RatingsWatch: Buying the Selling in NetGear
The mid-month sell-off in Netgear (NTGR) gave traders a great opportunity to buy into the stock’s first pullback in bull market territory.
Shares of Netgear traded at their highest levels of the year in early July. From a high of more than $45, the stock dropped over the next three months, losing more than 45%. Reaching a bottom in early October near $23, NTGR has gained more than 51% in nearly two months as traders and active investors took advantage of the traditional holiday buying season – in stocking stuffers as well as stocks.
More recently, there is no doubt some of the profit-taking in the stock on Tuesday came from traders who had taken long positions in the stock as it pulled back over the past several days. By Tuesday, with the stock having provided traders with gains of 5% or more and finishing well above its short-term, 5-day moving average, traders were moving for the exits, sending Netgear lower by half a percent.
Netgear had earned very high, “consider buying” ratings during its pullback. In fact, the pullback was severe enough that NTGR earned ratings of 9 out of 10 for two days in a row. These extremely oversold conditions provided more than enough opportunity for traders to take positions on an intraday basis that were more than 3% below the previous, top-rated session’s close.
Note the follow-through selling on both the 21st and 23rd of November.
NTGR continued lower, actually earning no rating for two days after slipping into technically bear market territory. But there was no hiding the increasingly oversold conditions in the stock as it closed lower for four days in a row, earning 2-period RSI(2) values of less than 2 for two back to back sessions.
The buyers, however, arrived immediately afterwards, propelling the stock higher on Monday by more than 9% from its lowest levels of the sell-off. Traders who took long positions intraday during the stock’s decline, particularly on the 21st or 23rd, were able to walk away with a sizable piece of this move, as much as 5% or more.
Short term gains in stocks that had sold off aggressively in the holiday-shortened week were numerous on Monday, in both the blue chips as well as lesser known Nasdaq names like Netgear. And traders and active investors who were undaunted by the low-volume pullback leading into the holiday were swiftly rewarded by the snapback rally in the days afterwards.
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David Penn is Editor in Chief of TradingMarkets.com