John-
The volume is not Safeguard. It's institutional buying. Dare I say it, this time is different than previous run-ups. The stock has based at ~$5 for a while, showing signs of support for the first time. Recently, the stock has been slowly and steadily made higher highs and lows, if only between $5 and $6. There has been a very slight uptrend during the past month or so, with clear evidence of institutional accumulation. The volume patterns in the week before the run-up indicated greater buying interest than selling interest. The volume on up days was greater than the volume on down days.
In addition to all of this, the stock closed above its 100-day MA for only the second time since the crash. It has yet to close above its 200-day MA. That's at $7. If NM can do this, which it might do in the next day, I think it will have marked a reversal in the stock. In previous rallies, the volume died out very quickly, removing support from the would-be rally. For the past 3 days, the volume (and % increase)_has increased daily. I was very impressed with the 2 million shares traded on Friday. That's the second largest volume day ever, I believe. The last time there was this much volume was in December, when NM preannounced the bad Q3 that started all of this.
The reversal hypothesis makes sense for several reasons.
1. Technically, the stock has been washed out and has been holding support. It actually looks bullish for the first time since 1995.
2. More importantly, NM's financial situation is no longer in serious jeopardy. The new credit facility and the equity infusion have provided the company with more liquidity. The resolution of this issue minimizes concerns over the viability of NM.
3. Following Q2, all future quarters should show positive earnings comparisons with the quarters in the previous year. Even if NM is not as strong as it was 2 years ago, the appearance of improving business conditions will boost the stock. After all, stocks trade on fundamentals which are several quarters into the future.
4. There are fewer values in the market available to institutions. The trickle-down theory of big money suggests that eventually the lousy stocks will be bought, even if they deserve to be downtrodden. Of course, this type of buying presages the speculative buying fever, wherein the "junk" becomes pricey. I'm not saying NM is junk, but it certainly is speculative. Nevertheless, NM's institutional holdings were under 20% a few weeks ago, so the institutions have been underweighted in it. I figure the ownership is closer to 30% now.
Would I sell at $10 without news?
Not necessarily. If I had wanted to do so, I could have sold on previous rallies, because the chart indicated a turning point. As long as NM looks strong, I won't sell. I'm assuming the stock will display signs of topping when it meets resistance, and that I'll have plenty of time to get out. However, in the possibility (unlikely) that the stock would climb to 10 and then suddenly drop to $5 in one day, it may be prudent to buy some puts.
I'll wait until it gets above $7.5 before I consider puts. But frankly, if it gets to 7.5, it should go much higher. But I won't sell on price targets alone. Next week should be interesting, to say the least.
Todd |
