ELOY Update

Well, my ELOY trade did not last long. As I noted in my previous post, I was worried about the stock’s lack of liquidity as well as the “hidden” dilution/overhang from the preferred stock so I decided not to take anything more than a symbolic position and put a stop loss in at $5.75, $0.05 above my cost. As fate would have it, just a few days later the stock traded through $5.75 and my stop was executed … at $5.52/share.

How could my stop loss get executed at $5.52 when it was pegged at $5.75? Primarily because I used a stop instead of a stop limit order. I consciously did this because of the poor liquidity of the stock. I didn’t want the stock to gap down and cross-lock my limit, so I went with a stop order at $0.05 above my cost figuring that the if the stop was activated I would actually get a trade somewhere between $5.75 to $5.70. In fact, $5.75 was indeed the quoted bid for about 15 mins and 2,500 shares cleared at that price about 10 mins before I was filled at $5.52, but my order wasn’t executed. In all likelihood my order wasn’t executed because I made the trade via E*Trade. E*Trade still sells off their orders to wholesalers, who provide retail investors who terrible fills on a routine basis. (Something I have written about extensively in the past.) If I had made the order via Datek/Ameritrade, some if not all of the 1000 shares would likely have cleared at the $5.75 price thanks to Datek’s superior automated execution.

I should mention that ELOY did report Q4 2003 earnings on 2/9. They were in-line with the positive preannouncement and the stock basically did almost nothing the day after. They appear to be making solid progress in rebuilding their business but still burned over $1M in cash in the quarter. Thus, from a fundamental perspective ELOY’s prospects for affecting a successful short-term turn around still seem pretty bright. That said, I hate the stocks complete lack of liquidity (emphasized by my poor fill) and the preferred overhang, so I will just observe the from the sidelines. At least I will be able to give my friend (a Wall Street analyst who recommended the stock) a hard time about his pick.