Trading Level 3 Communications
10/30/2008 10:02 am EST
Shares of Level 3 Communications Inc (LVLT) are showing some activity this morning as the stock gains more than 20%. While the stock does trade for around $1 a share, this is a company with a market cap of $1.5 billion. Here are a couple of points to keep in mind amid this rally. Let's start with the daily chart.
This 15-minute bar chart shows the action for the last ten days. Here we can see the significance of the area near 1.25. This was support for a number of intraday bounces and now represents potential overhead resistance.
How the stock acts at this area should give a clue to how strong the underlying buying demand is.
One thing that could help fuel a rally here is short interest. (Though, to be fair, I did point this out a couple of months ago and was proven quite wrong.)
According to data collected by our Quantified Analysis group, 15% of the stock's float is currently sold short. The chart to the right shows that short interest increased sharply in the first half of this year.
These proved to be smart bets as the stock did plunge. However, now that we are seeing a bounce after hitting new lows, I am wondering if some of the short sellers will now be looking to lock in profits. If so, that could help add buying demand. If the stock is going to mount a successful bounce out of the oversold readings, the first hurdle to overcome is near-term resistance shown in the intraday chart.
By Nick Perry of Schaeffer’s Trading Floor Blog