated above also shown that Vocs is currently in a very oversold position. I am expecting this stock to rebound at least 10% in the coming near future.
Based on the latest quarter EPS, Vocs is beating the analyst estimation again. However, on the next coming few quarters, Vocs earning might reduce substantially due to the consolidation of the losses in I Connect post acquisition.

Disclosure: I am currently long in Vocs with 5,000 shares, I am expecting Vocs to rally more than 10% when the earlier short seller cover its short position today.
However, as usual I will not hestitate to cut my long position if Vocs did not rally today as per my expectation.
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