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A Developing Bottom for Marvel Enterprises

07/22/04 04:01:57 PM
by Kevin Hopson

Marvel Enterprises has experienced a steep decline in recent weeks but this may be coming to an end.

Security:   MVL
Position:   Accumulate

The last time I touched on Marvel Enterprises (MVL) was in late June. At that time, I mentioned how the stock would likely encounter stiff resistance around the $20.00 level. As expected, Marvel found resistance here and eventually pulled back. More specifically, the stock has declined roughly 25 percent over the last three weeks. The recent weakness has occurred despite earth-shattering ticket sales for the "Spider-Man 2" movie, as well as related video game sales (Spider-Man 2 was the top-selling video game in June even though it came out on the 28th).

During the recent downturn, Marvel breached two key support levels. More specifically, notice how the stock initially broke support in the $17.50 to $18.00 range, the site of the purple median line and the top black parallel line. After that, Marvel proceeded to breach support around the $16.00 level, the site of the black median line and the lower purple parallel line. As a result, pitchfork analysis shows a significant breakdown on the charts.

Graphic provided by:
However, if the technical indicators have anything to say about it, Marvel could be putting in a significant bottom right now. For example, notice how the Moving Average Convergence/Divergence (MACD) indicator is putting in higher lows despite the fact that the stock price has continued to falter. The pullback has occurred on declining volume as well. This is usually an indication of a forthcoming bottom.

Additionally, the Chaikin Oscillator has been moving higher even though the Accumulation/Distribution (A/D) line has been moving lower. Just to note, the Chaikin Oscillator is based upon two exponential moving averages (3 period and 10 period) of the A/D line. As a result, when you see divergences between these two indicators, it usually signals a forthcoming trend change. Since we are seeing a bullish divergence in the Chaikin Oscillator (or money flow), it is likely that Marvel will experience a trend change soon.

Also supporting my theory for a reversal is current market sentiment towards the stock. Though short interest data will be updated in the coming days, Marvel had 14.8M shares sold short as of June 7. This equates to roughly 19 percent of the stock's float and would take over 10 days to cover based on average daily volume of 1.4M shares the past three months. As a result, there is a lot of potential buying pressure to push the stock higher. Given the bullish divergences on the chart and the market's pessimistic outlook on the company, I would accumulate shares of Marvel Enterprises in the near-term.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
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