This company is a niche provider of security software. With cybersecurity a major concern it’s been a very profitable one at that.
We discussed ARST in one of our recent Market Commentary blogs. We provide the link so that you might review our comments. Suffice it to say our instincts on the break out have thus far been wrong. The market is ignoring the projected slowing growth and sending the stock smartly higher. That’s important because a new upleg in the market could be starting. As a stock that launched prior to the new upleg ARST stands to be a significant gainer if the market uptrend has legs.
ARST is a bit too thin for us but we discuss it here because of the pattern. It’s breaking out of an Ascending Base, which is a powerful formation.
An Ascending Base forms when the market is choppy, like it’s been the last few months. Rather than succumb to a wholesale correction the stock has the strength to march higher in spurts. Ascending Bases last nine to 16 weeks (ARST’s lasted exactly 16) and are notable for their three brief cup shaped bases. You can see them on a daily chart of ARST, from May 6th through June 1st, June 4th through June 15th and July 20th through September 3rd.
Traders often give up on these patterns because they are choppy and thus trigger stops maddeningly frequently.
But charts of previous Ascending Bases show that the break out from the third cup can be the charm. If a stock that moves an average of only $14MM a day is not too thin for you, ARST could be a buy on a constructive pullback nearer its $20.80 buy point.
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12 years ago
A long time ago during the go-go days of the prior decade a day trading friend of ours taught us about the 5 EMA.
ReplyDeleteAn EMA is an Extended Moving Average for those not in the know. The EMA is the same concept as an MA except it puts extra emphasis on recent trading. Thus a 20 MA and 20 EMA will be somewhat different lines on a chart.
He pointed out to us that the market’s hottest stocks will often bounce at or near their 5 EMA during market uptrends. They are so hot that this will be the extent of their correction, as eager buyers who pine for a move back to the 10 or 20 MAs are disappointed at the stock’s levitation and eventually buy on the slightest ticks lower.
We’ve previously detailed how we thought ARST could be one of the market’s hottest stocks and thus far it’s not making liars out of us. We find its tight consolidation last week after the break out the week before to be quite constructive and thus feel it qualifies for the 5 EMA buy rule. Friday it traded down toward its 5 EMA and closed directly on top of it.
This is not an exact science. And ARST is thin so it can certainly overreact during a trading session. But we feel it is a buy (or an add to if you already own the stock at lower prices) right here. We would especially feel strongly about buying the stock on a low volume and constructive break below the 5 EMA at Monday’s open.