DDD Stock: Waiting for a Reversal
The technology behind three-dimensional (3D) printing is phenomenal and the idea that it will lead to great breakthroughs in the future is sound. It was this hype that drove 3D Systems Corporation (NYSE:DDD) stock price to all-time highs.
While it is unfortunate that DDD shares now trade at a fraction of their value hit in December 2013, when DDD stock traded as high as $97.28 per share, the stock has been ravaged by a bear market. At its current share price of $12.71, DDD stock is down 87% from its peak.
Trying to catch a bottom is a dangerous game to play. I never recommend investors try to do so. Instead, rather than attempting to catch a bottom, I always wait until the trend has confirmed a reversal. In other words, I will never catch the exact bottom, but I will certainly be trading in the direction of the trend.
Let me take you through the signals I look for to confirm a trend reversal…
The following chart illustrates the trend that decimated DDD stock:
Chart courtesy of www.StockCharts.com
On April 17, 2014, DDD stock confirmed a death cross, which is a bearish signal that appears on a stock’s chart when a stock’s 50-day moving average crosses below its 200-day moving average. Traders use this signal to confirm a bear market is approaching.
Using one signal on its own is never a good trading strategy, though. As a rule of thumb, I never trade against a signal after it has been generated. Once the death cross was confirmed, all new positions in DDD stock should have been a move to either the sidelines or to short the stock. This strategy would have avoided many losses and potentially produced some profits. The death cross is not perfect, but it serves to prove that there is little reason to be long in the face of such a signal.
The first piece of good news is that the death cross has given way to a golden cross. Take a look at the chart below.
Chart courtesy of www.StockCharts.com
On April 7, DDD stock generated a golden cross, which signals the exact opposite of a death cross—that a bull market is on the horizon. All trades going forward should be slanted toward neutral or long positions. The time to be short DDD has ended, at least for now.
This first piece of good news is not the only piece of good news, though. DDD stock is also trading above its 200-day moving average. (The 200-day moving average is significant because investors use it as a dividing line between stocks that are in a bull market versus stocks in a bear market.)
Is this enough to warrant purchasing shares?
Wait…Not So Fast
There is still a large obstacle that needs to be taken out before I can really turn bullish.
If we focus our attention back to the first chart, we see the downtrend that has dominated DDD stock since 2014. A downtrend is defined by lower lows and is confirmed by lower highs. It can easily be identified as the stock’s share price moves from the upper left of the chart to the lower right.
The downtrend line (highlighted in blue in the first chart) is created by connecting the peaks on the chart. This line is the large obstacle I am referring to and it must be broken for the bulls to gain the upper hand. If DDD stock can surpass this trend line, it will confirm that the downtrend in DDD stock has ended and that a new bull has begun.
Breaking above that trend line will not be an easy task. It may take several attempts to do so. When it does finally break, however, we will have the final ingredient for a bullish reversal. The line currently stands at $15.00.
The Bottom Line on DDD Stock
DDD stock may be presenting a potentially opportune time to be picking up shares that have been hammered. For an investment like 3D Systems Corporation, I recommend waiting until shares break above the downtrend line before making a move; this would be the last confirmation needed to finally shift to a bullish bias. Remember, the trend is your friend, though due diligence is always key before moving forward with any investment.