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Stock Watch - CALM

(August 1, 2004)

CALM (again)
We covered Cal-Maine Foods in our last stock watch commentary, and I would like to cover the company again – mainly because of the lopsided supply/demand situation that we are now witnessing in the company’s shares.  Just a little back of background first, though: The company announced very good earnings on the morning of July 12th – immediately after our commentary was published.  The stock proceeded to gap up nearly two dollars, making a high of $16.44 before closing at $15.62.  My readers did not get a chance to buy CALM before the report but in retrospect, it was a blessing because the next few days of action was dismal – after that one-day wonder, CALM declined for five consecutive trading days – closing at $11.77 on July 19th before managing a small bounce.

A couple of reasons here: first of all, I was bearish on the general market at the time, and in retrospect, I should not have recommended any long positions in any individual stock.  Second of all, it is not obvious – but it seems like traders and speculators alike are discounting the end of the low-carb craze – which may or may not be the correct perception.  That being said, the author is now bullish (on the stock and on the overall stock market).  Technically, the stock is now oversold and the daily chart shows looks promising:

CALM - Post-earnings upside gap - followed by five days of declines. PPO turning up? Outside bullish day!

What did I mean when I mentioned “the lopsided supply/demand situation that we are now witnessing in the company’s shares”?  Readers asking that question may find the following table of interest:

Monthly Short Interest Information for CALM

The short interest as a percentage of the total number of floating shares is a staggering 130% -- something which the author has not witnessed before.  The historically high amount of short interest represents a great deal of artificial supply – supply which should be covered at some point (unless the company goes bankrupt – which I do not believe will happen).  Given this scenario and the improving technicals and my general bullishness of the U.S. stock market, I believe CALM presents a very compelling story and most probably now has considerable upside.

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