Cable Update (GBPUSD)

Several months go by and the economic outlook is as bleak as ever. The
stock eases down to 9. After Tom checks in with Jim for the latest public news,
Tom’s team buys more. It is an easy score because investors are willing to
dump the stock, especially as year-end tax selling approaches.
Six weeks later the company releases the sales numbers for JCB; they are
better than expected. The stock rises 15% in minutes and closes at 10.75. And that
is just for starters. Six months later, it’s clear the economy was never in danger of
entering a recession and everyone sees boom times ahead. The stock hits 20.
Years go by, the stock splits a few times, and the holiday season looms.
Tom interviews a handful of customers leaving JCB Superstores and discovers
that they are all complaining about the same thing: The advertised goods are
not on the shelves. Tom investigates further and discovers a massive distribution
problem, right at the height of the selling season. JCB has overextended
itself; the infrastructure is simply not there to support the addition of one new
store each week.
Tom realizes it is time to sell. He tells his trading department to dump
the stock immediately but for no less than 28.25. They liquidate about a third
of their large holdings before driving the stock down below the minimum.
Since it is the holidays, everyone seems to be in a buying mood. Novice
investors jump in at what they consider a bargain price. The major brokerage
houses climb aboard and tout the stock, but Tom knows better. When the
stock recovers to its old high, his trading partners sell the remainder of their
holdings. The stock tops out and rounds over. During the next month and a
half, the stock drifts down, slowly, casually. There does not appear to be a rush
for the exits—just a slow trickle as the smart money quietly folds up shop.
Then news of poor holiday sales leaks out. There is a rumor about distribution
problems, merchandising mistakes, and cash flow problems. Brokerage
firms that only weeks before were touting the stock now advise their clients to
sell. The stock plummets 39% overnight.
One or two analysts say the stock is oversold; it is a bargain and investors
should add to their positions. Many bottom fishers follow their brokers’ recommendation
and buy the stock. Big mistake. The buying enthusiasm pushes
the price up briefly before a new round of selling takes hold. Each day the stock
drops a bit lower, nibbling away like waves washing against a castle of sand. In
2 months’ time, the stock is down another 30%.
The following quarter JCB Superstores announces that earnings will
likely come in well below consensus estimates. The stock drops another 15%.
The company is trying to correct the distribution problem, but it is not something
easily fixed. It decides to stop expanding and to concentrate on the profitability
of its existing store base.
Two years later, Tom pulls up the stock chart. The dog has been flat for
so long it looks as if its heartbeat has stopped. He calls Jim and chats about the
outlook for JCB Superstores. Jim gushes enthusiastically about a new retailing