|Many serious traders and mutual funds don't like to buy stocks in the $5 price range because of poor liquidity, but there are still some good, solid stocks available in that bargain basement area of the stock market. Here's a look at the recent performance of shares of NN, Inc. (NNBR), a small-cap stock that had a 100% increase in price from mid-December to mid-February -- and which may now once again be in a prime position to attempt yet another run higher. See Figures 1 and 2.|
|FIGURE 1: S&P 500. With the .SPX underperforming the .RUT over the past 13 weeks of trading action, now might be a good time to focus on small-cap stocks outperforming both of these key broad market indexes.|
|Graphic provided by: MetaStock.|
|Graphic provided by: MetaStock Explorer.|
|NNBR's share price really does tend to move around, allowing traders to latch onto powerful swing moves in either direction every few months; in May 2011, the stock traded as high as $19.39 and in June 2011 it bottomed at $12.49 before running up to $16.30 in July 2011. All were very nice, reasonably tradable swing moves. |
As the Euro-mess gathered steam in July 2011, NNBR went over the proverbial cliff, finally crash landing at $5.64 in early August 2012. Once again, a powerful swing and/or trending move in this powerful little small-cap issue. NNBR also had a stunning 100%-plus run higher between October 4 and October 28, 2001, before it pulled back to the low $5 range in November/December 2012 and began the current bullish run it is currently enmeshed in. Clearly, NNBR has the right stuff as far as the ability to move 50% to 100% or even more, allowing skilled traders the opportunity to score sizable gains.
Technically, NNBR's daily chart portrays a very bullish image, as its long-term money flow histogram is remaining in extremely bullish territory -- even during the recent consolidation -- and the stock is still trading comfortably above the long-term MS Intellistop (red line on chart).
The MS Intellistop is standard in MetaStock 11 and functions in many ways like a volatility-based trailing stop. It has done a wonderful job of tracking the 100% rise in NNBR since mid-December 2011, not having even once been violated on a closing basis by the stock.
Finally, note the beautiful little wedge pattern that has formed as part of the consolidation; a daily break and then close above the dashed blue channel line may very well attract more buyers into this stock, one that has a tendency to follow through on successful breaks of significant support and resistance areas. NNBR is also outperforming the .RUT (the Russell 2000) by a wide margin, and this is yet another bullish factor to consider if you plan to trade this stock soon.
|FIGURE 2: NNBR, DAILY. NNBR's daily chart scores major bullish points in terms of trendworthiness, long-term money flow, and high relative strength versus its parent index, the .RUT. A confirmed break above $9.78 could be the trigger to launch yet another run higher in this volatile issue.|
|Graphic provided by: MetaStock.|
|Graphic provided by: MS11 Intellistops from MetaStock 11.|
|Options liquidity isn't all that great in NNBR, meaning that serious traders will most likely want to focus on trading stock-only positions on a break above $9.78, using an initial stop-loss of approximately $9.30 for short-term swing traders and $9.15 for longer-term trend followers. Short-term swing traders might want to use a two- to three-bar trailing stop of the daily lows, while trend followers could just use the long-term MS Intellistop to help them manage a long position in the stock. |
Either way you choose to trade it, the daily chart setup in NNBR looks quite bullish, and if the broad market continues to grind higher, shares of this volatile small-cap stock should have little trouble in attracting new waves of buying interest.
|Title:||Writer, market consultant|
|Company:||Linear Trading Systems LLC|
|Jacksonville, FL 32217|
|Phone # for sales:||904-239-9564|
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