Do you remember Weird Science, the hit movie from the 1980s about two high-school nerds who create a computer model of a beautiful woman that somehow comes to life? In the real world, science is a long way from fulfilling such a fantasy -- but we may be getting closer.
The charts are trying to tell us something about an odd corner of the tech sector. There have been interesting moves in the stocks of companies that provide 3-D modeling software and hardware. This activity could be related to the Consumer Electronics Show going on in Las Vegas, where some of these modeling products are on display. Because of that, I'd approach these names with caution; I might even fade a move higher. (At events like CES, people have a tendency to get overexcited, and that can cause a stock to get ahead of itself.)
Stratasys Inc. (SSYS) and 3D Systems Corp. (DDD) are best known for creating 3-D printers, but that's old news. What might be creating excitement among investors are newer products that allow users to create 3-D models of just about anything, and then "print" the actual object. In other words, you could use the software to create an item, say, a toy boat, and then create a physical version of the toy with a specialized printer that renders the form in 3-D.
This type of product has a gee-whiz factor that might overexcite some investors, but let's not get carried away. It's not as if someone can design a pair of shoes, put leather in the printer and, presto, they have new shoes. I'll admit this application has tremendous potential, but it is not yet fully developed.
Stratasys blasted out of a tight consolidation on high volume, shooting above its 200-day moving average (red) for the first time since July. The stock has risen for five straight days, each day on above-average volume -- until Wednesday. Could this impressive move be running out of steam? I'm looking for an opportunity to short this stock, because I believe the move is overdone.
SSYS is currently overbought according to its Relative Strength Index (RSI), so a pullback is overdue. As the excitement wears off, the stock should come in. I might switch sides and become a buyer at about $32.25, which is the resistance level from last month, provided the pullback occurs on light volume.
3-D Systems makes a similar product. The stock had a big day Wednesday, rising more than 6% on above-average volume. After having difficulty surpassing $16.25, DDD vaulted above that level for its highest close since mid-November. Unlike SSYS, DDD is not currently overbought and has an RSI reading of 65. I'm not shorting this one because it's not as extended as SSYS -- at least not yet. But if it keeps running, I'll consider it.
The ability to create physical prototypes with ease would be a boon to many industries, but this technology has limitations, most notably in the materials that can be used to print the objects created.
Keep in mind that these stocks might be terrific to own in the long run, but I'm focused on playing what feels like a short-term overreaction to trade-show hype. If you are considering these names, don't pile in at their highs. Wait for a pullback before taking a position.