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Last week, 3D printing stocks, one of the latest go-go sectors, traded in a volatile fashion after some of the companies issued statements about their sales guidance. The stocks chopped back and forth in the early part of the week, and then stabilized somewhat in the second half.
One of my favorite stocks in the group from a technical perspective is 3D Systems (NYSE: DDD). The stock, albeit sporting an ultra-steep slope from a multiyear perspective, respects its various technical levels. And although it has a volatile day here and there, for the most part it trades in an orderly fashion.
On Thursday, the company announced that it entered into a multiyear joint development agreement with Hershey (NYSE: HSY). The largest producer of quality chocolate in North America is looking to explore using three-dimensional printers in candy making.
The applications of 3D printing technology are rapidly growing. This has caught traders' attention, and the share prices of the various publicly listed companies in the space have risen sharply in recent years, particularly in 2013.
I anticipate many more such partnerships to be announced in coming months and years. This industry is in its infancy, and I will be keeping a close eye on these stocks for trading opportunities.
The multiyear chart of DDD could be viewed as disconcerting, at least as far as the stock's slope is concerned.
I often point to the fact that ultra-steep slopes offer up good shorting opportunities for swing traders; however, we must distinguish between growth and value stocks, as well as take into consideration any news that drives such vertical leaps.
For DDD, a growth stock in an emerging industry, the steep slope is thus somewhat justified. That's not to say that a more pronounced mean-reversion move lower isn't in the cards at some point in the next few months. It just means that barring any scandals or other game changers for this industry, 3D printing stocks aren't likely to see prices from a few years ago.
DDD began its ascent in 2010, and each subsequent year rose more meaningfully until going vertical in 2013, along with the broader stock market.
In October, the stock rallied strongly and broke out of an already steep uptrend. This rally didn't come on slumping momentum as indicated by the stochastics and Relative Strength Index (RSI), meaning that a big turning point for a mean-reversion move isn't quite here yet. Risk, however, can happen fast, particularly in growth industries where business models still need to prove themselves. Therefore, price action should dictate the trade, and price action remains constructive for the time being.
Moving on to the daily chart below, DDD sold off intraday on Jan. 14 on some weakness in a competitor, but by day's end, reversed back to the opening print, leaving a long bullish tail behind.
The stock found intraday support at a lateral support line, which also roughly coincided with the 50-day simple moving average (blue line). A couple of days later, DDD showed marginal follow through buying, which reinforces my long-side setup in the stock.
Recommended Trade Setup:
-- Buy DDD at the market price-- Set stop-loss at $86.50-- Set initial price target at $99 for a potential 9% gain in 3-6 weeks
There's an important change coming that we want you to be aware of.
The tech giant can't seem to do much right in investors' eyes lately, but the charts tell a different story.
We're looking to profit from the market's weak fundamentals and lofty valuations with a simple put option trade.