Oilbabe, thank you for your kind words. You are absolutely right: no one is always right. There is uncertainty in all stocks, but some stocks have a more unclear future than others. NITE qualifies as one where that is an extreme case. On the one hand, it is possible to draw a scenario where the very reason for NITE's existence may simply disappear, and on the other, it may have a brilliant future. And the truth is that NOBODY knows which way it will end up, not even the principals themselves:
<<Even Wall Street's biggest and savviest firms don't know where the future of stock trading may take them, but they are hedging their bets by showering money over a variety of new trading systems.>>
dailynews.yahoo.com
Given such uncertainty, it is not surprising that NITE is an extraordinarily volatile stock - and it is hard for the market to "put a price" on it. It could be worth $2, or $200, or anything in between, take your pick - and nobody, repeat, nobody knows where NITE's future business model will be.
Whenever you have that much uncertainty about the very foundations of a business, TA is almost useless. TA depends on a number of assumptions which go out the window the second the fundamentals are put into question.
Look at Thursday and Friday. Thursday showed a very sharp reversal, that hit new intraday low, and ended up at almost 40. Friday, after racing toward 41+, it ended the day closing at a new low. In fact the closing was extremely ugly technically. Not only was this a closing low not seen since several months back, but it was on the day's low, at an accelerating volume. Yet, early in the day, NITE broke 41 which ordinarily should be very bullish. So, what the hell is going on? You can see here, how news and events can overwhelm TA to the point where it becomes of questionable value for that time period.
Look at NITE's chart:
bigcharts.com
The 200 DMA, which is cited as a critical level in orthodox TA, is at this point at 33 5/8. I have often argued that the 200 DMA cannot be used in the same way across all stocks. It is of questionable value for NITE.
If you line-draw support levels, and adjust for volume (a crude way of measuring distribution), you come up with 2 important levels: 34, and 30.
So, by rights, all things being equal, NITE should really not close below either 34 or 30. Most of the heavy volume buying has taken place above these levels. Many buyers who bought at 60, sold for a loss anywhere between 59 and the "capitulation" a few days ago. The capitulation included many who bought at above 30. But not all. As the stock approaches 30, you could actually still see some selling by those that bought at 30 and above - they don't want to sit on a "loss." This is what a short house would want to do - stop out the major volume. A dip below 30, would take out all the volume that happened from there to the high (look at the chart). At that point, really nothing is left - you would be looking at all shareholders who bought from that level, showing a loss. Judging by volume, that's the bulk of buyers. Other than insiders, (who would show a profit even if the stock were to go to $2), the only ones left would be buyers from the 2-20 level, and of course, those who held on from a 60+ buy (assuming they were not on margin).
In light of that, I found the last 1/2 hour of trading in NITE Friday, to be quite interesting. The selling was very, very intense, with huge blocks flying - the kind of selling I've seen before in this stock - FBCO again, the major seller.
A good example of a situation where orthodox TA is of no help - the forces that operate (general market and major activity by the ax in the stock) overwhelm all charts, analysis etc. The LT B&H must now operate on something close to a gamble - because the fundamentals are not clear anymore, and as the article mentions, no one is the wiser.
Personally, I'm betting that NITE will be the consolidator in this situation, and that as facilitator of last resort is indispensable (certainly for smaller, less liquid stocks).
But that doesn't help, when the stock has no anchor, but is being tossed about like a leaf in a hurricane - dependent on the latest rumble from AG, the bond markets, dollar, econ numbers, whatever. I know it will find its legs, once the storm dies down - but meanwhile all you can do is enjoy the show (assuming you are not on margin!).
Morgan |
