MDRX Stock: Bears Rule
Even though the market acted surprised to Allscripts stock’s earnings announcement, the charts were already setting up as though they were anticipating that bad news was coming.
The following Allscripts stock chart illustrates the bearish setup going into this earnings announcement.
Chart courtesy of StockCharts.com
In February 2016, MDRX stock generated a death cross. This kind of signal is generated when the faster moving average (50 day-moving average) crosses below the slower moving average (200 day-moving average). This indicator serves to confirm the current trend and it gives insight into which camp is in control of the trading action. A death cross indicates that a bear market is on the horizon and that the bears are in control. With this indicator generated, I look for bearish pattern setups to trade, as they will have the highest probabilities of success.
These same moving averages began to converge in September, and a bullish cross could have generated, but the price refused to let this bullish outcome develop. Failed signals have meaning, and this one served to reaffirm my bearish view on MDRX stock. It is not uncommon for a trend to accelerate after such a signal is produced, so it shouldn’t be too surprising that, shortly after a bullish cross failed to develop, Allscripts stock began to sell off once again.
Prior to the earnings announcement, MDRX stock broke below a support line as traders were positioning themselves for a disappointing quarter. Breaking below this level of support would constitute a bearish setup pattern, and I would be looking to trade in that situation. Savvy traders would have entered a bearish position when MDRX closed below this trend line, anticipating that earnings will be the catalyst to send shares plunging lower.
That is exactly how things played out as MDRX stock plummeted 14.9% after earnings were announced.
The following Allscripts stock chart illustrates the bigger bearish picture.
Chart courtesy of StockCharts.com
Allscripts stock has spent the better part of 13 years putting in a symmetrical triangle pattern. A symmetrical triangle, by definition, is a consolidation pattern that contains two converging trend lines. The price action determines this pattern, and it is characterized by each subsequent rally ending at a lower high, as sellers are more willing to exit positions at a lower price. With each subsequent sell-off, buyers are more willing to step in and buy at higher prices.
The power generated from these patterns is a result of the price coiling into a small space. The price bounces from each respective resistance level and builds momentum each time the price is rejected by the trend line.
Early this year, MDRX stock broke down from this pattern, and the implications are extremely bearish. The objective of a downward breakout of this triangle pattern is the lowest point from where the pattern began. This means that Allscripts stock is set to test the 2002 lows.
In order for this picture to change, MDRX stock needs to close above $15.00. This price represents the resistance line from the triangle pattern, and also serves to define the downtrend. This line needs to be broken in order for the bearish picture in Allscripts stock to change but, until that happens, I have no choice but to be bearish and look for bearish setups.
The Bottom Line on Allscripts stock
I am bearish on MDRX stock, and the pattern and price trend both suggest that the path of least resistance is lower. In order for my view to change on Allscripts stock, it would need to take out resistance set by the downtrend line highlighted by the symmetrical triangle.