Novell (NOVL)

Company

NOVL 1-year chart NOVL 1-year chart

"Novell, Inc. delivers the best engineered, most interoperable Linux platform and a portfolio of integrated IT management software that helps customers around the world reduce cost, complexity and risk. With our infrastructure software and ecosystem of partnerships, Novell harmoniously integrates mixed IT environments, allowing people and technology to work as one." (company website)

NOVL 6-month chart
NOVL 6-month chart

Sell short

11-Sep-08. Today's short trades (TMRK and NOVL) are both contrarian in that MarketEdge calls them both buys. What I see in the chart that makes me go against that recommendation is that both have broken below support.

Novell hit a 52-week low in early August and rose through the entire month. It got a big boost after beating Expectations by a penny. That was, however, short-lived, for it began to fall immediately and has been in freefall ever since.

Before the earnings report it had been climbing steadily in a narrow channel, but the collapse has taken it far below that. This could be the continuation of a longer-term down-trend (solid blue line).

  • Percentage price oscillator (PPO) — positive momentum has been reversed, and the PPO line has crossed sharply over the signal line and is diverging from it.
  • Volume — high volume on earnings news, but followed by 6 consecutive down-days of about normal volume

Based on technical analysis, MarketEdge calls NOVL a "Buy" in a "strong upward trend," noting that it is "oversold" and at a "good entry point."

(I will note that I have been bitten several times by following MarketEdge's "good entry point" advice.)

Buy to cover

gain Bottom line
3%

18-Sep-08. Damn, damn, damn, damn, damn!

An automated buy order covered my short in NOVL today, leaving a lot of money on the table. I had entered a buy-to-cover order the other day when it seemed that NOVL might not go much lower. Today, in the wild swings of the market, NOVL actually went down below $5 before chalking up a big gain by the end of the day. My order triggered at $5.47, costing me almost 50¢/share in missed profit.

It's the problem I've had for years: Trailing stops are designed to "stop-loss" (or maximize profit) by ratcheting along with the trading price. What one would like to do is account for various contingencies, such as if the price goes up OR down by a certain percent, but the system won't allow that because you can't have more than order for any given lot of stock. Plus, on the Nasdaq stop orders are triggered by the bid price; you can't choose any other attribute (such as last price, or offer price). TD Ameritrade has something called "trade-triggers" that are programmed into their computers and only get entered into the trading system when the condition is met; there's a lot of flexibility in setting the conditions and you can enter multiple orders to account for a variety of possibilities. But... there's no equivalent of the trailing stop that moves up or down with trading -- you have to specify conditions in exact amounts. So, if you don't update them in real-time, they don't always work the way you'd like -- as in the case of NOVL.