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Novation Companies, Inc. Message Board

  • vassott vassott Nov 3, 2005 9:22 AM Flag

    A 2 year Analysis

    It was �suggested� that I take a look at the TWO-year chart of NFI. So I pulled up a weekly 2-year chart. In looking at this chart, and at the risk of being labeled a �sycophant� once again, I find an even more compelling reason to buy at the current level.

    NFI has been in a long term down trend from its high of 70 dollars back in March of 2004.The second touch point of the downtrend occurred in December of the same year at 58 dollars. Currently, that trend line sits at around the 44-dollar level.
    Four weeks ago, NFI tested a two-year support level at 25 dollars and held. Over the past month the price has been moving higher (up about 20% off the low) on average volume and is testing the low end of the previous higher trade range of $30.50 � $42.25.

    Both the Stochastics indicator and the Williams %R indicators have begun to reverse from over sold levels. You will also note that the Bollinger Bands are beginning to compress as well. The 10Sma is starting to turn up as is the MACD.
    Basically, the weekly chart looks very much the same as the daily chart did just 3 weeks ago and we have seen a 20% gain off the low as a result.
    Therefore, my opinion remains the same. Based on the weekly chart, I believe a POSITION trade with a STOP LOSS on violation of support at $25 and an upside target of $42 looks good here. A conservative trader may want to wait for confirmation of a breakout into the higher range with a buy over $30.50. With a potential risk of about $5 vs. a potential gain of $12.50 (excluding dividends paid), I find NFI to be a very attractive risk /reward buy at this level.

    If the dividends are of less interest to you and you want to limit your risk while maximizing your gain potential, you may want to take a look at the January $30 call options (NFIAF) at around $2 or the January $35 calls (NFIAG) currently under $1. The potential risk is obviously 100%. The potential gain however is upwards of 500% should the high target be realized prior to expiration.

    Good luck trading / investing

    Vasso

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