Jul 23, 2010 10:31 AM PDT
The market is fading from highs hit earlier today, and its individual stocks are starting to show their true colors..... for better or worse. With that in mind, of particular interest this afternoon are Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), China MediaExpress Holdings (AMEX:CCME), and ExlService Holdings, Inc. (NASDAQ:EXLS). Here's a reality check for each.
Whether you're a trader or an investor, shopping for an idea entry spot is worth the effort. To that end, while small cap Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) offers bullish potential in the short-term as well as the long-term, right now is probably the worst time for either parties to step into ACHN.
Don't get me wrong... Achillion Pharmaceuticals has a lot of great things going for it. Namely, it's being guided higher by a bullish trading channel that extends back to late 2008 (and became steeper in November). I expect ACHN to continue to bound around in that range indefinitely, which will offer opportunities to long-term and short-term investors.
My problem with ACHN is dual right now. For true swing traders, we're now about halfway up the rather-wide trading range framed by the blue lines on the chart below, meaning there's not a great deal of upside left [the fact that the stock's severely overbought right now just exacerbates the problem]. For investors, it's the same problem.... you're paying $2.71 for a stock that could be back at $2.35 within a matter of weeks or less, and you're buying a stock that appears to be stalled and moving sideways right now. I'd rather see both groups wait for a point where Achillion Pharmaceuticals, Inc. is freshly pushing off that rising support level.
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Wow! As if falling from 9% over the last three weeks wasn't rough enough for ExlService Holdings, Inc. (NASDAQ:EXLS) investors, today the market is yanking their chain with a massively-strong open at $19.42, and then a tumble all the way back down to $17.44.... a sea-sickening 10% slide. As much as I hate to pour any more salt in the wound, that drastic reversal may end up being the beginning of an even bigger pullback for EXLS.
Don't dismiss this intra-day reversal for EXLS as mere volatility. The bulls spoke early this morning, having every intention of bidding up the stock after yesterday's news. Clearly the would-be sellers (and there were more of them) were just waiting for the buyers to give them a profitable exit on this small cap. Pow! The market's true colors (opinion) on ExlService Holdings was revealed... a clue to which was offered a couple of days ago when the selling volume starter to firm up.
There is one last bastion of hope. It's the 100-day moving average line (grey) at $17.24. ExlService Holdings shares already traded under that mark today, but have managed to crawl back above it for the time being. The day isn't over yet though, and the end-of-day price is the one that matters most. When/if we get that first close under the 100-day average for EXLS (which may later this week as much as it may be today), I'm guessing that will be the final straw. I'll be looking for a bigger implosion then. Don't get presumptuous in the meantime though.
You might think that the worst ting in the world that can happen to a stock is the announcement of bad news. I'll be the first to acknowledge that can take a toll on a stock's price. However, I think the absolute worst thing that can drive a stock lower is a lack of any news, and a stagnant price. That's why I'm growing increasingly bearish on China MediaExpress Holdings (AMEX:CCME). Each day that passes with no movement or updates is another day that apathy and lack of interest can swell for CCME.
Said another way, eventually, sheer boredom will set in and the bulls will just hand CCME over to the bears... and we're getting to that point now. How so? Over the last five months (and here's your reality check), China MediaExpress Holdings has been almost completely range-bound. Take a look at the horizontal lines on my chart below, and you'll see it. With only a couple of exceptions here and there, this small cap name has been trapped between $10.45 and $12.80; the horizontal floor has been $11.26 more recently. Either way, this stock is (again) right where it was in November - no progress.
It's a problem not just because of the boredom risk I mentioned above, but also because that delay has given the 100-day moving average line (grey) time to catch up with the stock. Now, China MediaExpress Holdings share are at an immediate risk of falling under it; the 100-day line is at $11.37, versus the current price for CCME at $11.50... which is also just a hair above the near-term horizontal floor.
Bottom line - what may seem like a small pullback in the near future could actually be the beginning of a long-pent-up wave of selling. If we see China MediaExpress Holdings trade at or under $11.26, I'd be surprised if it didn't lead to a much more significant pullback.
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