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Joseph Brychek
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I am a self-taught technical trader that uses Candlestick Charts, Trendlines, Chart Patterns, Fibonacci Analysis and Elliott Wave theory as types of analysis that form the basis for my investment decisions after finding companies with excellent fundamentals.
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  • 3D Systems, No Guts, No Glory 0 comments
    Aug 27, 2013 8:05 AM | about stocks: DDD, XONE, SSYS

    Please note: This article was my first attempt at having an article published on SA; as DDD broke out from a bull flag pattern that I discuss on my website here and since I could not get my first article published in a timely manner, I am posting it here before the information becomes stale and will attempt another premium article soon.

    3D printing seems to be all the craze according to Wall Street these days. Some of the hottest buzzwords this past spring were "3D Printing" and "Additive Manufacturing". Until recently, "Additive Manufacturing" was the more common of the 2 phrases. I would attribute that to the end users of the product, which for the last 23 years have been mostly large manufacturing corporations.

    I know you are thinking, that there was a typo in that last paragraph - he must have meant 2 or 3 years, not 23. During my first parts of research into the 3D printing area in October 2012, I was surprised to learn that 3D Systems (NYSE:DDD), the leading firm in the 3D printing revolution, has been a public company since November 1990. That's right, for over 23 years! Here is a 20 year, weekly candlestick chart for 3D Systems, just in case you think I'm full of bologna.

    (click to enlarge)

    Some of the other players in the 3D printing arena are Stratasys (NASDAQ:SSYS) and The ExOne Company (NASDAQ:XONE). The ExOne Company is the newest player into the arena as the just had their initial public offering this year in February 2013. What a perfect time for an IPO in one of the hottest market sectors at the time.

    If 3D printing has been around for more than 20 years, why has interest skyrocketed in only the last couple of years? That is a question that I am not sure will be answered in this article. What I will try to do though is explore 3D Systems (DDD) chart action since this interest started 3 years ago to try and determine if there are still some potential profits to be made or not before the 3D printing craze/bubble ends.

    So let's look at this next chart, which is a 3 year, weekly candlestick chart for 3D Systems, hereinafter referred to as DDD.

    (click to enlarge)

    Whew! The first thing that catches my attention is that if I want to purchase shares of this stock, I sure will be paying top dollar for them. The highest close on DDD's prior uptrend that ended the week of January 21, 2013 was $46.05 - that is where I drew the price level trend line on the above chart. As you can see after DDD's current run, almost all of the consolidation has taken place above the $46.05 mark.

    Like I said, you will be paying top dollar for these shares if you want to own them. That sure makes investing in DDD at these prices a little more risky. But where there is risk, there could also be a reward. This is when I use a scaling strategy to enter into a position - purchasing a hot stock in a hot market (not counting the last week or two).

    An example of a scaling strategy I use would be as follows: say I want to own $10,000 worth of DDD in total. Well, I would split that up into 3 separate buys, purchasing 25% of the shares I want in total in the first buy (which would be $2,500), 50% of the shares I want in total in the second buy ($5,000) and then the remaining 25% of the shares I want in the last buy ($2,500). Preferably, you are making each purchase at a higher price as the share price is climbing rather than averaging down. I try to space my purchases approximately 2-3% apart from each other. The point of this type of trading philosophy is that I want to see positive chart action before I make each subsequent purchase.

    However, how many times have you bought a stock only to see it go down soon after? I know I have. But if you had at least used a scaling strategy, you would have only been 25% invested at the time rather than fully invested. As I mentioned above, I prefer to make purchases while the share price is increasing, not decreasing. I am not saying I would not purchase shares at a lower price, but it would cause me to reanalyze my information before just making that next purchase while the share price is dropping.

    So now let's get back to DDD and analyze it's current chart activity to see if we want to invest the hypothetical $10,000. The next 6 month daily candlestick chart shows that DDD has been moving sideways for 3 of those 6 months; most of that sideways action is captured in the blue channel.

    (click to enlarge)

    From a short-term trading perspective, any trips to the bottom of the channel could be viewed as a buying opportunity and then selling at the top of the channel. But will DDD even hit the bottom of the channel again? I'm not so sure it will. Take a look at the bottom of the chart where I indicate a decreasing amount of selling pressure, all while DDD is actually near the top of the channel.

    So is 3D Systems worthy of my hypothetical $10,000 investment? I definitely see enough positive action to start investing and make that first purchase. Being a little more aggressive, I have made two of the three purchases in my personal portfolio. The purchases in my personal portfolio were made with prior DDD profits from it's first run-up that ended in December 2012. So while I am taking on a little more risk with these purchases, it is with house money right now so I am going "all in". Let's see what kind of cards I get dealt in the river, and I will determine then if DDD warrants another installment purchase.

    Until my next article, good luck trading. I hope you enjoyed my first Seeking Alpha article! :)

    Disclosure: I am long DDD.

    Themes: 3D Printing Stocks: DDD, XONE, SSYS
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