Trade CNIT

Back around $1, w/ good volume

2013-02-05T19:52:00.000-08:00

Yes, CNIT's back around $1 a share right now. But today something interesting happened - the volume was pretty high with nearly 200k shares traded. I can't stress enough how important volume is for small cap stocks. That's especially true today with the skepticism around Chinese microcaps.

Teasing the resistance

2013-02-01T21:22:00.001-08:00

Our buddy CNIT ended the week on a pretty positive note, up 4.85% on >60K shares traded. If the volume had been higher, though, I'd be more optimistic. On the other hand, this was a very compelling positive sign compared to yesterday's flaccid action.

There's clearly a lot of resistance in the $1.10 to $1.20 range. This week was notably positive rather than sideways, and suggests that next week CNIT will attempt, probably more than once, to get above that level of resistance.

Just like back in October 2012, however, it could easily falter back to the ~$1 level. BUT, if there's enough volume to show broader investor appeal, then the stock might just have a breakout chance.

There is no new news from the CNIT website as of today. Any other news coming out of the company in the coming weeks could also positively impact the stock price.

Have a great weekend!

Steady as she goes

2013-01-30T13:57:00.000-08:00

Yesterday I mentioned that I was looking for a small early gain and a volume around 100K shares to feel decent on today's action. Well with a daily trade volume of 99,956 shares traded and a gain of 5.94%, I'd say today wasn't so bad. Of course, a higher volume would be much more meaningful for this gain, as we could easily see the stock drop back to $1 tomorrow, but having a 3rd consecutive day with relatively high volume is certainly a good sign.

Long term technical analysis + today's action

2013-01-29T17:38:00.002-08:00

Today's price action on CNIT was quite interesting, but before we get to that let me make a few comments on technical analysis for this stock.

Given the lack of liquidity in small cap stocks, technical analysis tends to be less useful when applied for short or even mid term trades. Long term trends, where volume has time to accumulate, can be interesting to look at, but even then there are frequently less discernible patterns than for highly liquid stocks. Note also that in microcaps there tends to be less machine trading, which, among other things, means that patterns will be fully dictated by personal investor sentiments, funds (where appropriate), insiders, and, largely, news.

The following graph shows the daily chart since early 2011, with price consolidating over the last year in a range around $1. The fact that the range has been so tight for such a long period of time is a combination of inaction in the stock as well as a potentially bullish indicator.

The white line is the 200 DMA. This moving average has been on the decline for years, and currently stands at 1.02. The 100 DMA and 50 DMA, which are plotted below (in yellow and pink, respectively), have been below the 200 DMA for this entire period. The 100 DMA is ticking up, however, and a move above the 200 DMA could also be a bullish indicator.

There are a variety of additional long term patterns and indicators which could be used to make a bullish case for CNIT, but as per my earlier caution I don't think it's worth making too much of a technical case for a microcap stock.

Today's action
Now onto today's action. The stock open lower, shot up to spend most of the day between 7% and 11% up, and finished the day at a clean 0% change. What does it all mean?

Volume was quite high today, with over 200k shares traded compared to a 30-day average (which includes yesterday's high volume day) of around 30k. This morning's trading felt very positive, and represented the majority of the volume, with the price dwindling on few trades throughout the afternoon.

It's possible there were some folks who had been in the stock long term and were ready to get out at any early signs of a breakout. It's also possible that folks who bought in at the $1 +/- $0.2 (and there are many of those - do a volume at price chart for the past year to see for yourself) were happy with a 6-10% short term gain. In either case, getting those folks out of the stock isn't necessarily a bad thing for a longer term investor, or for someone with the patience to ride a longer breakout.

From a technical standpoint (for the necessary caveats refer back to paragraph 2), the candlestick for today's action was a "shooting star". It shot up, but ended right where it ended yesterday, but at least made up for some lost ground in early trading.

Generally a shooting star is a bearish pattern, though it can also signify a trend reversal. In either case, it requires confirmation and more indicators before it's recommended a trader take action on it (but hey, don't all technical indicators require confirmation?). For me, this is more bearish than bullish from a technical standpoint because it looks like a failed breakout. Looking at a long term chart, however, you might read it as a trend reversal towards the upside.

Since, from what I can tell at least, there wasn't any particular news out of CNIT today, it's highly likely that today's trading was largely impacted by yesterday's bullish patterns and speculation about what direction the stock might take. I'd wager the afternoon drop-off was due to investors feeling impatient and either taking small short-term gains or slightly lower long-term losses than they would at $1.

With all this, I believe tomorrow will be a deciding day for CNIT. I'm looking for decent volume (at least 100K shares traded) and a small early gain to feel good and start sensing more bullishness out of the stock. If however volume is very low, this could signal resumed inactivity for CNIT trading. If volume breaks upwards of 350-400K shares with a gain, I would add to my position expecting a breakout to occur with significant potential upside.

1/29/13 early trading

2013-01-29T09:53:00.002-08:00

In early trading this morning, CNIT is up 10.88% on pretty good volume.

A quick look at market news / media attention brings up an article on Smallcap Network pointing out that there may be an opportunity in CNIT: http://www.smallcapnetwork.com/Three-Ways-to-Get-the-Trading-Week-Started-Right-OCZ-CERP-CNIT/s/via/1789/article/view/p/mid/3/id/329/.

In their words:

"Last but not least, you have to take a big step back to really see it, but China Information Technology, Inc. shares have been brewing up a breakout effort that's on the verge of finally being unleashed. The chart of CNIT below says it all."

And here's the graph they reference (source is the link above):

What's New?

2013-01-28T18:39:00.003-08:00

In my earlier post I discussed a potentially renewed interest in China Information Technology, Inc., or CNIT, who, not surprisingly, provides IT solutions in China. The company is headquartered in Shenzhen, one of the big commercial hubs of mainland China, and was the result of a reverse merger that was, at least in part, one of the reasons US investors started retreating in the past year. With the latter in mind, I've decided to start re-examining CNIT as it is, in my personal opinion at least, still potentially worthy of some interest.

In this post I want to talk a little about news around CNIT.

If you were to Bing or Google "CNIT", you'd find their Chinese language website and the English version. I don't speak Chinese, and I expect most readers probably don't either, so we'd end up reading the English site. In the "News and Events" section, you'd find that the latest press release was from 11/12, announcing quarterly results (which were far from great by the way), while in company news you'd see nothing since 7/5/12, and you'd probably be unhappy that the "media coverage" section showed nothing new since January 2011.

Ok, so for potential investors, no news on a foreign microcap that's been dropping in value for a year isn't a very good thing. However, I thought this was worth a second look.

On the Chinese version of the website, you instantly notice that there's more information (and that's in addition to the fancy Kanji that instantly make the page look busier...). For one thing there are more options in the top navigation bar, and also if you look carefully the news section has items from 2013!

Thanks to today's nifty modern browsers, I translated the page to get a sense for what was going on. So without further ado, here's the most recent company news on CNIT's website, with some automated browser help for the translation...:

1/21/2013: "I believe that we will work miracles": this is an account of a "Chinese New Year Gala" hosted in part by CNIT, where CNIT Chairman and CEO Jianghuai Lin makes an opening statement. He mentions the progress of projects begun in 2012 for various areas of investment including medical technology, geographic information, and education. He makes various mentions about the value of great employees at CNIT, and talks about making organizational improvements to better motivate and focus employees in 2013. He also talks about making further investments in cloud infrastructure in this coming year. The ceremony continues with awards for excellence and more mentions of the importance of a strong team at CNIT. Of course, given that this is a celebration of the Chinese New Year, cultural festivities ensue, and final remarks talk about the challenging year ahead, where with "energy", "solidarity", and a "tenacious struggle", the company will continue to build products that accrue to the brand values.
1/08/2013: "The Yongtai transit through the acceptance of the National Innovation Fund": this is a short press release to announce that the Yongtai transit project achieved acceptance from the Ministry of Science and a panel of technology SMEs.

If you ask me, it's reassuring to see there's news coming out of CNIT. Now of course we want more program acceptance and business partnerships, and more positive results and progressive restructuring, but a motivational celebration and the confirmation of a project under way are also good.

Earlier today, the stock was up 2.02% with over 330k shares trading hands, which is 25+ times greater than the daily average of the last 30 days.

In after hours trading, which was pretty much nonexistent in the past few months, the stock is up nearly another 4% on 9k shares traded. Sure, it isn't much, but given the lack of liquidity in the stock, even a little AH trading can be meaningful.

With that, please do remember all the caveats and risks of trading small foreign stocks with scarce information. Tread cautiously, but also don't let fear drive you to total inaction.

Happy (belated) New Year CNIT!

Back in...CNIT?

2013-01-28T10:06:00.002-08:00

What better day to come back to a neglected blog about a neglected stock than the day where volume, just midday, is over 10x the running average, and the stock is up several points to boot.

Let's not get excited, our friend CNIT, just like many Chinese tech microcaps born largely out of overexcitement for the Chinese market a couple years back (and, of course, the infamous reverse merger trend), has been battered and bruised in the past year.

Struggling within a range of ~.7-1.3 since June, but staying mostly within .9-1.1, the stock has seen little volume to squeeze it out in either direction.

In a later post I will discuss news surrounding CNIT. While there hasn't been a lot, there hasn't been none at all. If you've looked at CNIT's website and are wondering what I mean, check back later and I'll explain.

Great article: "What to do with CNIT"

2012-04-24T18:54:00.000-07:00

Here's a great article on CNIT that was published today: http://www.smallcapnetwork.com/What-To-Do-With-GTIM-CNIT-and-CYTK-Now/s/via/1789/article/view/p/mid/3/id/129/.

$2M share buyback

2011-11-26T12:54:00.001-08:00

11/25/11 EOD: $0.90

Yep, it's last week's news, but I haven't updated in a long time and this is interesting news.

Mr. Jian Huai Lin, Chairman & CEO of CNIT, has decided to purchase up to $2M of CNIT stock as part of the stock repurchase program that was extended in September. The news helped briefly push the stock back above $1 the following day, after it had been beaten in the previous week due to a less than glamorous quarterly earnings report.

On black friday (11/25), amidst a failed market rally, small stocks largely suffered and CNIT fell on fairly low volume. I wouldn't read into this too much due to the volume and the lack of any additional substantial news.

Rebound back to $1

2011-10-10T19:57:00.000-07:00

10/10/11 EOD: $1.01
+0.08 (8.60%)

Since my last post, CNIT has had some pretty interesting days. Here's an 30 minute chart of the past couple of weeks:

In my post from 9/29 I predicted that if the stock breached below the $1 mark, it was entering dangerous territory that could send it much lower very fast. This materialized as CNIT hit $0.75, a 25%+ drop from the 9/29 close, just a few days later. Of course, the market wasn't helping and small caps were dropping like flies as investors fled risky assets, but CNIT's 25% drop was definitely a scary sight. Maintaining a price above $1 is important both for psychological and technical reasons but is also important to avoid potentially getting delisted from a major stock exchange like the NASDAQ (I wasn't able to find a definitive answer on the requirements for CNIT on maintaining its listing - anyone have that?).

The past few days have been great for the stock, as it has recovered to finish today on its HOD at $1.01, hence just above $1. This is without the help of the repurchase program, which could kick into gear if the company decides to start repurchasing shares (should be a killer deal for them at this price).

In other news, there has been...little news about CNIT in the past month or so (since the announcement of the stock repurchase program being extended). They say "no news is good news" - I'd like to hear something though ;)

As long as the economy doesn't break down, I have great faith in CNIT's ability to rebound from this area. I am considering reentering at $1.05-1.10.

Dangerous territory

2011-09-29T21:38:00.000-07:00

9/29/2011 EOD: $1.02
+0.00 (0.00%)

This market is really pretty treacherous, and totally unpredictable. CNIT is faring poorly, having underperformed all major indexes in the recent past, and approaching dangerous territory as the stock now border $1 per share. $1 is a psychological barrier for many small stocks like CNIT, and when breached, it can sometimes send the stock much lower very fast. Having said that, $1 can also serve as an area of strong resistance. Today we saw the stock briefly go to $0.98 and then return to $1.02, ending the day unchanged. Volume today was also quite high (~300k) which is a good sign that this area will serve as a strong area of resistance for CNIT.

Truthfully the direction of the market will ultimately determine whether CNIT rises from this level or shoots lower. If the market flip-flops for a while, or resumes a bullish trend, I feel *very* good about CNIT. If the market continues to sink, then CNIT may go lower with it.

Green speck among the Red

2011-09-21T23:26:00.000-07:00

9/21/2011 EOD: $1.18
+0.01 (0.85%)

It's not really significant given the really small volume, but CNIT was one of the very few stocks to be in the green today :)

Evaluating CNIT's extension of the $5M stock repurchase program

2011-09-20T21:34:00.000-07:00

9/20/2011 EOD: $1.17
-0.05 (-4.10%)

On Friday, 9/16/2011, CNIT announced in a press release that they were extending the $5M stock repurchase program they initiated on 9/27/2010 (see the press release from the original announcement from last year here). There's a lot to say about what this announcement might indicate and what it might do to the stock price, but before that let's take a quick look at CNIT over the last month using this hourly chart.

We can clearly see that the stock is consolidating in the $1.15-$1.30 range, and that there's pretty strong support and resistance at these respective levels. Volume has been very low, frequently staying below 100k shares traded per day. Market conditions have been tough, though the stock has under-performed the overall market which has, in fact, risen over the last month. The stock is trading significantly below its 200 DMA, which is now at $3.09 (note that in the chart about the yellow line is the 200 hour MA, not the 200 DMA), and also much lower than its 50 DMA which stands at $1.70.

Fundamentals of a stock repurchase program
Ok, so what's in store for CNIT now that they've extended their stock repurchase program? When a company announces a stock repurchase program, it generally is an indicator that the company is confident in business outlook. Fundamentally, repurchasing stock does a couple of things for the company:

It reduces the number of shares outstanding, which in turn increases earnings per share
It increases the portion of total shares owned by insiders (all other things equal)

As mentioned above, stock repurchase programs are usually indicators of confidence and generally speaking investors like when companies repurchase their stock.

It's very important to note that, of course, stock repurchase programs are one of many things that affect a stock's price. You can't look at it in a silo and forget about all the other factors that may increase or decrease the stock price.

Cash on deck

In order to repurchase stock, the company must have cash. In its latest 10-Q, CNIT shows cash and cash equivalents of $9.6M, which is down from the $18.2M they declared at the end of their FY10 (March 2011 10-K). This decrease in cash came primarily from investment activities, particularly for software purchases and software development costs. This cash (all other things equal) enables them to repurchase the full $5M of stock in the plan.

Repurchase activity since 9/27/2010

As far as I can tell (mind you, I'm no accountant), CNIT has not yet repurchased any stock as part of the program they announced on 9/27/2010. Their balance sheet shows no change in treasury stock since their '09 10-K, so unless there's something fundamental I'm missing then they still have $5M of stock to repurchase. This can be viewed as a good and a bad sign. The positive way to look at it is that they can still purchase a whole $5M of stock, which represents nearly 10% of the current market cap based on the current stock price. The negative way to look at it is that if they didn't purchase any since the first announcement, there's no telling whether they will after the extension announcement they made last Friday.

Possible effect on stock price

As noted above, a stock repurchase program is generally viewed as a good thing for the stock price, as a decrease in shares outstanding and an increase in EPS, combined with a boost of confidence in the company, can push the stock higher.

After the initial 9/27/2010 announcement of the stock repurchase program, CNIT climbed slowly for a few days and then surged, rising 50% at its high compared to the opening price on the day of the announcement.

The S&P 500, in that period, rose only a couple of points, though it's important to note that in the fall of 2010 markets were very bullish, while now the general feeling is that we're in a pretty bearish period. Also, after the initial announcement made in 2010 CNIT had 14 out 15 straight sessions in the green, whereas after Friday's announcement CNIT has already been down two sessions in a row.

Generally speaking, I am still long CNIT, though currently I am holding onto a position rather than adding more. What concerns me most is the weakness in the overall market, as well as the weakness seen in popular China names such as SINA, SOHU, and RENN, as well as big sell-offs in most small China stocks. I retain a great amount of confidence in CNIT's business model and ability to execute, but am cautious in my entire portfolio, and am thus reflecting this caution in my investments in CNIT as well.

A couple of things would make me feel better, such as a break through $1.30 on good volume, or a continued consolidation in the $1.15-$1.30 price in a down market. Pending further information and price movements, I'll sit back and watch for a while before making a call on CNIT at this time based on this news.

Stagnating?

2011-09-14T21:18:00.001-07:00

09/14/11 EOD: $1.20
0.00 (0.00%)

Today's CNIT stock performance was very weak given the generally positive vibe in the markets. With very mild volume (~118k shares traded) and flat for the day, there isn't a whole lot to feel good about. What is true, though, is that if the stock continues at this range for a while, we could consider this flatlining to be a positive sign of consolidation and support in this area.

A variety of sources are quoting fundamental strengths for CNIT as well, such as the following:

China Analyst points out that with a net profit margin of 20.55% for the last 12 months, CNIT is one of the most profitable (in terms of margin) software stocks out there, sharing the space with big names like MSFT and ORCL.
Zacks reiterates that CNIT is potentially undervalued in terms of enterprise value to EBITDA, something that's been true in CNIT's case for at least the past year.

Back for more CNIT

2011-09-11T12:15:00.000-07:00

09/09/11 EOD: $1.18
-0.05 (4.07%)

It's been a while since I've commented on CNIT. In the last month I've been 10 days in Alaska, have gotten a new job (still within the same company), and have spent more time focusing on large cap stocks. That said, I still have an interest (and a stake...) in CNIT, so let's get back to thinking about this little guy.

Here's a look at the daily chart for the last few months:

The first thing we can see is that, after the initial plummet that happened after the last earnings announcement, there was a fairly substantial bounce (as predicted) with buyers coming in to take advantage of the new lows. That said, CNIT has slowly dwindled back to the same levels in the past few weeks. $1.20 seems like a fairly strong area of resistance, and we do see the curve flattening a little, but really there's no telling how much lower this could actually go. The main worry that I have is the fact that the economy is really in the dump right now, and as we all know when people are afraid and retreat from equities, the first things that get kicked out of the portfolio are the riskiest assets, of which small Chinese caps are a part. Note in particular that volume has been very low over the last 1-2 weeks, reflecting the very small number of buyers for this kind of stock when the general economy is feeling this much pressure.

Let's revisit some of the fundamentals on CNIT:

P/E ratio: 1.90. That's still extremely low and difficult to justify, even in spite of the very poor recent earnings announcement.
Income margin: >20%. This company is not just making money, it's showing off a very solid income margin to boot. It's sad that companies like this don't get rewarded more than all those start-ups that promise big but report losses over and over.
Insider Ownership: >40%. The insiders have a lot riding on the success of this stock.
EPS growth in past 5 years: 57.9%. Huge growth in the past 5 years, with some slowdown this year. The next earnings report will be huge in determining what happens next for the stock.

Sticking to the range

2011-08-19T15:45:00.000-07:00

08/19/11 EOD: $1.58
+0.10 (6.76%)

It's great to see that CNIT is sticking to the range we established on 8/15. I slightly undershot the support, as it seems it's closer to $1.45 than $1.40, with heavy resistance around $1.60 as we saw on three occasions today, as well as on Tuesday and Wednesday.

Today's good performance despite heavy market sell-offs is a pretty good sign, though CNIT is still likely to trade within this range for a little longer.

I'll be in Alaska all next week so won't be commenting on the blog, though you can be sure I'll be playing this range. Good luck to you all.

New resistance

2011-08-16T19:58:00.000-07:00

8/16/2011 EOD: $1.46
+0.01 (0.69%)

CNIT traded right within the expected range today ($1.45-$1.63), except it landed at the low. Clearly, there's a good amount of resistance at the $1.60 level. After a small initial jump, the stock flat-lined at just about the opening price, and all this with relatively good volume around 500K. The nice thing to note is that, given the volume, this means there's a nice balance of buyers and sellers at this level and we can potentially rest easy about continued downfall (i.e.: the low may have been reached).

Little bounce

2011-08-15T22:24:00.000-07:00

8/15/2011 EOD: $1.45

+0.23 (18.85%)

CNIT experienced a nice little bounce today, as expected after being heavily sold off over the past three sessions.

While it was fairly impressive, a couple of caveats are in order:

Volume wasn't that great, amount to just over 500K while all three selling days that preceded had higher volume (1.3M, 680K, 540K).
The stock met heavy resistance at $1.55, just under last Wednesday's open price of $1.60, suggesting it might trade within a range below this for a little while.
The lift may have partly been a result of (temporary) eased investors after the gap posted by US indexes when the US was downgraded was filled today.

That said, I'm not all negative! What I'm looking for tomorrow, in order to have renewed confidence in the stock, is continued good volume (300K-500K would be nice), a pretty candle (no dark cloud bullshit), and a range between $1.39 and $1.60, ending slightly higher (no need to prematurely try to break out).

I'm expecting resistance to be in the $1.35-$1.40 region, or $1.24-$1.27 on weakness, based on the action in the previous two sessions.

Couple of news headlines today:

Oh and, in case you missed it, Rodman & Renshaw downgraded CNIT from an "Outperform" to a "Market Perform" last Friday. Dunno if I trust those guys though. They have price targets on a whole bunch of small Chinese stocks and aren't getting any of them right. Their previous price target was $9.00. I don't know what the new price target is.

Institutional Ownership

2011-08-14T17:34:00.000-07:00

I checked out the detailed institutional ownership list a few months back, and again a few days ago, and noticed a few things I thought I'd share:

A little over 15 million shares are held by institutions, representing about 29% of CNIT's 52.3M shares
Morgan Stanley, who as of 3/31 only owned about 70k shares, drastically grew their investment in CNIT over the next few months, as they now own over 1.7M shares (>1,000%)
Vanguard Group, on the contrary, had over 1.1M shares on 3/31 and by 6/31 had sold out of their position

Here are the top 10 institutional investors:

For the full list, check out the detailed institutional holdings section on the Nasdaq website.

It's very important for small caps to have a large amount of institutional investors (showing trust in the company's growth and operations) as well as a large amount of insider investment. While institutional investment hasn't grown, it is still reasonably high at around 30%, which is a positive sign. How much of the recent selling (after earnings) was institutional I do not know.

Hitting new lows

2011-08-13T14:43:00.000-07:00

8/12/2011 EOD: $1.22
-0.08 (-6.15%)

The correct word to use for this week, when describing CNIT's stock performance, is "abysmal". Indeed, after a poor Q2 earnings report, the stock was justifiably punished, and did not do much rebounding at all. For the week, the stock finished down $0.68, or -35.79%. Volume has been, as expected, higher than average (over half a million shares per day), but of course the sellers have been in greater number than the buyers.

Here's the 15 minute chart for the last 4 days, with the drop occuring on August 10th after earnings were announced in the morning:

As you can see, CNIT is hitting new 52 week lows and has yet shown no signs of support. At these levels, and with a small stock such as CNIT, it's incredibly difficult to predict how low the stock might go. Only a significant volume of buyers jumping in on some kind of positive news could, in my opinion, give life back to the stock in the coming number of sessions. That or a general market lift, which I am not betting on.

What do you think about the near term (1-2 month) future of CNIT?

CNIT Q2 2011 Earnings

2011-08-10T05:33:00.000-07:00

Here's the official press release.

"Revenues decreased 16.79% YoY to US$27.89 million
Gross Profit decreased 29.03% YoY to US$ 11.92 million, with Gross Margin shrinking to 42.75 %
Operating Profit decreased 54.98% YoY to US$ 5.46 million
Non-GAAP Net Income decreased 43.03% YoY to US$ 5.63 million
Non-GAAP Fully Diluted EPS was US$ 0.11
Cash flow from operations was US$1.90 million vs. $3.45 million a year ago"

They're blaming the unexpected slowdown to tightening policies by the Chinese government as it attempts to slow inflation (e.g.: reduced investments in infrastructure projects). They restated that they were still fairly pleased with generating $30M in new contracts during the quarter (I'm assuming this is future recurring revenue) and improvements in their Display Technology product sales as well as System Integration services sales.

It's going to be ugly today, and possibly for a while, despite this news not really changing that the company is still dirt cheap.

CNIT failed to meet estimates only twice before, in Q1 2009 and Q4 2010. Here's what happened on each of those days:

Q1 2009: EPS was $0.09 vs. an expected $0.13, a -30.77% miss. The stock opened down about 14% and continued to fall during the day, ending with a 20.57% fall. The stock recovered its pre-earnings level 2 months later, during a run-up coming prior to the following earnings statement, where it beat.
Q4 2010: EPS was $0.21 vs. an expected $0.23, a -8.70% miss. The stock opened nearly intact (up about 1% but, while it reached an HOD a couple points higher, ended the day down 14.69%. The stock has not recovered since, as this came just over 5 months ago at which point CNIT was in the huge downtrend that has taken it to today's levels.

Needless to say, there should be a fairly sizable drop today, with possibly some opportunities to profit from day trading long if you consider it gets oversold. Of course, I can't possibly be short, so I'll either stick to buying some more cheap shares (i'm very low on shares, ever since I got mostly into cash a few weeks ago), or by staying clear and seeing where it goes.

Market noise; Overcompensation

2011-08-09T18:22:00.000-07:00

8/9/11 EOD: $1.85
+0.03 (1.65%)

Market noise
Markets saw a pretty incredible reversal today, after seeing one of their most dire sessions on Monday with US indexes free-falling. In today's formidable rally, the NASDAQ led the charge with big names like AAPL and MSFT rising 5.89% and 4.49%, respectively. A couple of these recovered from Monday's losses, with others coming close. Tomorrow is another day, but at least today investors breathed a sigh of relief.

CNIT fell with the others on Monday, dropping at one point to $1.76 and ending the day at $1.82 (down $0.18 from Friday's close). Today, the gains for CNIT were modest, as was volume. I attribute the low volume to greater interest in trading bigger names on a day where investors were busy recouping from Monday's bloodshed, and the small rise perhaps to some aversion to tomorrow's earnings.

Overcompensation
CNIT will be announcing their Q2 2011 results tomorrow morning, before the opening bell. While it's impossible to tell what the reaction will be, regardless of what they announce, I do think that the reaction will be an overshot. In other words, if the stock shoots up, it'll be quickly overbought and it's worth selling high to get back in lower (may even shoot up and then tease negative territory, similar to the stunt ZSTN pulled last week on 8/3). If, on the other hand, the stock falls in response to CNIT's report, then I have prepared with a series of limit buy orders to capitalize on cheap prices and bet on a bounce.

Looking at the past 12 earnings reports, the average daily range for CNIT was 12.1%, with a range as high as 38.8% in one case. Of course, that doesn't mean you always have a chance to sell higher if you buy a dip on earnings, but as long as the report isn't dreadful, I'm sticking to my buys.

A dreary market

2011-08-07T16:43:00.000-07:00

What a hideous selloff in the last week... On July 27th, I mentioned that I was shifting a majority of my assets into cash (http://tradecnit.blogspot.com/2011/07/cash.html), and I'm glad I did. Everything suffered, even the biggest most reliable names. The "correction" has been brutal already, and presumably already prices in a number of things that people are fearing for next week. In particular, investors are freaking out about the US's downgrade from a AAA rating to a AA+ rating by the S&P. But frankly I think this should be seen as good news, for two reasons:

The downgrade "only" put the US down to AA+ rating - really it should have gone lower, so losing one notch might not be so bad.
Are investors blind enough that they didn't expect this to happen? the huge drop in the past 10 days must be already pricing in some of this, and really I think it would have ultimately been more damaging if rumors and expectations of a drop continued rather than a drop itself.

Of course, futures are down (about 2% as I write this post) and there's likely to be a lot of blood tomorrow. But if there's anything rational left in the markets, then they shouldn't drop too significantly during the rest of the week, or will perhaps even rebound mid-week.

That being said, keep some cash and some gold, and only invest in risk you're willing to bear.

Stock update

2011-08-07T15:18:00.000-07:00

8/5/11 EOD: $2.00
+0.12 (6.38%)

On Friday, CNIT saw a pretty big boost at reasonable volume (350k+ shares traded), and played within the predicted range of $1.85 to $2.13 (see http://tradecnit.blogspot.com/2011/07/new-range.html). The weak market isn't helping, of course, but $1.85 seems to be a pretty strong area of support for the stock (though earnings might take it below, if only temporarily, as speculation can drive huge movements in small cap stocks), and $2.10-$2.20 will continue to be a big area of resistance unless again the earnings report shows so much strength and high future expectations to warrant a break (my guess: unlikely).

See how well the previously established range worked out on Friday:

I anticipate that in the next couple of days, as we get closer to the earnings announcement on August 10, volume will be at least 300k and possibly higher. There will be many opportunities to trade the range and possibly also some opportunities to grab shares at a cheap price if the stock gets oversold for some reason. EPS may be lower than expected if the earlier announcement about Q2 contracts was a hint of weakness, but the real news, as usual, will be whether the company discloses positive or negative guidance about the remainder of the year. Refer to this past post for more analysis on the upcoming earnings release.

The only recent news I've seen is this article on SmallCap Network suggesting CNIT is one of the stocks to buy in the current overall market selloff. I would tend to agree. There's huge upward potential for CNIT.

2011-08-02T13:36:00.000-07:00

CNIT 8/2/11 EOD: $2.08
-0.02 (-0.95%)

According to this official press release, CNIT will announce its second quarter 2011 financial results before the market opens on August 10, 2011. There will be a dial-in for the live conference call so be sure to check the page for details on how to attend.