Art Technology Group
develops and markets a range of e-commerce software products. It executed a huge secondary back in February that hit share prices pretty hard and spiked volume. After that, prices worked there way right back up to the old highs only to fall once more on earnings.
The $5 level is a definite barrier to ARTG and with the stock trading back at $4 and change, is it time to buy for another shot at the highs? After all, this stock once traded north of $126!
Take a look at the quarterly chart for the past decade plus and you can see a huge supply line that is still out there from the dot-com bubble burst. Amazing!
That supply line will make an advance over the $5 level difficult and we can see that with greater clarity if we pull up a more granular view via the monthly chart. In this chart, we see two things. First, the chart demonstrates the difficulty of getting through $5. Back in 2007 it failed, and again last year it failed once more. What's more interesting is that the attempt last year went over the 2007 high with lighter volume and closed under it. When you do that, you usually end up retracing as it failed on a test of the highs.
As we see, that is what unfolded.
The other item of note is that there is a very large volume bar from the February secondary that sticks out like a sore thumb on the monthly chart. It is not out of the question for that to get tested and as we will see our trading plan assumes that it may.
Laying that potential test of the low aside for a moment, the weekly chart shows a channel that has developed over the past nine months with the highs forming the resistance zone at $4.70 to $4.90 and the lows forming the support zone. That zone ranges from $3.60 to $3.80. Channel trades like this one are meant to be bought at the bottoms and sold at the tops.
In the case of ARTG, we know that the $5 level is going to require a huge volume expansion to push higher. How about the lows of the channel?
Well, the lows are going to take a significant effort to push through as well since the high volume low off the secondary is sitting there. As a result, this channel is demarcated well with volume of significance on both sides of the channel and that's what makes for a good channel trade.
On the daily chart, with prices currently heading lower off the recent earnings numbers and general weakness in the markets, we can see the buys come in at the bottom of the channel.
For those who might take this trade, the key is to respect your stops though if the bottom end of the channel gives way. Although price should not break through both buy zones and continue lower, you always have to consider both sides of your trade, both risk and reward.
As always and until next time, just keep trading the charts!
At the time of publication, Little had no positions in the stock mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
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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.