I'm dipping my toes back into the 3D waters. It worked well once, so why not again? This time my focus is on Stratasys (SSYS) and the potential bullish reversal on a move over Friday's close. The stock has been beaten mercilessly along with the rest of the group, but this is the first one showing signs of life. (Stratasys is part of The Street's Growth Seeker portfolio.)
I'll admit this is a risky look. The fundamentals as well as the technicals have been pushing these names lower. There's been little good news, but that is also what makes SSYS attractive. The stock has slowly been making higher lows after the May low. Now we have a top in place just above $38 creating an ascending triangle. A break over $38.10 and this one could quickly push higher by 10% or even more. The fact around 22% of the float is currently short helps the potential for a short squeeze to develop. Based on the current average volume, it would take a little more than seven days of trading to cover all the shares short. Realistically, though, the time is about half that as the volume would likely accelerate in a short squeeze.
So we want to see price push over Friday's close. Today's market is a bit weak and that's not helping. Plus, we had a strong move higher on Friday, so today is seeing a little pullback, but nothing severe. A bullish crossover in the slow stochastics helped buoy the move higher last week, which still looks very much in play here. Ideally, we'd see the 13 period RSI push over 50, along with price over $38.10. While that may not create a long-lasting push higher, it should be enough for a trade of 5% to 10% to the upside. Using a buy-stop of $38.10 or even $38.15 is an attractive risk-reward here. I've taken a very small starter position on the pullback this morning, but merely one-third of my normal position. I will use $35 on a closing basis as my stop loss.
Options are a potential here as well. A long stock, long July $35 put or a long July $35-$40 call spread is a very viable option. I like the use of the stock or uncovered calls here, as I think a squeeze could develop and I do not want to limit upside potential on this one. SSYS will be sensitive to big market moves, though, so bear that in mind on sizing and risk capital.