The stock price nearly doubled from its low in February of $8.06 to its high just two months later at $15.87, but a triple top formed there, and it crashed back down near the previous lows before stabilizing around its current $9.40 level, or just above its IPO price.
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The stabilization has occurred in a narrowing range that resembles a small rounding bottom with horizontal resistance in the $9.50 area. This consolidation process has compressed Bollinger bandwidth to a level that often precedes sudden moves in price. Add to that the fact that there is an enormous 68% short interest in the stock and you have a recipe for volatility, which if you're on the right side of can be very profitable. The ultimate direction and severity of a break out remains to be seen, but there are several technical indications that suggest it will be to the upside.
Moving average convergence/divergence has been tracking higher since May along with the relative strength index, which is crossing its center line. These readings tell us that positive price momentum has been building with the progression of the consolidation. Volume has been light, but there has been improvement in the direction of money flow. Accumulation/distribution moved above its 21-period signal average last month, and Chaikin money flow crossed into positive territory.
The stock is a highly speculative long after an upper candle close above $9.50 resistance, using a position size that allows for an initial trailing stop under the Bollinger band center line average. Remember that the shorts have been right so far and that preserving capital is the primary objective of any trading strategy.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.