Stock Recommendation: Longtop Financial

On Wednesday May 27, Longtop Financial (LFT), which provides software development services to the financial industry in China, closed at $23.17.

After the close of the stock market that day, the company reported fourth quarter and full year results for the fiscal year ending March 31, 2009.

The next day, the stock opened at $24.85 and closed at $27.45.

The stock held those gains for a while, but started to slip a week ago, closing down five out of the last six trading sessions, with the downward momentum picking up steam in the last three trading sessions.

Yesterday, the stock closed at $25.02, down $1.65, putting the stock just above its 50-day moving average.

We are looking for a slowing of the downward momentum and a reversal at this key area. On that, we are recommending buying the stock at current levels.

If the stock market is strong at the open, go long LFT shares, entering up to $25.50. Do not enter into the trade if LFT is down by more than $0.30.

On a short-term basis, should we see a rebound in the shares, we can look for a move to the $28 area, possibly $30. But with the markets so volatile, we advocate taking very early profits.

Once in, if the stock is up $1.00 - $1.50, unless hedging the position by buying puts, we suggest taking profits.

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