Must-See Charts for 3D Systems Show a Popped Bubble That Could Inflate Again

NEW YORK (TheStreet) -- When a bubble stock loses its momentum, the pop can be painful for investors. That's been the story for the last two years for 3D Systems (DDD) . The stock was a momentum darling in 2013, and has been a popped-bubble nightmare in 2014.

This should change on Monday if the company's third quarter earnings beats analysts' estimates. That's if.

3D Systems became a strong momentum stock when it held its 200-day simple moving average at $29.28 back on March 15, 2013. The stock entered 2014 with an all-time intraday high at $97.28 on Jan. 3, for a bubble-type gain of 231%. In 2014, the bubble burst with extreme two-way volatility. Here's what happened.

The stock began to slide below its 50-day SMA at $83.45 on Jan. 23, then fell below its 200-day SMA at $59.16 to as low as $54.63 on Feb. 5 -- down 44% year to date. A short-term upward jolt of volatility took the stock up 51%, testing its 50-day SMA at $82.59 on Feb. 21.

3D Systems missed its fourth-quarter 2013 earnings target on Feb. 28, which began a volatile leg down. The company missed first-quarter earnings on April 14, prompting more downward volatility. Eventually the stock sunk 48% to a low of  $43.35 on April 29.

From that low, 3D Systems began another momentum runup. This time the gain was 60%, to $69.56 on July 1, but that day's close was below the 200-day SMA at $64.64. When the company missed second-quarter earnings on July 31, the bubble pop continued and the stock fell to a 2014 intraday low at $34.82 on Thursday, down 50%.

These waves of up and down volatility shows what can happen when a momentum stock has its bubble break -- and all bubbles eventually pop.

Here's the daily chart for 3D Systems that shows the extreme upside in 2013 followed by the downside in 2014.

Courtesy of MetaStock Xenith

The daily chart for 3D Systems ($34.91) shows the volatility over the last two years. The stock's momentum run began when the stock tested and held its 200-day simple moving average (green line) on March 15, 2013. The momentum took the stock to its all-time intraday high at $97.28 on Jan. 3, 2014. The stock has been sliding downhill since then with the 50-day SMA (blue line) declining below its 200-day SMA on April 16 in what market technicians call a "death cross." The stock has been trading lower since July 1.

Here's the weekly chart for 3D Systems that shows the dynamic that could lead to strength into year end.

Courtesy of MetaStock Xenith

The weekly chart for 3D Systems ($34.91) shows that the stock has been above its 200-week simple moving average (green line) since September 2010, when this average was $4.55. The stock is currently just above its 200-week SMA now at $34.59.

Looking at the right side of the graph you can see the technical reason for optimism is that a close on Friday above the 200-week SMA at $34.59 would be positive. The weekly chart is negative but oversold with its key week moving average at $41.35. The momentum in red along the bottom of the chart is below $20.00 at $8.30.

The daily and weekly charts thus show that investors should be able to manage the stock's volatility and justifies being long this stock.

Given continued downside, investors should consider buying this stock on weakness to its 200-week simple moving average at $34.59. The second buy level is a key technical level at $31.50. The upside potential is to another key technical level at $51.43.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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