Fri Jul 11 2014
Live Index (1454 articles)

Left-for-Dead Internet Stock Appears to be Staging Its Comeback

It wasn’t long ago that SINA Corporation (NASDAQ: SINA) was trading near $ 90 per share, but it has been a brutal 2014 to date for this big Chinese Internet stock. SINA bottomed in May just under $ 43 for a nasty 50%-plus drop in just over six months. This stock was left for dead and long forgotten.

But SINA has seen hard times like these before; its fall between 2011 and 2012 was much worse. The good news for shareholders today is that the stock bottomed not far from its 2014 low, and that tells us that there are buyers at this level. No matter how high the stock flies and how hard it falls, there seems to be a floor underneath.

The stock’s May 22 dip appeared to be a selling climax, coming on heavy volume. The next day, SINA scored a big move to the upside, also on exceptionally heavy volume. I liken this to the tide rushing out and then rushing back in again. The water was at an unsustainably low level and, for a stock, extreme panic left a vacuum of demand that “had” to be filled.

The worst is now over, and I think we have a buying opportunity.

Moving average analysis shows prices closing above the key 50-day average for the first time since January. And the bowtie moving average crossover system developed by trader Dave Landry fired off a buy signal. This is a three-part system comprised of the 10-day simple, the 20-day exponential and the 30-day exponential averages. When a trend changes from bear to bull, we often see the averages cross within a day of each other, and that leaves a bowtie appearance on the charts.

Momentum indicators such as the Relative Strength Index (RSI) also show bullish movement for the first time this year. It is not the most powerful move, but it does tell us that there is at least some power behind the rally we’ve seen from the May low.

Finally, SINA has moved above standard resistance features on the chart. The trendline from January is now broken to the upside. And resistance from the top of its April-June trading range is arguably broken to the upside, as well. I say arguably because this week’s decline took the stock back below that level. However, so far, I find it to be an acceptable violation. If it continues lower, we may have to reevaluate.

SINA has a good chance of running to resistance at the $ 57.70 level, which would be an approximate one-third retracement of the 2014 decline.

Recommended Trade Setup:

– Buy SINA at the market price
– Set stop-loss at $ 44.25
– Set initial price target at $ 57.70 for a potential 24% gain in six weeks

Live Index

Live Index