Etsy (ETSY) was downgraded yesterday by TheStreet.com's quantitative service. I was cautious about going long in ETSY back on Aug. 4.. We wrote: "I would wait for prices to have a period of consolidation before approaching the long side. It is easy to buy a stock that has moved up 40% in a short period of time, but it is hard to define the risk. A consolidation pattern will help us to determine the risk." Let's check on ETSY with some updated charts.
In this daily chart of ETSY, above, we can see that the stock did make a consolidation pattern in August and September, when prices digested their gains with a $15 to $13 trading range. A break of the August-September lows or a close below $13 became our risk point that we couldn't define in early August. Prices did work up to a new high in early October, but they have broken below the 50-day average, the August/September lows and have been downgraded. Not good.
The On-Balance-Volume (OBV) line peaked with prices in early October and has turned down, signaling more aggressive selling, with the volume of shares traded heavier on down days. Heavier volume on down days is a sign that investors want out. In the lower panel is the momentum study, and it shows us two things: one, a bearish divergence in August and October between higher price highs and lower momentum readings; and two, the recent decline is not diverging, so we don't have a slowdown in this sell-off.
We don't have a lot of price history to work with on ETSY, but the signals are mixed to bearish right now. Prices are, for now, above the rising 40-week moving average line. The weekly OBV line is pointed down, with prices telling us that selling has increased, and the moving average convergence divergence (MACD) oscillator just signaled a liquidate longs sell signal.
Bottom line: ETSY is likely to retest the $10 to $8 area in the weeks ahead and rallies are likely to be capped by the $13 area, or prior support.