Is Tanger Factory Outlets Another Short Squeeze Candidate?

01/17/08 09:48:51 AM

by Matt Blackman

It's been a rough ride for markets and there will undoubtedly be more turbulence ahead. But here is a stock with excellent potential to rally when the inevitable bounce comes.

Security: SKT
Position: Accumulate

Even in bear markets there are bright spots. And when markets get oversold, any sort of positive news can cause a sizable bounce. In Tanger (SKT), there is a stock that looks as if it could benefit if the market experiences even a mild recovery.

FIGURE 1: SKT. Daily chart showing Tanger (SKT) over the last 18 months, the current SqueezeTrigger of $34.18, the 10-day moving average of Chaikin volatility (green line in subgraph 2), 10-day moving average of volume (purple line in subgraph 3) and volume (subgraph 4). Squeezetrigger by Buyins.net

Graphic provided by: OmniTrader.com.

As we see from Figure 1, each time Tanger, a real estate investment trust (REIT), has experienced a volatility spike together with a volume spike, it appears to be a turning point in stock price — green arrows mark buys and red the sells. In addition, the squeeze trigger of $34.18 has acted as a strong historical support, and for good reason. The squeeze trigger is the volume-weighted moving average of price calculated by Buyins.net at which the average short position was entered. There is also strong price-volume support at $34.60. The stock closed at $34.92 on January 16.

Why is the squeeze trigger important? Shorts go short (that is, borrow stock and sell it) when traders believe the stock price will fall. They often use margin, which means that when they are wrong, losses can quickly mount. The squeeze trigger tells us when these shorts are beginning to feel the pain of a trade going against them. That 16.6% of the float of SKT has been sold short (well above the 5% threshold for stock that has a high potential for a short squeeze) and that both volume and volatility have spiked at major support around $34 make it a compelling bounce candidate.

A bullish prognosis is further supported by the following positive fundamentals:

1) SKT earnings growth has remained strong and is currently a respectable 28%.
2) Earnings per share have also remained resilient over the last three years and are currently $2.71 per share and the company pays a $1.44 dividend. (4.3%).
3) Growth to price/earnings (P/E) (GPE) considered respectable at 0.5 given current interest rates is currently 2.24 for SKT at a P/E of 12.5.
4) Sales are currently growing at 8%.

Risks are that their business of acquiring, developing, operating, and managing factory outlet shopping centers has the potential to suffer as the economy slows and REITs are rapidly following out of favor given the current housing and credit melt.

However, with strong income and assuming much of the short-term bad news is built into the stock, SKT has an attractive combo of strong technicals and fundamentals in its favor, which could help it rally strongly if there is a broad-based short-term recovery.

As always, it is imperative to employ intelligent money management that for SKT includes a stop-loss 5% below the current squeeze trigger and a 5% to 10% trailing stop (depending on your risk tolerance) in the event the stock begins moving higher.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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SHORT SQUEEZE

Is Tanger Factory Outlets Another Short Squeeze Candidate?

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