Paul,
Regarding your chart read:
I use 20 days and 2 standard deviations for bollinger bands. One can vary these parameters to suit a particular stock, but John Bollinger suggests the parameters that I am using and they have worked well for GUMM. Based on this chart, the middle daily bollinger band (20 day moving average) is right at 15 5/8 so we haven't gotten through it yet. While I don't make predictions about stocks based solely on the chart, I do think that the odds favor a move to the upper daily bollinger band which is currently at 17 3/4 and falling slightly. There are also some highs on the daily chart between 17 and 18 so I would think that the stock might run into some resistance there.
Here are some reasons that I think the odds favor a move to the 17 to 18 area:
1. Stocks often test the upper band when they have traded below the lower band and move back towards the middle band. If it gets through 15 3/4 to 15 7/8, I think the odds are even higher that it will move to 17 to 18.
2. The momentum indicators and oscillators are on buy signals (RSI and stochastic). The RSI got down to a low of 16 when the stock traded to 12. Not only is this a very oversold reading, but it also represents an area that coincides with previous trading bottoms.
3. The MACD is still negative, but has flattened. This indicates a loss of selling momentum and a shift towards buying momentum.
4. The money flow was up yesterday after four days consecutive down days.
5. The weekly and monthly charts are in up trends and support a higher trending daily chart. The bollinger bands on both the monthly and weekly charts are rising, indicating rising resistance. The stock has a pattern of higher highs and higher lows on both charts as well. The daily chart is simply more sensitive to emotional changes than longer term charts.
If I was trading GUMM for short term swings (which I'm not), I would be long right now and watch closely for signs of short term weakness between 17 and 18. If the stock breaks out over 18, then the odds significantly favor new highs over 19.
It is my personal belief that the decline from 16 to 12 was promulgated by investor's fears over some options that are due to be exercised by the end of December, coupled with a loss of confidence that prevailed after AJIC withdrew the article, Quigley filed their bogus lawsuit, and the registration of 550,000 shares. IMO, none of these issues pose any long term problems to the fundamentals of Gum Tech, and while they did create a negative short term chart, eventually the positive fundamentals would exert themselves and the daily chart would turn around. The reason that I thought that the stock would trade back to at least 16 is because this would correct the entire move that I think resulted from the option issue. |
