Looking Primed for Breakout

 | Jun 17, 2013 | 7:30 AM EDT  | Comments
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Given NII Holdings' (NIHD) rather substantial fall from grace in 2007 and into 2009, and another throughout late 2011 and 2012, the stock may not be the first = that comes to mind as you consider long strategies for the week ahead. But I've been bullish on this company since late March, and it's once again catching my eye.

NII Holdings is a telecommunications firm that operates under the NextelTM brand in Central and South America. Its focus has been directed particularly towards corporate customers, a quality that sets it apart from most of the other telecom providers in the region.

The stock hit a lot of $4.11 at the beginning of April before it saw a sharp reversal off those lows that brought it to a high of $9.82 by the end of the month. At that point, I had been following NII Holdings for several months due to a pattern it had been forming on the weekly time frame -- one I call a Momentum Reversal.

The core strategy behind a Momentum Reversal is simple. We need to see a stronger-than-average decline, followed by three slightly lower lows, and a buy trigger comes as the trading channel from the third lower low breaks to the upside. For NII Holdings, that channel formed throughout January, February and March before the stock broke higher to trigger the trade.

My original target had been $8.50 but, thanks to some added momentum, we saw the shares push higher into the $10 resistance zone. Since then I've been waiting for another opportunity to arise that could potentially lead the shares to break the year-to-date highs. I believe that time is near.

As of May 31, NII had a short ratio of 12.39%, or 47.84% of its float. This amounted to approximately 57.77 million shares. The April rally may have served as a short squeeze, but at the time that reversal began, the short interest was closer to 51.42 million shares. Another squeeze may easily be on the horizon.

The technicals on NII Holdings' price action are very favorable toward another breakout to the upside. Over the past two months, volume has dropped dramatically as shares have fallen into a consolidation pattern on the daily and weekly time frames. This indicates a clear lack of interest on the short side.

An initial correction had been quite strong, having brought shares back to $6.48 before a slight recovery. A second corrective move off the recent daily highs began May 21, and the intraday trend development was nearly textbook-perfect: two waves of selling on a 90-minute time frame, followed by a series of three lows. Each one was slightly lower than the last.

If this pattern seems familiar, that's because it should be! It's the same concept that was initially behind the weekly Momentum Reversal buy strategy.

At this point I am monitoring NII Holdings closely on the intraday time frame, and I'm once again building a position on the long side as a swing trade to short-term position trade. The $6.50 zone will serve as support, while $8.50 will be initial daily resistance, followed by $9.15 and then $11. For those looking longer-term, be aware of speculation that NII Holdings may be a buyout candidate at some point this year.

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