Looking for a Bounce

• Posted by Greg Harmon
• on July 14th, 2014

It is never easy to pick a top or bottom in the market or a stock. But sometimes you get presented with a scenario where the risk reward ratio is so good it is worth a shot with a controlled amount of money. MBIA, $MBI, is one of those scenarios. The chart below shows a lot of information. First, the price has fallen a lot, and fast since mid June. Second, the volume on that fall was large in relative terms, but has tapered. Next, the stock price does not seem to like to spend a lot of time away from the 200 day Simple Moving Average (SMA) over the last 11 months. Fourth, it is technically oversold on the RSI. Next, that RSI is starting to turn back higher. The MACD is also leveling and the histogram showing a reversal. Finally, Friday the price confirmed a reversal foretold by the Spinning Top candle Thursday, and it is following through higher today.

I like this type of set up. It has a natural stop nearby at the Thursday low and if it mean reverts to the 200 day SMA a possible $1.50 or 15% upside. 30 cents of downside risk for a possible $1.50 of upside is a great risk to reward ratio. I bought some Monday for clients and myself at 9.53.

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