As a pure chart play, NCI Building Systems Inc. (NCS) is very interesting.  I had posted a in-depth review of NCS to the site a few weeks back and think that now is the time to take another look at the company.  The company is a manufacturer of metal products for the non-residential construction industry in the U.S.   Full description:  click here

My quick review of the company is that they have good revenues, decent margins, are making a profit (on reduced sales) but had some major balance sheet problems.  The main revolves around their debt structure.  They were in default under their agreements and the latest extension was due to lapse in late November.  Did you notice that I said “had” some major balance sheet problems.  Their white knight, in this case Clayton, Dubilier and Rice (CDR), rode in and “saved the day”.    Here is what NCS got:

• $250 Million Equity Investment
• Debt reduction of $323 Million
• Exchange offer for convertible notes completed

Here is what they gave up: 68.5% of the company. Shareholders got whacked, but now NCS has “the resources to sustain future growth” according to the press release announcing the deal.  Click here to read it.

Now that the debt and liquidity issues have been resolved, where is the lift in the stock?   Let’s look at the chart and see if one might be in the offing:

• MACD is giving a bearish signal – Below the zero line
• MACD, however, looks to be turning positive and if this trend continues could cross in the near term
• Stochastics are emerging from a strong oversold position.  It appears that the stock could be under accumulation again
• Recent chart history suggests that the stock usually rallies from chart setups like its current one.

Since I typically only look at short-term price action, I am looking at NCS for a near term bounce.  The company fundamentals have improved with the recapitalization by the private equity firm, CDR….in fact, that is a huge endorsement of NCS by CDR.

Read both reports to understand NCS well and watch the chart.!

Good luck and good trading

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