DDD 11/3/2013 – 3D Systems and a 3 Year Channel Break, Buckle Up Your Seatbelts


 

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Now, on to my first premium article!

 

3D Systems (DDD) has been on quite an advance over the last 3 years, as seen on the next monthly candlestick chart. During this advance over the last 3 years, DDD has been pretty well contained within a nice trading channel. That is, until the end of October. October’s candlestick (the second to last candlestick) broke through the top of the trading channel on the heaviest volume in the last 6 months, but not on so much volume that it appears to be a climax top. The last candlestick is November’s candlestick that still has 27 more days to complete it’s candlestick. But it does appear to be off to a good start by bouncing off the top of the channel after the channel break during the end of October.

 

3D Systems (DDD) Channel Break

3D Systems (DDD) Channel Break

For those that want to duplicate the trading channel on their own chart, I highlighted the 3 anchor points for my trading channel with grey shaded boxes and pointed to them with the arrows.

 

After placing my 3 channel anchor points, I then right-clicked my channel with my mouse to bring up my options and then extended the channel to the right.

 

Not only did DDD brake through the trading channel and close above it at the October, it did so as volume was increasing over the last several months. I personally feel that DDD tries to use the top of the channel as a support line going forward.

 

However, do proceed with caution here. While there are a lot of bullish things that I talk about in this article, DDD is at the top of a trading channel. Most times after hitting the top of the channel, a stock will proceed back to the bottom of the channel. The bottom of the trading channel sits around the $42 – $45 area for DDD, depending upon how fast DDD’s share price was to drop. Sometimes though, a stock makes a new channel like I previously mentioned. That is what I am anticipating here with DDD and here are a couple of items that I am monitoring over the next couple weeks to see if I am right.

 

The top of the trading channel sits around the $61 mark for November’s candlestick. So now that there is a confirmed channel break on DDD’s monthly chart, I will use a couple of different methods to come up with some potential price targets over the next 1-3 months.

 

Trading Channel Breakout – Price Objectives $82 – $90

3D Systems (DDD) Channel Breakout

3D Systems (DDD) Channel Breakout

The first method I illustrate is by using the trading channel itself, which results in an $82 price objective. Let me show you how that price objective is calculated.

 

The first thing to do is take a measurement of the channel width. In DDD’s case, the width of the trading channel is approximately $22, as seen on the chart (I switched back to a weekly candlestick view). The channel width is then added to the channel break (the point where the share price broke through the trading channel) to calculate the price objective for the breakout. DDD’s breakout point is $60. A $60 breakout point plus a $22 channel width equals an $82 price objective.

 

Notice on the chart how I also anticipate a “throw-back” move? A throw-back move usually occurs but not always. In this case here, if a throw-back move does occur, I would expect it to occur on lighter than normal volume if the stock is to stay above the channel and form a new channel.

 

3D Systems (DDD) Fibonacci Extension Tool Analysis

3D Systems (DDD) Fibonacci Extension Tool Analysis

Now let’s look at another method to calculating a price objective while still using the same channel.

 

The next two charts, a weekly candlestick chart and a monthly candlestick chart, illustrate how I used the Fibonacci Extension tool with the trading channel to calculate a $91 price objective.

 

This chart shows the 100% Fibonacci price target line at $66.34. But after taking into consideration the $82 price objective above, I want to assume that DDD is going to break through the 100% price target line and proceed towards the next Fibonacci price target line, the 161.8% line.

 

3D Systems (DDD) Fibonacci Extension Tool Analysis

3D Systems (DDD) Fibonacci Extension Tool Analysis

The 161.8% Fibonacci price target line currently sits at $90.11, as seen on this chart. Did you notice the placement of the anchor points for the Fibonacci Extension Tool? The first and second anchor points are the same anchor points that I used for the channel. The third anchor point for the Fibonacci Extension Tool was the very bottom of the share price’s retracement after hitting the top of the trading channel.

 

So using two different methods from the same channel break-out, I have established a price objective range of $82-$90. Piecing together all the charts, I can start to develop some anticipations for the actual movement of the stock’s share price as well.

 

After hitting the $66 – $67 area (the 100% Fibonacci price target line), maybe the stock forms a throw-back move to the top of the trading channel. If DDD can successfully hold the top of the channel, it then bounces towards the $75 where some resistance will be encountered. I base this resistance on my theory of “Nice Round Numbers”. $75 is a “nice round number”. After breaking the $75 resistance, the $82 price target calculated in my first example above will be the next target reached. After finally breaking through the $82 price area, the higher price objective of $90 will be reached.

 

Do I expect DDD to do exactly as I laid out above? No. But using the information at hand from the two different price objective calculations, I was able to at least develop some expectations. As always, these expectations will be monitored and adjusted accordingly as considered necessary. But it helps to have something to watch for. Don’t just sit there and watch a stock’s price move around. Develop expectations from whatever technical analysis method you prefer to use and then monitor those expectations.

 

During my next update for DDD, I will re-visit the Elliott Wave structures to see what sort of price objective can be calculated using wave analysis.

 

Disclosure: I am currently long 3D Systems and own approximately 80% of my total shares that I want in my portfolio. I may consider purchasing the additional 20% of my shares if DDD does indeed develop a throw-back move and successfully holds the top of the trading channel. If a throw-back move does not develop, I am content holding the 80% of my position for my anticipated gains calculated above. I will be watching to make sure DDD can hold the top of the trading channel. If it does not, I may sell 25-50% of my current holdings.

 

 

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