When a momentum stock disappoints with its earnings report, it gets crushed. 3D printing company 3D Systems (DDD - Get Report) , whose shares plunged almost 7% Thursday, was the latest tech stock to be punished for delivering first-quarter results that failed to meet investors' high expectations. Ahead of the results, the stock has surged almost 60% in three months.
Is now the time to bail? First, there's a profitable trade to made here, if it's correctly timed.
3D stock closed Thursday at $13.58, down 6.4%. Even with the decline, the stock is up 56% year to date, still demolishing the 0.33% rise in the S&P 500 (SPX) . That's even with 3D stock plunging more than 24% just in the past five days, seemingly in a perilous reversal.
From a technical perspective, that's the kind of volatility an active trader should crave. Take a look at the chart below, courtesy of TradingView.
Since mid-January, 3D stock has been one of the hottest names on the market, rising from a low of $6 to around $19, posting gains of over 216%. As you can see from the pink circle above, 3D stock had breached all of its key moving averages, riding a strong bullish wave.
Then the bottom fell out on April 27. Fear set in and profits were taken. It would seem this was the right call, given that the decline continued through Thursday's close, a drop of 28.5%.
But this time, the risk is more favorable.
With the company's earnings now out of the way, 3D stock is poised to regain its 50-day level on any bit of good news, given that the stock -- now trading at $13.58 (solid blue line) -- is no longer outpacing its resistance levels and support lines. As it stands, the stock is now 10% below its 50-day moving average (pink line) of $14.95 and 25% below its 20-day moving average (blue line) of $17.04, while trading some 15% above its 100-day average (yellow line) at $11.83.
All told, 3D stock has plenty of support, despite its recent decline. With a high short interest volume of around 24% of its float, the stock is a strong candidate for a short squeeze. There are likely fewer sellers and more buyers after the 28.5% plunge in three weeks.
How to execute the trade: Buy 3D stock between $13 and $14 per share, using the 100-day average of $11.83 as near-term support. If it breaks below $11.83, exit the position with a loss and live to play again. The bet is that within the next few weeks, the stock will regain its 50-day average at $14.95 and possibly $15.78, netting a nice profit.