When you’re hot, you’re hot, and when you’re not, you’re Hot Topic (HOTT).
The teen clothing retailer posted tepid third-quarter earnings after Wednesday’s closing bell, although the profit of $5.8 million, or 13 cents per share was in line with consensus Street forecasts.
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The real cold water thrown on Hot Topic shares was the company’s own fourth-quarter forecast. In a holiday outlook that comports with the mood set by its dark, Gothic clothing lines, Hot Topic said it would likely earn between 23 cents a share and 26 cents a share. That’s way below the 30 cents a share the Street is anticipating.
As you might expect, HOTT shares got slammed in Thursday’s trade, sinking more than 13% midway through the session.
Now, it’s easy to say that buyers should stay away from this stock, especially as it approaches a new 52-week low. But now it’s time to decide whether HOTT shares should be shorted.
In the chart here of HOTT, we can see the shares plunging through both the long-term, 200-day moving average (red line), as well as the short-term, 50-day moving average (blue line). With the stock so far below both long- and short-term support, it may be too late for a new short position. However, if you’re a trader who likes to keep positions for only a few days, a quick-hit short position on HOTT that takes advantage of today’s downward momentum could turn out to be a profitable play.
Based on the company’s holiday outlook, and based on the distaste for the stock in Thursday trade, there’s no reason to think HOTT shares are going to shed their Gothic mood anytime soon.
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