Joined Jul 30, 2008
2,107 Blog Posts

Digital River (DRIV) Deserves a Second Chance, Will You Give It?

Digital River… you’ve probably heard of them; probably invested in them, until that ugly October day when Symantec, their best customer, stuck their staff into the river and things got bloody.  One day later, DRIV is plagued with a -40% drop.   I mean, EVERYONE left.  Volume was overwhelming, staggering, just vicious.  I felt sorry for DRIV.  The prudent investor would have bought some shares, since their wasn’t anything fundamentally wrong with DRIV, they just depended too much on one client.  Fast forward a year later, and DRIV is forgiven, and we are back at square 2.  Let’s take advantage of this right now, because if I don’t make money on this play I will send hailstones and frogs to Minnesota and Bret Farve will break his thumb (DRIV’s headquarters is in Viking nation).  Here we go…

What is Digital River and how do they make money?  Well, Digital River is a e-commerce company provider.  You may have noticed, I’m quite attracted to companies that provide services to a range of other companies.  Especially companies that either have little competition or some kind of specialization to acquire a competitive advantage.  Remember, ISRG, OPEN?  Anyway, DRIV has some good competition, but what I like about them is that they target the digital corner of the e-commerce world.  The really concentrate their resources on clients that sell software, gaming, and other electronics.  And that makes a lot of sense, since e-commerce and the digital industry move in the same direction almost identical.  How many of you have went to Best Buy to check out a consumer electronic, then went home and ordered it online.  This is an interesting phenomenum that occurs with digital products, and I refer to it as the digital shopper.  What feeds this trend?  Well, 1) there’s  higher buyer’s remorse for electronic devices because electronics get out of date much faster than non-electronic products (a laptop you bought today is outdated next month, while a chair is always a chair).  So, what you have are people who try out products but don’t buy them on the spot.  They end up buying them another day, and that usually occurs online after doing so much research on them, and of course, finding cheaper alternatives online. 

So DRIV is in a good position here.  Instead of competing with the usual e-commerce giants like eBay or Amazon where they will lose, DRIV can concentrate on developing products that fit digital goods and electronics.  It’s no wonder their customer base is majorly electronic/tech related:  Microsoft, Adobe, Autodesk, Smith Micro, Seagate, Sandisk, Western Digital and THQ.  THQ is one of DRIV’s shinning spots on its resume.  THQ is a gaming business, and I really don’t mind investing in companies that are associated with video games.  The video game industry probably has one of the highest growths to profit margin ratios (haha, I made that ratio up, but why hasn’t anyone used it before).  Plus, I’m a believer in the gaming revolution.  One day, all games will be available as a digital purchase (bought online), with online connectivity.  DRIV’s investing in their own future when they take in clients like THQ and come up with e-commerce solutions specific to gaming content.  This will be a big industry, well, bigger.  Lol.

So anyway, I’ve thought long about it, and mapped out everything.  Now, here’s my strategy:

DRIV trades right at 38, and is trying very hard to get to that 40 spot… the spot where it once was before SYMC left it.  That’s going to be a hard spot to break, but I’m confident it will.  Just look at the volume in the past year.  It’s very thin, showing that DRIV moved up the wall-of-worry, and that’s to be expected since investors wanted to buy the bargain dip, but were afraid DRIV’s other big clients would leave.  Since SYMC has left, DRIV has worked very hard to get back to where it was a year ago, and I have to give them props.  So, I’m expecting the more buyers to come in if DRIV can get back above 45.  Volume will surge if we get there.  For now, we still are on the wall of worry, so we’ll play this conservatively by buying far otm puts on DRIV against our longs.  I figure, if DRIV tanks on this thin volume ride, it will fall at 1/2 of the SYMC drop, so -20% puts us at right around 30.  Displayed are the March puts, which are reasonably cheap .70 bid / .90 ask.  That’s real cheap for leverage  🙂

Anyway, let’s hope the damn breaks and the river runs again.  DRIV is at a rare tradable spot (it’s rare to see companies have their stock come back to equilibrium after falling hard, and DRIV did this relatively well.  For a good example of the price movement potential, check out EGO which tanked after environmental issues, but then filled the gap, then doubled.)  You got to give Mr. Ronning props for working over time to get DRIV back on track. 

Medium Target = low 70s


Bought more OPEN  and some AFAM yesterday @ 35.20.  Will sell AFAM next week .

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Trade: OPEN, OSTK. 0_o

New longs:  OPEN @ 69.90, OSTK 13.90

So, I bought OPEN yesterday, then sold it quickly today on the way up because it was extending above its 50 and 200 MAs.  Then OPEN saw some big profit taking at 76.  That’s a lot of taking.  In fact, I’m back in again under 70.  Lol.  Again, I’m not getting too excited with what goes on with the overall market on the short trading week, stocks move quite fast intraday, and it’s nice to sit on the bonus trade if you can catch it.   You know what I mean?  In low, out high, in lower.  Sweet.

Also, I’m keeping an eye on JASO.  This solar stock has been hovering between a very important support level (7.70), and needs to get back above 8 soon.  I have a long/short scenario setup on this fast moving stock.  I’ll draw all the pretty lines for you tonight.

Finally, what’s up with the OverStock?  Well, they always like to give out their holiday revenue numbers in early January (yeah, can you believe I actually followed this stock for three years), and they always underpromise over-deliver.  So, I’ll see where this takes me.  You actually have to go back to 2008 November-January rally, because 2009 was a rough time for the entire market.

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Open Table: Reservations for Bulls Only

Volume picking up on OpenTable table today signalling a big move coming up.  Before we talk about the price to volume action, let’s talk about the company and see whether OPEN justifies strong bullish momentum.

The first thing I asked was, why would an online restaurant reservation company make so much money?  Well, I couldn’t really answer that question until I realized OPEN reminded me a lot of Priceline or Expedia.  The concept is the same:  create a network of already established businesses in order to expand the customer base.  Of course, OPEN is a little more subtle.  The PCLN and EXPE exprience has much more powerful opportunity costs for the airline companies (an airplane, is usually just an airplane), while in the food industry, the final choice comes down to consumer preference.  Nevertheless, OPEN gives a unique experience to consumers by giving them alternatives within their preference.  For example, you want steak, OPEN tells you that although you love Ruth Chris, it tells you that there’s a Wolfgang’s nearby that’s better for groups.  So a lot of things go on here.  First, there’s product awareness.  To a restaurant, this is a bargain version of advertisemet.  Then there’s the product loyalty, thanks to online community systems offering ratings and recommendations.  Finally, what makes OPEN so good?  Well, they have no competitors.  OPEN basically monopolizes this relatively new technology.  And as more and more restauarants take advantage of the internet to promote their business, OPEN has quite a lot of potential. 

The current marketcap of OPEN about a billion, and the stock is up about 189% from the year’s low.  The first point shows that OPEN still is small, but being up almost 200% means we have to be a little disciplined on buying up this stock. 

Here’s the strategy I’m using: 

1.  Go long term

2.  Buy closer to the 50 MA

3.  Buy on declines, sell on spikes (price without volume)

4.  Buy on spikes (price + volume)

Looking at the year’s chart, OPEN has been seeing quite a lot of action in the past month.  I’m buying some under 70.  Again, I’m concerned about Novembers wide channel.  OPEN has been trading within 18 points so I’m in no rush to buy my full position at once.

So just dream a little.  OPEN could be the next PCLN.  If I didn’t believe OPEN were a $100 stock, I wouldn’t be mentioning it.  I just wish they would do one thing… fix their ugly website!  It looks so crude.  I understand they are keeping it simple for the mobile applications (there’s an Open Table app for Android and iPhone platforms), but still, you got all our money, now go modernize it.

K, have a great day.  Going on a date…

… wait, this is not McDonalds?

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How About A Rally

Looking for Thursday’s close and on into Friday we rally.  If market falls tomorrow + VIX > 22 then I’m in.  Selling almost everything with VIX >23.

Buy list:

Veriphone                        PAY 32.50 LIMIT
Flotech Industries        FTK     2.80 LIMIT,  sell @ 3.05
JA Solar                             JASO  7.25  MARKET,  stops @ 7.00  can get nasty, but I like the r/r

Plan B Short List (because the market can and will go against you. Lol) :

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Trade: CBOU, UA, ZNH; VIX +12

Today’s VIX:

Sold:  CBOU 10.61
Added to longs:     UA 49.28   … fearless.
New longs:   ZNH 33.50   …Thumbs up for Chinese dip.

Wow crazy day today.  Well we can’t go up forever.  Anyway, VIX spiked up today, rising to 22.93 so there is measurable panic here, which makes today’s dip worth buying.  Remember VIX 23?  It’s an interesting spot.  I’ll let you know more about it later.  This market sucks, not used to seeing this much red in a while. I’m taking the rest of the day off before I start doing dumb stuff, like shorting AAPL.

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Buying the Dip

New Longs: 

CBOU 10.89      -5.22%
AFAM 34.76     -1.7%
DTV  42.46       -1.37%

Added to longs:
CCME  18.08  -7.26%

Not really looking at stocks that have fallen hard.  I’m going for the ones that are holding ground on today’s decline.  Volume on the overall market looks low, probably some end of the week cycle selling.  AFAM and CBOU have smaller market caps, and therefore they can move quite fast.  Nevertheless, they are both leaders in stock performance in their industries.  CCME totally crapped today.  Anyway, just adding some here, although it looks like a long way down if volume picks up on the selling, it still is being sold on the news of China consumer markets, so I felt it okay to buy some here. 

Other stocks on list to buy:
– JSDA for a buck.  Lol.

–  UA makes basketball shoes now.  About time.  They always time their product releases with the sports nation.  Smart.  Only 2 points from year high.

– @400 puts on PCLN, at least 6 months out.  This just sounds like a great protection play.  Except those @400s are filthy expensive no matter what month you pick.  Maybe further out?  Whatever, PCLN offers rare options play so take advantage of it if you can.  I’m still watching this monster of a stock.

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