This is a further look into how I use technical analysis to aid me in my decisions when looking to buy or sell microcap stocks. Please see the first installment from ~5 weeks ago [HERE]. Today I am going to profile a stock that doesn’t have a trading history that is quite as extensive as Destiny Media Technologies (DSNY) but looks incredibly compelling on all time frames. This is also going to be a bit different in that I am not going to be looking back on what I saw in the past but what I see now and where I see the stock going in the future. In other words DSNY had already had the big move when I profiled it. In the case of Abtech Holdings (ABHD), I still believe that the big move on the upside lies ahead.
Recall that there are two big things that I look for when scanning charts:
- Price spikes on higher than normal volume
Today I will add a new piece. Long candles and their ability to hold on retracements in price.
Here is the monthly chart of ABHD. Since it has a limited trading history I am going to forget about most of the indicators and simply use price and moving averages. Note that in January 2012 the stock had a big spike. On these spikes (especially on the monthly chart) one typically doesn’t want to see any retracement that goes beyond the mid-point of the long spike candle. We see just as much here as we can note that the price never moved back below the $.60 mark for any meaningful period of time. The second point to note is that the first big spike ran from $.30 to $1.05 from January to March 2012. Following this move there was a normal 62% retracement of that move which also happens to come into play at ~$.60. Note that since then the stock has basically stayed in a range of $.62-$1.05. This is what I would consider a high level consolidation or in other words the stock is building a new base at a higher level. Long-term chart is a go.
Now let’s move on to the weekly chart. First of all I would like to note that after a 6 month basing period in the second half of 2011 the stock broke out above that consolidation level at $.60 and since then has never posted a weekly close below that level. Thus there has been considerable accumulation above this level. In addition one could also look at this as a bullish cup and handle pattern. It isn’t an ideal cup and pattern but as I mentioned in my first piece one sometimes has to relax some of the rules in TA when evaluating microcaps. The cup period would be the second half of 2011 and the handle portion would be the consolidation that we have seen for the past 9 months or so.
Now I want to get into a detailed look of the weekly chart with the indicators. Note the following:
- RSI has stayed above 50 since the initial breakout back in January which is very bullish.
- The ADX has been bullish since the bottom at $.62 with the green line clearly above the red line.
- Now note the spike in prices that came with volume to confirm the move. The first spike came in June. The second came in August and the most recent came in the first week of October.
- Since late-July price has also stayed above the 20-week moving average (dashed line in the middle of the Bollinger Bands) on a closing basis and that the 20 week moving average is now beginning to slope upward. Very nice action there.
- The MACD is on a bullish cross and above zero. The slow stochastics are also on a bullish cross.
- The Chaikin Money Flow has stayed positive since the beginning of
2012 and the accumulation/distribution line has been incredibly bullish as it has steadily improved since the beginning of the year and is currently sitting at an all-time high. Should price follow these internal indicators, as expected one would expect a bullish resolution in price on the upside.
Here is the daily chart. Note the following:
- Just like the weekly chart RSI has held above the 40 level on two different tests following the initial move up on volume back in June.
- The big move on volume in August was completely retraced but on much lower volume than what was seen on the breakout. Most important point is that the prior low was NOT violated.
- We just had another price spike on volume during the first week of October which has held thus far but I will get into more detail on that below.
- MACD has stayed above zero since initially moving above it in June.
- Stochastics have been making positive divergences since mid-September and have not crossed below the 20-25 level since the uptrend began in June.
- Just like the weekly chart the Chaikin Money Flow has been positive for a long time and the accumulation/distribution has also steadily moved to new highs.
Now here is a look at the simple daily chart. What I really like here is the positioning of the moving averages. the 20 day moving average is above both the 50 day and the 50 day is above the 200 day. The most beautiful thing of all is that both the 50 and 200 day moving averages are moving north at 45-degree angles. I have annotated the 50 and 200 day moving averages going forward to give a potential idea of where they will likely be should the current trajectory continue as expected and I have also drawn out how a possible high level consolidation on the daily chart may transpire.
Now I am going to move down to the 60-minute chart and look at what happened on Friday. The funny thing is that I initially agreed to write this piece on Friday the 5th and it was just the action of yesterday that made the daily chart not look quite as good as it should in the near term. At some point yesterday afternoon it appears as though a pre-arranged sale occurred at $.80 on ~250k shares. It is interesting because this shows up on the daily chart but not on the 15 or 60-minute charts. The good news is that even if this had been normal price action the stock still recovered nicely into the close and near the high of the day. So here is the 60 minute chart which doesn’t show the pre-arranged cross at $.80. Here you can see that we have two of the things that I really like to see on charts….gaps on volume. One occurred from $.80 on 10/4/12 and the other occurred the next day at $.96. The gap @ $.96 was officially closed yesterday which was completely normal but excluding the cross at $.80 as shown here on the 60 minute chart the gap at $.80 remains intact. The last point worth noting here is that the retracement down to $.95 is within the normal given range. Just beyond 50% but not quite to the 62%.
This stock is one of the nicest charts that I am aware of at the moment on a monthly, weekly, and daily basis. The move down to $.80 messes up the daily chart a bit but as I noted it seems as though the move was due to a pre-determined cross between two parties. Aside from that the stock never went below $.95 and it never even showed up on the 15 or 60-minute charts. The only thing seemingly left here is the big breakout on the upside. When that occurs is anyone’s guess as it primarily has to do with when the company finally gets a contract of size. From a fundamental perspective I am very bullish on this name but of course I would recommend that anyone considering taking a position do their own due diligence. Someone else may come to a different conclusion. One thing I can say for sure is that from a technical standpoint ABHD is about as textbook bullish as it gets.
Disclosure: Long ABHD