Sifting Through the Wreckage: Marvel Entertainment

I have to believe Wednesday was a selling blow-off, and unless more bad economic news hits we are due for a bounceback any moment. I don't know what stock to try to catch a bounce with, so I'm leaning toward buying some shares of the Russell 2000 ETF (IWM).

There are two main schools of thought about buying after a sharp pullback. The value approach is to find big losers, buy them, and feel good about buying a good company at a discounted price. The relative strength approach is based on the theory that the stocks that ignored the general downtrend or even swam against it did so for a reason, and these will be leaders on the next let up. The Iconoclast won't get into debating which approach is better but will accept that either approach will probably work in the long run, and leave it up to individuals to decide based on their psychological make-up. I happen to prefer relative strength myself, and looking at a longer-term picutre I'm impressed with Marvel Entertainment (MVL), the comic-book company. First, I like their business model of creating just comics and collecting the rest of their revenue from licensing fees. The first chart, a monthly chart, makes the point that Marvel can be a highly volatile stock. The trading range from late 1998 to now has been $1 to $25.

That volatility has flattened out in the last two years but it still isn't a sleepy stock. The chart below shows daily prices since November 1, 2005, and the tendency to trade in narrow ranges for several weeks:

Marvel has continued to drift along in a range lately, and today it was up marginally with no news. So far, people holding the stock haven't been eager to sell it, for whatever reason, and "strong hands" have to be seen as a positive. I don't really expect anything exciting will happen tomorrow, but I will get excited on a breakout above $20.50.