Sell Block: Market Manhandles ManTech

ManTech International has taken a sizable hit this week, dropping almost 16% in just four days. What’s strange, though, is that there’s been no fundamentals-based reason for the drop. This information-technology national security company is just the kind of outfit President Obama likes. He’d set aside substantial funding for upgrading our country’s computer networks. And MANT has been known as a growth stock, having doubled over 2007 and 2008.

But on Tuesday President and Chief Operating Officer Robert Coleman announced his departure and Jesup & Lamont downgraded the stock. There was also a significant amount of institutional selling. That’s something a fundamentals based trader – who judges a stock based on its company’s underlying business – would have missed because that selling was only apparent on MANT’s chart. This might be one of the few times that even Cramer has to admit that technical analysis has its place on Wall Street.

So what happened? Look at point one on the chart below. According to Investor's Business Daily’s Ken Shreve, from whom Cramer drew his analysis and who predicted trouble in MANT a day before the COO left, that points represents the stock’s solid performance throughout 2007 and 2008. Point two, though, shows a high-volume technical breakout during the week ending Jan. 30, 2009, that reversed, bring MANT back to the bottom of its weekly range. The buyers were there early, it appears, but were later overwhelmed by sellers who dumped their shares into strength and weakness. This, Cramer said, was the first sign that institutional investors were looking for an exit.

For the next two weeks, ManTech rallied back, but on lower volume. And to technical analysts low volume means the move wasn’t real. High volume, in either direction, shows commitment. Without it, technicians just don’t trust a stock’s momentum. Immediately after those weak rallies, institutional investors’ selling sent MANT crashing through its 10-week and 40-week moving averages, short- and long-term indicators of how a stock’s been trending that can act as a support for a strong stock. Normally when a stock dips to those lines, it rallies back up. But that wasn’t the case here, which means that even at low levels there weren’t any interested buyers.

Put simply, Cramer said, demand was drying up. The high-volume selling was a direct result of institutional investors unloading their positions. Retail investors alone could never generate that kind of action. That’s something the technicians would have seen by looking at ManTech’s chart. Not that IBD’s Shreve could have predicted the COO was leaving, but he knew the change in institutional sentiment was a bad sign. And when the big-money guys are cashing out, other investors don’t want to be anywhere near that stock.

Cramer found problems with the fundamentals as well. As much as analysts seem to love this stock – they cite a strong backlog, solid organic growth, great positioning and good execution – ManTech has failed to successfully integrate its nine acquisitions since 2002. None of the synergies and costs savings that would usually boost margins after a takeover have happened. Nor is Cramer a fan of the company’s two-tiered share structure, where the CEO owns an 88% controlling stake.

MANT is trading where it deserves to trade after this week’s events, Cramer said. He urged investors to stay away from the stock.

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