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CRDN signal

February 7, 2007

CRDN is giving a fresh 3rd green arrow today. But what I like even more is that it has formed a higher high and higher low for a newly established uptrend in the short term. That move above resistance at 55(a significant level at many times over the last year) could also be seen as a miniature inverted head and shoulders pattern.

An exit on a move back below the MA or below 55 could be reasonable, but to give it room, you might look at 52.50 as established support. With that, the former high of 62.50 would be a nice target. That makes for a good risk/reward ratio.
The stock’s group isn’t great looking on the big chart, but you can see that in reality the group is still looking strong by its chart.

What’s even more attractive is to look at the long term chart of CRDN. After a year of virtually sideways action, it could be ready for the next leg up.

The selloff from the recent high was on an analyst downgrade. Today’s move was on an analyst upgrade. Can we really rely on these people? I’d prefer to see what the crow is doing on the charts.
The conviction behind the sell off just didn’t seem very convincing. Now that our commitment to the war is being extended and with a strong proposed 2008 budget for defense, as today’s analyst noted, it would seem that a the number for the 2007 and 2008 earnings estimates on CRDN would be likely to increase as they get more military orders like the ones they got at the end of last month.
Using today’s price of 55.52 and the earnings estimate for 2007, it has a forward looking P/E of 11.4 compared to the group P/E(probably trailing twelve months) of 22.44. And with an annual estimated growth in the coming years of 16.67%, that makes for a PEG of .68. That’s VERY low.
Earnings come out February 26. There could well be a nice run up into the earnings announcement which could give a nice buffer of profits to hold through earnings. Otherwise, an options play could be nice, particularly considering the implied volatility still has room to go higher.

Because the movement of implied volatility affects ATM and OTM options the most, I will look to buy March Calls and plan on selling them before the announcement. The Implied volatility will likely stay around the same or go up ’til then. But with the announcement, good or bad, the IV is likely to come out of the options quickly. And then, of course, there’s the risk that the announcement will go bad, which would hurt options a lot more than the stock.

Any thoughts? Am I missing something?

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