Thursday, March 5, 2009
(Cont'd from above)...

Jim:       Well, here is one where the chartists has the edge on the fundamentalists… the chartists on the other hand, say they are leaving footprints and I detect them… if you had been looking at the chart you would have known that something was up… that big institutional investors were losing confidence in the company and selling the stock… maybe somebody knew… to switch generations, ManTech is Alger Hess, and in this case our chart is Widicker Chambers… that is right, Alger Hiss and we are going to see it in a second… because it predicted the bad news before the bad news happened… so in today’s Sell Block I want to teach you how to do this, how to use the chart as kind of inside information barometer… to detect when bad news is coming.

ManTech’s chart is like Poe’s “The Purloined Letter“… the information is hidden in plain sight… in the stocks action and thru a process of ratiocination… you can sometimes spot the bad news coming before you even know what it is… the clues are all in the chart… and we can tell you how it is done… so, now lets take a look at this chart from ManTech… this one is the technical analysis that was supplied by the great Ken Shreve, at Investors Business Daily, and his fabulous team… someone who spotted that there was something wrong in the chart the day before the downgrade and the news that the COO was leaving… I love that.

Okay, point one on the chart…
That is ManTech’s strong performance… that is pretty amazing when you think about it, it is pretty straight up right… now remember this was 2007, 2008 this was a terrible time… it was smooth sailing for the stock… everything looks fine… then earlier this year during the week ending January 30th, ManTech tried to stage a technical breakout on heavy volume… but you know what, this is point 2, but instead of staying up the stock then reversed and finished near the bottom of its weekly range… that is point 2... now the buyers were around early but then the sellers came around and overwhelmed them… selling the stock into the strength, and then continuing to sell into weakness…. that is the first signal that the big institutional investors would rather sell ManTech than buy it… after two years where the stock had really been a stunner, right… they had been a total outperformer.

In the following two weeks, ManTech rallied back on lower volume… Remember technicians skip the fourth amendment, they go straight to the polygraph text… this is the volume here… and for them, that low volume means that the move is lying, and high moving means that is telling the truth… after that rally ManTech was hit with another round of major institutional selling in fast trading… once again finishing near its weekly low… that is point 3, okay, this is what they really spotted… Investors Business Daily spotted this little decline right here, but it is not so little obviously if you are loin… but this time the stock went lower it crashed below its 10 week and 40 week moving averages… this is this little line right here… I am giving you the full case so that you can do this, okay… you can check with IBD, whatever you want, I need you to know this stuff… and that is the short and long term indicators of how a stock has been trending that can act as a support for a strong stock… but normally when a stock hits those lines it would rally back… see, typically this line is a trampoline, it should have rallied right like that… but it didn’t do that… it indicated that nobody wanted to come in and buy… even at those key technical levels that would normally inspire buying.

What do all these clues from the chart add up to… they suggest that the demand for ManTech’s stock was drying up… it was being sold, not by retail investors like you home gamers… but by large institutional investors, and again we know that by the volume… the big volume puts their fingerprints all over this one my dear Sherlock… now Ken Shreve, and his team at Investors Business Daily, had no inkling that the President and COO would step down, or that ManTech would be downgraded…. but they knew institutional investors that had previously liked the stock were selling it… this was their clue, remember this is a tale of ratiocination… they knew it was a bad idea to own a stock that the big boys are dumping… they had one more thing going for them… something proprietary, it is called IBD’s Accumulation Distribution rating… which I love, I love it as an indicator, you should too… it looks at volume on up days and volume on down days to try to gauge the level of institutional selling… stocks are graded on a very easy scale, A+ to E… A+ meaning lots of buying, and E meaning lots of selling… ManTech got a D- on that scale… that is another red flag… did somebody have inside information… we are never going to know… but frankly it doesn’t matter… the big boys were worried… something was wrong, that is why they were selling ManTech… and the chart gave it away.

Were there any more reasons to suspect something bad might be in the offing… reasons not in the chart… frankly, not that many… I mean look, I found some, the COO had left sold $4 million of stock this past May… let’s say that you had acted on that, look at the rally that you would have missed… that is not that indicative… he sold another $6 million in August, but the stock had a nice run after that… so those don’t do it… what do I think of ManTech based on the fundamentals… their four buys on the stock, 6 neutrals from the bullish analysts all say that ManTech is a terrific reputation for a strong backlog, organic growth, that is above the rest of the industry, great positioning and good execution… ManTech is thought of as a growth stock, it definitely has big opportunities in the IT security business which we know that Obama favors … but I personally find it odd that a small growth stock like this has made 9 acquisitions since 2002... but it has failed to expand operating margins in anything meaningful for at least 6 years… they should be firing people and the sales go up, expenses go down… that is what happens when you do acquisitions and they are successful.

ManTech’s cost of goods sold have been growing at the same rate as its sales growth…normally when a company makes a rollup acquisitions we get a lot expanded operating margins… redundant costs, synergies, uh, uh… no wonder institution investors may have wanted out… plus ManTech is one of those, and this I really can’t stand so I never would have gotten into it and I would have missed this whole move I thing, well I shouldn’t say never gotten into it because I like up stocks… the company is a two tiered share structure, where the CEO controls 88% of the voting power… that is not something that we like to see… the stock is trading at about where it deserves to trade after taking that hit… I would not be a buyer.

Here is the bottom line…

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