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National City Capitulation

04/29/08 08:01:53 AM
by James Kupfer

With its recent price action, shares of NCC are right at a long-term support line that goes back to 1990.

Security:   NCC
Position:   Buy

Shares of National City Corp. (NCC) have recently fallen to multiyear lows below the $6 mark and are approaching long-term support. On April 21, NCC hit a low of $5.90 for the day after more negative news about this bank emerged, prompting shares to drop over 25% on the day. This recent move has created the opportunity for the stock to bounce off support and fill a newly created gap.

As indicated on the accompanying monthly chart (Figure 1), NCC last traded below $6.00 a share in October 1990 and November 1987, where it reached lows of $5.66 and $5.97, respectively. These prices serve as support for this beleaguered stock. While I doubt these levels will hold for the long term, this does nevertheless provide a tradable level for a potential bounce.

FIGURE 1: NCC, MONTHLY. The lows reached in this stock may suggest a tradable level for a potential bounce.
Graphic provided by: Wealth-Lab.
Should NCC bounce, where would it be headed? To determine this we move to the daily chart (Figure 2). The stock recently opened up a large gap below $8.20, which becomes a reasonable short-term target. Gaps occur when there is no overlap of prices between two consecutive days. Stocks have a tendency to close gaps, meaning that prices eventually rise or fall to the level where the gap first occurred. This is certainly not a rule, as not every gap gets filled. Should this one be filled, any position acquired below $6.00 and sold at $8.20 would generate a hefty 36% return.

FIGURE 2: NCC, DAILY. The stock recently opened up a large gap below $8.20, which becomes a reasonable short-term target.
Graphic provided by: Wealth-Lab.

James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.

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