According to Finviz, Navistar International (NYSE:NAV), Mellanox Technologies (Nasdaq:MLNX), Petroleo Brasileiro (NYSE:PBR) and Rovi (Nasdaq:ROVI) are the top performers over the last week, racking up gains between 18% and 43%. All have market caps greater than $2B and average volume greater than 1M shares per day. Is there still room to get in, or is time to take profits? Here is the technical breakdown.
After falling from a high of $71.49 in 2011 to a low of $18.17 in 2012, investors in Navistar International are getting a reprieve from the selling in 2013. Over the last week the stock is up over 43%, and with the close at $35.65 on March 12, the stock has nearly doubled since the 2012 low just over four months ago. This stock has a history of dipping down towards the $20 (or below) and then staging an aggressive rally to $70 or above. It happened after the 2006 low, and then again after the 2009 low. Whether it occurs this time is yet to be seen. Overall though, I like the bullish trade. Finding a low risk entry is the tricky part, as the stock can be very volatile. My strategy is to wait for a pullback, and wait for the stock to rise again. Once it does, the low of pullback can be used as a stop. Right now, a decent stop level is just too far away, even though there is a lot of long-term profit potential over the long term if old pattern repeats.
Mellanox Technologies had an incredible bull run, from trading below $10 in 2009 to $120.05 in 2012. Late 2012 saw the stock fall off that high to a low of $41.75 in January 2013. The jump off that low to the $65.55 close on March 12, and the more than 28% rally over the last week, should have both short-term speculators and long-term investors interested. For the bullish case, there were two big spikes in volume in January as the stock bottomed, likely signaling selling exhaustion. Once again I like the long trade, but with the rapid rise recently, a low risk entry is the tricky part. My strategy here is the same—be patient and wait for a pullback. As long as the pullback stops before $50 and begins move higher again I like the long, with a stop below the low of the pullback.
Petroleo Brasileiro is another stock that has been beaten down over the long-term, but snapped higher over the last week, racking up a nearly 20% gain. Even with the jump though, this stock is in a downtrend across all time-frames and I am not seeing a lot to be optimistic about just yet. The stock recently put in a low at $14.40. In order to create any “technical optimism” I need to see another low that is higher than this, coupled with a rally through the resistance zone of $19 to $20.63. Until those events occur, speculative dollars are better placed on other long trades.
Rovi has been rallying for several months, after hitting a low of $9.91 in July. Over the last week it moved up nearly 19%. Long-term the prospects are very mixed for this stock. It collapsed to the $9.91 low after reaching nearly $70 in early 2011, so the long-term trend remains down. The series of higher lows over the last several months though does offer some optimism that a turn-around could be underway. While I don’t especially like the stock simply because of the conflicting technicals at the moment, for those who are considering the stock there is a simple trendline that can be used as a stop to control risk. Buying in the current price area, a stop can be placed near $17 (trendline) or near $13 (just below October low). This controls the risk but gives room to let the stock fluctuate if a major long-term turn-around is underway.
The Bottom Line
As the market makes new highs, these beaten down stocks picked up buying interest this week. Navistar and Mellanox look to have long-term upside potential, but jumping in without a plan isn’t advisable. Wait for a pullback, formulate a plan and these volatile stocks could pay off. Petroleo and Rovi will need to do a bit more to change their long-term outlook, but they are potential major turn-around stories if they can break through some resistance levels and successfully create a higher lows. For right now though, I prefer to leave these latter two alone as there are plenty of better long trade candidates with major index nearing or surpassing all time highs.