Friday, August 19, 2011

Sticking to the range

08/19/11 EOD: $1.58
+0.10 (6.76%)

It's great to see that CNIT is sticking to the range we established on 8/15. I slightly undershot the support, as it seems it's closer to $1.45 than $1.40, with heavy resistance around $1.60 as we saw on three occasions today, as well as on Tuesday and Wednesday.

Today's good performance despite heavy market sell-offs is a pretty good sign, though CNIT is still likely to trade within this range for a little longer.

I'll be in Alaska all next week so won't be commenting on the blog, though you can be sure I'll be playing this range. Good luck to you all.

Tuesday, August 16, 2011

New resistance

8/16/2011 EOD: $1.46
+0.01 (0.69%)

CNIT traded right within the expected range today ($1.45-$1.63), except it landed at the low. Clearly, there's a good amount of resistance at the $1.60 level. After a small initial jump, the stock flat-lined at just about the opening price, and all this with relatively good volume around 500K. The nice thing to note is that, given the volume, this means there's a nice balance of buyers and sellers at this level and we can potentially rest easy about continued downfall (i.e.: the low may have been reached).

Monday, August 15, 2011

Little bounce

8/15/2011 EOD: $1.45
+0.23 (18.85%)

CNIT experienced a nice little bounce today, as expected after being heavily sold off over the past three sessions.

While it was fairly impressive, a couple of caveats are in order:

  • Volume wasn't that great, amount to just over 500K while all three selling days that preceded had higher volume (1.3M, 680K, 540K).
  • The stock met heavy resistance at $1.55, just under last Wednesday's open price of $1.60, suggesting it might trade within a range below this for a little while.
  • The lift may have partly been a result of (temporary) eased investors after the gap posted by US indexes when the US was downgraded was filled today.
That said, I'm not all negative! What I'm looking for tomorrow, in order to have renewed confidence in the stock, is continued good volume (300K-500K would be nice), a pretty candle (no dark cloud bullshit), and a range between $1.39 and $1.60, ending slightly higher (no need to prematurely try to break out).

I'm expecting resistance to be in the $1.35-$1.40 region, or $1.24-$1.27 on weakness, based on the action in the previous two sessions.

Couple of news headlines today:
Oh and, in case you missed it, Rodman & Renshaw downgraded CNIT from an "Outperform" to a "Market Perform" last Friday. Dunno if I trust those guys though. They have price targets on a whole bunch of small Chinese stocks and aren't getting any of them right. Their previous price target was $9.00. I don't know what the new price target is.

Sunday, August 14, 2011

Institutional Ownership

I checked out the detailed institutional ownership list a few months back, and again a few days ago, and noticed a few things I thought I'd share:

  • A little over 15 million shares are held by institutions, representing about 29% of CNIT's 52.3M shares
  • Morgan Stanley, who as of 3/31 only owned about 70k shares, drastically grew their investment in CNIT over the next few months, as they now own over 1.7M shares (>1,000%)
  • Vanguard Group, on the contrary, had over 1.1M shares on 3/31 and by 6/31 had sold out of their position
Here are the top 10 institutional investors:

For the full list, check out the detailed institutional holdings section on the Nasdaq website.

It's very important for small caps to have a large amount of institutional investors (showing trust in the company's growth and operations) as well as a large amount of insider investment. While institutional investment hasn't grown, it is still reasonably high at around 30%, which is a positive sign. How much of the recent selling (after earnings) was institutional I do not know.

Saturday, August 13, 2011

Hitting new lows

8/12/2011 EOD: $1.22
-0.08 (-6.15%)

The correct word to use for this week, when describing CNIT's stock performance, is "abysmal". Indeed, after a poor Q2 earnings report, the stock was justifiably punished, and did not do much rebounding at all. For the week, the stock finished down $0.68, or -35.79%. Volume has been, as expected, higher than average (over half a million shares per day), but of course the sellers have been in greater number than the buyers.

Here's the 15 minute chart for the last 4 days, with the drop occuring on August 10th after earnings were announced in the morning:

As you can see, CNIT is hitting new 52 week lows and has yet shown no signs of support. At these levels, and with a small stock such as CNIT, it's incredibly difficult to predict how low the stock might go. Only a significant volume of buyers jumping in on some kind of positive news could, in my opinion, give life back to the stock in the coming number of sessions. That or a general market lift, which I am not betting on.

What do you think about the near term (1-2 month) future of CNIT?

Wednesday, August 10, 2011

CNIT Q2 2011 Earnings

Here's the official press release.

  • "Revenues decreased 16.79% YoY to US$27.89 million
  • Gross Profit decreased 29.03% YoY to US$ 11.92 million, with Gross Margin shrinking to 42.75 %
  • Operating Profit decreased 54.98% YoY to US$ 5.46 million
  • Non-GAAP Net Income decreased 43.03% YoY to US$ 5.63 million
  • Non-GAAP Fully Diluted EPS was US$ 0.11
  • Cash flow from operations was US$1.90 million vs. $3.45 million a year ago"
They're blaming the unexpected slowdown to tightening policies by the Chinese government as it attempts to slow inflation (e.g.: reduced investments in infrastructure projects). They restated that they were still fairly pleased with generating $30M in new contracts during the quarter (I'm assuming this is future recurring revenue) and improvements in their Display Technology product sales as well as System Integration services sales.

It's going to be ugly today, and possibly for a while, despite this news not really changing that the company is still dirt cheap.

CNIT failed to meet estimates only twice before, in Q1 2009 and Q4 2010. Here's what happened on each of those days:
  • Q1 2009: EPS was $0.09 vs. an expected $0.13, a -30.77% miss. The stock opened down about 14% and continued to fall during the day, ending with a 20.57% fall. The stock recovered its pre-earnings level 2 months later, during a run-up coming prior to the following earnings statement, where it beat.
  • Q4 2010: EPS was $0.21 vs. an expected $0.23, a -8.70% miss. The stock opened nearly intact (up about 1% but, while it reached an HOD a couple points higher, ended the day down 14.69%. The stock has not recovered since, as this came just over 5 months ago at which point CNIT was in the huge downtrend that has taken it to today's levels.
Needless to say, there should be a fairly sizable drop today, with possibly some opportunities to profit from day trading long if you consider it gets oversold. Of course, I can't possibly be short, so I'll either stick to buying some more cheap shares (i'm very low on shares, ever since I got mostly into cash a few weeks ago), or by staying clear and seeing where it goes.

Tuesday, August 9, 2011

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.

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.

Sunday, August 7, 2011

A dreary market

What a hideous selloff in the last week... On July 27th, I mentioned that I was shifting a majority of my assets into cash (, and I'm glad I did. Everything suffered, even the biggest most reliable names. The "correction" has been brutal already, and presumably already prices in a number of things that people are fearing for next week. In particular, investors are freaking out about the US's downgrade from a AAA rating to a AA+ rating by the S&P. But frankly I think this should be seen as good news, for two reasons:
  1. The downgrade "only" put the US down to AA+ rating - really it should have gone lower, so losing one notch might not be so bad.
  2. Are investors blind enough that they didn't expect this to happen? the huge drop in the past 10 days must be already pricing in some of this, and really I think it would have ultimately been more damaging if rumors and expectations of a drop continued rather than a drop itself.
Of course, futures are down (about 2% as I write this post) and there's likely to be a lot of blood tomorrow. But if there's anything rational left in the markets, then they shouldn't drop too significantly during the rest of the week, or will perhaps even rebound mid-week.

That being said, keep some cash and some gold, and only invest in risk you're willing to bear.

Stock update

8/5/11 EOD: $2.00
+0.12 (6.38%)

On Friday, CNIT saw a pretty big boost at reasonable volume (350k+ shares traded), and played within the predicted range of $1.85 to $2.13 (see The weak market isn't helping, of course, but $1.85 seems to be a pretty strong area of support for the stock (though earnings might take it below, if only temporarily, as speculation can drive huge movements in small cap stocks), and $2.10-$2.20 will continue to be a big area of resistance unless again the earnings report shows so much strength and high future expectations to warrant a break (my guess: unlikely).

See how well the previously established range worked out on Friday:

I anticipate that in the next couple of days, as we get closer to the earnings announcement on August 10, volume will be at least 300k and possibly higher. There will be many opportunities to trade the range and possibly also some opportunities to grab shares at a cheap price if the stock gets oversold for some reason. EPS may be lower than expected if the earlier announcement about Q2 contracts was a hint of weakness, but the real news, as usual, will be whether the company discloses positive or negative guidance about the remainder of the year. Refer to this past post for more analysis on the upcoming earnings release.

The only recent news I've seen is this article on SmallCap Network suggesting CNIT is one of the stocks to buy in the current overall market selloff. I would tend to agree. There's huge upward potential for CNIT.

Tuesday, August 2, 2011

CNIT 8/2/11 EOD: $2.08
-0.02 (-0.95%)

According to this official press release, CNIT will announce its second quarter 2011 financial results before the market opens on August 10, 2011. There will be a dial-in for the live conference call so be sure to check the page for details on how to attend.