Charts of Conexant, KKR Financial Holdings, and TerreStar suggest trouble's ahead.
With most stocks seemingly exhausted after a strong summer rally, not to mention the fact that market's headed into its weakest month of the year (September), it's not difficult to find a bearish chart right now.
Some of these charts, however, look more prone to a pullback than others. Take Conexant Systems Inc. (NYSEARCA:CNXT), KKR Financial Holdings LLC (KFN), and TerreStar Corporation (TSTR) for instance. Each has offered important - and bearish - trading clues worth exploring.
Conexant Systems Inc. (CNXT) isn't a bad company, but that wasn't enough to prevent the stock's rally from being halted around $2.45. Overbought and with a stark lack of volume on the way up, CNXT may need to give up some ground before moving any higher.
There's a major upside with the Conexant chart, however..... some very powerful support and resistance lines. One's at $1.50, and the other's at $1.05; both could play reversal roles again in the near future.
What's interesting here is how the big rally came in front of Conexant's earnings news. The numbers were bad, but not surprising (and not as bad as expected). CNXT shares rallied for a few more days after the announcement, but only on light volume. Since then, the stagnation of CNXT is likely to inspire profit-taking soon.
In short, though the company's earnings projection for a 19 cent profit in 2010 is compelling, the overbought stock is a technical liability. A revisit to the $1.50 level is possible.
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The fact that earnings from KKR Financial Holdings LLC (KFN) in Q2 fell from 25 cents to 14 cents per share isn't surprising. Last quarter wasn't a great environment for private equity - again - despite the fact that KKR Financial managed to line up some pretty attractive IPOs for later in the year (like Dollar General).
Things are getting better though, as the company's six pending IPOs indicate. An upgrade from FBR Capital confirms what the market's already been thinking.... or seemed to be anyway. Now it's not as clear.
Though the July/August rally hinted at better days ahead, the way KFN rolled over right before a major bearish October gap was closed hints that the masses are still looking for an acceptable exit price rather than a nice entry price.
See, gaps tend to be closed... eventually. That's the majority opinion anyway. Knowing that the top edge of the gap from October (at $3.18) was still begging to be closed, August's peak of $3.17 was suspiciously close to a perfect gap closure. Rather than wait for the full $3.18 mark to be hit, antsy traders may have decided to get out on the way up rather than on the way down.... because gap-based pivots can be very sharp turns.
Bottom line? The sellers never went away - they were just waiting for the right opportunity, and found it after July's modest rebound. A revisit to $1.00 isn't out of the question at this point.
This isn't the Small Cap Network's first look at TerreStar Corporation (TSTR). It was covered extensively in July shortly after the TerreStar-1 satellite was put into orbit. The concern then is the same one now.... despite apparent good news, TSTR shares just can't consistently attract new buyers.
Since then, it's been confirmed that the satellite broadband technology works. A TerreStar handset was successfully used to make a phone/voice call back on July 20th. Thus, the market's biggest worry should have been alleviated.
Did investors plow in though? Nope, which has been the ongoing problem all along for TSTR shares.
If good news can't prompt a breakout, how's the stock going to respond when news is mediocre, or even bad?
There's still a lot of logistical work to be done getting smart-phones ready to use TerreStar's satellite VOIP system, but that's easy in comparison; this is the stage during which the market should be going hog-wild over the stock. Instead, TerreStar shares are losing steam - fast.
If support at $1.23 breaks down, TSTR could make their way back to the $0.60 area.
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