Market noise; Overcompensation

8/9/11 EOD: $1.85
+0.03 (1.65%)

Market noise
Markets saw a pretty incredible reversal today, after seeing one of their most dire sessions on Monday with US indexes free-falling. In today's formidable rally, the NASDAQ led the charge with big names like AAPL and MSFT rising 5.89% and 4.49%, respectively. A couple of these recovered from Monday's losses, with others coming close. Tomorrow is another day, but at least today investors breathed a sigh of relief.

CNIT fell with the others on Monday, dropping at one point to $1.76 and ending the day at $1.82 (down $0.18 from Friday's close). Today, the gains for CNIT were modest, as was volume. I attribute the low volume to greater interest in trading bigger names on a day where investors were busy recouping from Monday's bloodshed, and the small rise perhaps to some aversion to tomorrow's earnings.

Overcompensation
CNIT will be announcing their Q2 2011 results tomorrow morning, before the opening bell. While it's impossible to tell what the reaction will be, regardless of what they announce, I do think that the reaction will be an overshot. In other words, if the stock shoots up, it'll be quickly overbought and it's worth selling high to get back in lower (may even shoot up and then tease negative territory, similar to the stunt ZSTN pulled last week on 8/3). If, on the other hand, the stock falls in response to CNIT's report, then I have prepared with a series of limit buy orders to capitalize on cheap prices and bet on a bounce.

Looking at the past 12 earnings reports, the average daily range for CNIT was 12.1%, with a range as high as 38.8% in one case. Of course, that doesn't mean you always have a chance to sell higher if you buy a dip on earnings, but as long as the report isn't dreadful, I'm sticking to my buys.