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A Relative Strength Play With Big Insider Buying

DELAFIELD, Wis. (Stockpickr) -- The market continues to struggle today, and that weakness is most notable with technology stocks, or stocks that trade on the Nasdaq exchange.

>>5 Stocks Ready to Pop on Bullish Earnings

The Nasdaq Composite is trending lower right now by around 25 points, or by 0.5%, to just under 4,060. Traders continue to puke up technology stocks despite the recent strong earnings reports from iPhone maker Apple (AAPL) and social media giant Facebook (FB).

If you take a look at the chart for the PowerShares QQQ Trust (QQQ), an ETF that tracks the Nasdaq 100 Index, you'll see that it has been downtrending over the last two months, with shares moving lower from its high of $91.15 to its recent low of $83.28 a share. The QQQ recently bounced sharply off that $83.28 low right up to its 50-day moving average, but this technology ETF has started to fail at it 50-day and once again is heading lower. A test of the 200-day moving average on the QQQ at just below $83 seems likely now.

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Since the Nasdaq is weak and clearing in a medium-term downtrend, I am doing my scans and looking for names that trade on that exchange that are showing relative strength and not going down today. These names could be the next stocks to make sharp moves higher since the bears are gaining little traction in taking them down in a weak environment. Relative strength is a momentum investing strategy that compares the performance of a stock with the overall market or the index it trades on.

One Nasdaq-based name that's showing relative strength today in the face of the index's weakness is Sears Holdings (SHLD - Get Report), a retailer with 2,172 full-line and 1,338 specialty retail stores in the U.S. operating through Kmart Holding Corporation and Sears, and 500 full-line and specialty retail stores in Canada operating through Sears Canada, a 95%-owned subsidiary. Over the last three months, shares of SHLD have trended higher by 12% vs. the Nasdaq composite, which has dropped by 1.4%.

Shares of SHLD are trading higher today by 3.8% to just over $43 with decent upside volume. The volume so far has eclipsed 1.11 million shares, which is getting very close to its three-month average volume of 1.56 million shares. The relative strength performance is worth following here for shares of SHLD, but another thing that should make traders perk up is the recent large insider buy. Company director Thomas Tisch recently bought 475,000 shares, or about $15.9 million worth of stock, at $33.40 to $33.60 per share. Tisch holds about 3.7 million shares of SHLD, which makes him one of its largest shareholders.

>>5 Stocks Under $10 Set to Soar

Another reason that traders should put this relative strength name on their trading radar is due to the large short interest in the stock. The current short interest as a percentage of the float for SHLD is very high at 36.8%. That means that out of the 43.35 million shares in the tradable float, 15.59 million shares are sold short by the bears. That is a monster short interest on a stock with a relatively low tradable float. The shorts who're heavily involved in this stock have failed to take it lower during the recent weakness in the Nasdaq. That could be a signal that shares of SHLD are slipping out of the control of the bears and the stock is setting up to trend much higher.

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SHLD $14.73 -4.90%
AAPL $94.30 -0.92%
FB $118.08 0.55%
GOOG $695.81 0.50%
TSLA $233.00 0.29%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

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