Back in December, I hypothesized that 3D Systems Corporation(NYSE:DDD) was in a reflexive boom-bust sequence. I outlined the stages of such sequences, and argued that the stock was in the Stage 4 - when the upward motion of stock price and earnings were mutually reinforcing each other, so normal rules of stock analysis no longer applied. Accordingly, I went long, in a speculative position.
On Monday, the tipping point was reached (Stage 5). Several articles came out in the past few weeks that argued that DDD was a bubble waiting to pop. It seems that this argument has convinced the market. The stock fell hard on Monday.
This was followed by two-three days of a twilight period (Stage 6). I sold out of my long position, able to recover roughly 40% of the maximum profit from the speculation.
As I argued on my blog, Stage 7, the massive sell-off, was delayed by short-sale restrictions that were put in place on Monday. Shorts could not enter new positions until Wednesday. Since that time-limit has been passed, we are now seeing the sell-off that would be expected from the "bust" part of the process. Accordingly, I have gone short, via put options.
Let me be clear: I do believe the technology has immense potential. 3D printing will likely become a huge driver of manufacturing growth over the course of the next decade, with the biggest innovations coming from consumer-geared products. However, I am merely seeking to describe the course of events in the introduction of revolutionary technologies, especially those financed by equity leverage. Though I am sure 3D Systems Corporation will be a "buy" again someday, for now, it is a "sell."
Disclosure: I am short DDD.
Additional disclosure: Short via March and May $45 put options.