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Is HTDS Ready For A Breakout Upwards?

Apr. 22, 2010 11:48 PM ET
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Share price for HTDS closed below 0.0030 for the first time in 40 days with the day wrapping up a closing black marubozu at 0.0029. Although the shadow on the marubozu is bearish, underlying technical indicators look encouraging for a bullish turnaround on Friday.

Looking first at the MACD(12,26), both the fast and the slow lines have been running on top of each other for the past seven days, since the last white opening marubozu was formed. Running just below and parallel to the 0 line, the MACD is sending out a clear signal that the stock has been trapped in a consolidation phase for the past week and is preparing for a breakout.

A breakout... but will the breakout be up or down?

To answer that question, I am turning to three other technical indicators: the RSI, Momentum, and Inertia - and all three agree with one another.

First, RSI(2) is at 12.75, having crossed below 20 in Thursday's trading. With not much further for the RSI(2) to go downwards, only two options remain: move horizontally or go back up, and any technical analyst knows that when the RSI(2) crosses from below to above the 20 line, share price is headed for the high grounds.

Price Momentum agrees with the Relative Strength Indicator. Looking at Momentum, the MTM(10) crossed into a bearish position below the EMA(5) line on Wednesday, then spend all of Thursday reversing direction to converge back towards the EMA(5). By close of trading Thursday, the MTM(10) is now positioned below the EMA(5), poised for a bullish crossover on Friday.

The third technical indicator suggesting that Friday will be a good day for HTDS is the Price Inertia indicator. Although share price closed down on Friday, the Inertia(14,10,20) line made a pronounced curve in an upwards direction from Wednesday's close of 65.65 to 66.62. While some of the best price increases are had when the Inertia line crosses below 60, rather decent increases are also realized within a day or two following Inertia's change of direction.

It appears that short investors tend to agree with the technical indicators on the direction in which share price is heading. One of the strongest indications of the short seller's opinion of the coming price direction is that short volume took an abrupt change of direction on Thursday.

On Tuesday, short sales increased from Monday's 13.14% of total volume to 30.33% of the total volume for the day. Short sales were significantly higher on Wednesday at 53.63% of the day's total volume. The abrupt change in volume came when short sales backed down to 31.62% of the day's total volume on Thursday.

To put it all into better perspective, there were 6,005,583 shares sold short on Wednesday from a total of 11,197,583 shares sold. On Thursday, there were only 2,229,160 shares sold short versus 7,049,880 in total shares sold. Whereas the total shares sold on Thursday decreased by only 37.04% from Wednesday's shares sold, the total shares sold short decreased 62.88% in the same period of time.

It is only my opinion, but I believe that all of the numbers and technical indicators show that most short sellers have covered their positions, and that they are ready to back off and allow the share price to move upwards again so that they can sell more shares short. This opinion is reflected in the sudden change of tone reflected in online discussion groups, where the tone of those labelled as "bashers" has given way to quieter, more focused discussion of HTDS.

Only tomorrow will tell if my opinion is correct, or if I am reading too much into what the indicators are telling me. Keep a watchful eye on HTDS. My sentiment for this stock, at this time, is a Strong Buy, but only if you are willing to go long.

Disclosure: The author of this article holds shares of HTDS in a long position.



Disclosure: Long HTDS

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