Friday, July 8, 2011

7/8/11: $2.62

-0.20 (-7.09%)


Today CNIT saw a pretty tough correction with some positives and some flags. It was, however, very educational

During today's session I made a few exchanges on CNIT, particularly as I started to see some intraday support and resistance levels. I have a couple of limit buy orders that executed early in the day at $2.68 and $2.55. In hindsight the $2.68 level in particular wasn't very clever, because besides a very brief rebound at this price on 7/7, there was no evidence that this was a support area. $2.48 was a good buy and my only regret is that I didn't buy more at that level. All in all, however, 2 of my intraday plays worked out, as I made 2.82% on one ($2.48 to $2.55) and 2.75% on the other ($2.55 to $2.62). My other intended intraday buy at $2.68 will have to stay put over the weekend, so my position right now is about 7,500 shares larger than I would ideally like it to be.

Here are some positive things to note about today's session:

  • The overall market was down, so a correction on CNIT wasn't too surprising given a variety of factors (e.g.: the RSI looking overbought, the resistance at the 100dma, speculation about vulturing shortsellers, etc.).
  • After being over 14% down, CNIT rebounded to end down just 7.09%. Ok, so a 7% loss is nothing to be happy about, but since the stock experienced two double digit growth days this week, we can cut it a little slack.
  • No news is...good news? It's pretty clear that the sell-off was mostly about profit taking and technicals and wasn't led by any particular news. Fundamentally, the stock is still as strong as it was 2 days ago.
Action today can teach us how to play the range over the next few days/weeks. My guess, if I was a betting man, would be that, as I've mentioned in an earlier post, CNIT will fluctuate between $2.50 and $2.80 (conservatively) and $2.30 and $3.00. With that in mind, it's good to know if there are any particular levels that seem to show support or resistance from an intraday perspective. Specifically, from today's action, we can guess that $2.60 is a pretty strong pin which can act as either support or resistance, and $2.48 is a fairly strong level of support. I have a limit buy order at $2.48 as well as a few at lower levels.

Here are some flags that could bring some concern about CNIT in the short term:

  • Volume today was low (~500k shares). Yesterday I mentioned that the volume was lower than the previous day, and said this was a bad thing. If you look at CNIT historically, as well as other small cap stocks, they are particularly vulnerable to losing momentum when their gains come with lower volume (i.e.: less interest / speculation that a correction is coming).
  • The Wilder's DMI (ADX) (one of my favorite indicators) saw a crossover of the +DI line over the -DI line and then the ADX line a few days ago - a very bullish indicator which was seen back in October 2010 just prior to CNIT's run up from the mid $4s to the low $6s. Today, the +DI started reversing downward sharply, and if it crosses back over the ADX line is could be short term bearish for the stock.

Again, there was no particular news of interest today so the only thing to look forward to on Monday is to see if the market continues to decline and perhaps take some victims with it, and for CNIT specifically if technicals continue to drive a downward correction or if a range begins to establish itself as previously noted.

As usual, I would very much appreciate any feedback or comments, particularly if they are meant to correct or improve my analysis.

Have a great weekend!

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