MicroFinancial: A Chart View

The fundamentals of MicroFinancial, a specialized commercial finance company, appear average but their charts look tradable.
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By L.A. Little of tatoday.com, author of Trade Like the Little Guy

MicroFinancial

(MFI)

is a specialized commercial finance company providing equipment leasing and other financing services mostly for smaller items like water coolers, security equipment, point-of-sale authorization systems, automotive repair equipment, restaurant equipment and other business equipment. Their fundamentals appear average but their charts look tradable.

It is always important to look at the three time frames when considering a trade. The long-term trend tells you what the larger parameters are as well as the trend. You would prefer to trade in the direction of the long-term trend. The intermediate term is typically what you try to trade (weeks to maybe a few months) although in this market that has been very hard to do.

The short term is best for determining entry points as well as the current trend. If we look at the long-term chart for MFI, we can see a few items of interest. The first is that support is nearby. As we shall see on the intermediate term time frame, there is a bar of strength that should support MFI on the way down. The nice thing about it is that it provides you with a very clear idea of where you need to exit and you need that because more investigation shows us an untested high volume low. High volume highs and lows are always something you have to keep on your radar screen when they appear because they have a way of getting tested.

The resistance zone starts at the top of the high volume bar at the beginning of '07 and that would be the target for a long trade.

Note the up sloping trend line. It was partially broken and that actually can be a good thing. In the case of MFI, it is quite steep so a few more weeks of sideways trading action would actually be good for the stock.

On a weekly basis, the high volume sign of strength is the clear cut stop out area. That bar can get tested but it should not close below the lows of that bar. If it does, there's a real problem and you have to exit the trade.

The idea entry would be right at the top of that same bar which can be seen in the above chart -- the daily. There is a large consolidation floor being built out and, as can be seen, the stock is very thinly traded which allows prices to spike lower intraday. If you have a penchant for getting exposure into this stock, that is how to do it. You put your bid in way below the market into that $3.30 to $3.40 area and see if it hits.

The real issue with MFI is that it is thinly traded. You have to respect that which means, you can't play too large because if you have to leave, you may have to hit bids that have a wide in price spread. The only way to prevent that is to not have to hit the bid which means you can hold the stock and look for a better bid rather than panicking. That's it for today and until next time, keep trading the charts!

L.A. Little, author, professional trader and money manager, writes daily on

www.tatoday.com

, a free educational site for traders and investors. He has been featured in numerous publications and is the author of

Trade Like The Little Guy

.

His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.