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Universal Travel (AMEX: UTA) Completes Perfect Retracement

Universal Travel, one of my monster winners in the China arena, has been under some real pressure of late, and is worth a look for both traders and investors right now.

Technically, this stock looks ideal. Here's a perfect "Fib Retracement". Technical analysis is the attempt to predict the way a stock will move based on patterns that have repeated themselves in the past using information provided in charts. 

Leonardo Pisano Fibonacci was considered the most brilliant mathematician of the Middle Ages. He was born in 1170, and died in 1250. Amongst numerous mathematical formulas that still apply today is Fibonacci's "Golden Ratio".

I'm no mathematician or engineer, but I can tell you the basics. Fibonacci determined that there are ratios that constantly re occur in nature. The ratios are 38.2, and 61.8. For example, the petals on a sunflower are a certain length, followed by another that will either be 38.2% shorter than the first, or 61.8% shorter. In most people, your arms extend about 61.8% down the length of your body. The Pyramids of Egypt were constructed using Fibonacci ratios. 

Hard core technical analysts would like you to believe charting is pure science. However, it's as much an art. The seem to be a million different tools, and choosing the ones you like and work for you is the art. In my work, I've found the Fib retracements work a high percentage of the time.

If you want to educate yourself on Fibonacci retracements in technical analysis, there's a three minute video at the home page you can watch. I'm a big fan of Fibonacci Retracements for identifying good entry levels in an inclining stock, and good target levels for profit taking.

There's a three minute video at the home page on Fibonacci retracements. If you want to learn more, just check it out. Go to the "Trading Tab" on the player, and click on the Fibonacci Retracements segment.

Now, on to Universal Travel (AMEX: UTA). If you're a trader and looking to go long, this is absolutely perfect. If you're an investor looking for a good entry level, again- perfect. Here's the chart.

I've put in the Fibonacci retracements as measured from the time volume started coming into the stock. As you can see, from late May to mid August this stock made a meteoric run from $5.45 to $17.23- very strong.

I published a strong buy on this stock in June at $8, and we've since had more than a double. Since making it's high in late July, the stock has been working its way through a corrective phase, and has to bottom out at some point.

The company is going to deliver about $1.10 in EPS this year on about $100 million in revs- up about 50% over last year. Fairly typical for a quality China growth company. 

As you can see, the stock has been dropping of late. I can't find any fundamental reason, but I've read reports there could be a supply of stock from warrants related to a previous financing that have recently become free trading. This is unconfirmed, but might explain the steep drop.

On Friday, the stock fell to a nearly perfect 61.8% Fibonacci retracement of $9.94. The closing print on Friday was $10.06. Here's why I love this opportunity. This stock has come down to a critical point. It has to hold around these levels, and in my view is likely to hold around these levels as the corporate performance is strong. 

If you're a trader looking for a rebound now is the time to get involved. If this level doesn't hold, technically it's all over for this stock. However, a bounce from these levels is the more likely scenario.

Therefore, as a trader, you can pile it right now with a tight stop. You don't have to give it much room to go the other way. If it goes much lower, there's a real problem. 

Here's my recommendation for traders- trade into all you have the stomach for around $10, and put a stop loss in at $9.50- a 5% risk. If this $10 area doesn't hold, there's probably another leg down. More likely it will bounce here, and give you the opportunity to scalp two or three points.

Strong Buy for both traders and investors at $10- stop loss $9.50. My long term target remains $20.
 

Moving On

There's three ideas I'm dropping coverage on. Dercyz Scientific (OTC BB: DYSC) has not developed the audience I was looking for, and therefore I don't see the point in having it on the site.

Procera Networks (AMEX: PKT) treated us to a good surge in June, but there have been two major problems with that idea. First, they did a stupid financing earlier in the year, and the market hates it. Secondly and more importantly, the analyst who covers the stock has simply been wrong in his forecast. PKT dropped.

Singletouch Systems (OTC BB: SITO) has been a big disappointment. I was expecting their relationship with WalMart (NYSE: WMT) to turn into something significant, and WalMart is taking their time getting things going. If the revenues start to materialize, I'll go back to it.

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