Following the trends of young people can help investors, said Jim Cramer this week. But, he added, it isn't an excuse avoid doing your own investing homework. You still must find companies with solid business models that aren't fads, like MySpace and GoPro (GPRO) proved to be. But young people are your best bet for finding up-and-coming stocks like Etsy (ETSY) .
So, let's study up on the name.
We last looked at ETSY on Aug. 10 and we summarized our opinion as, "We have an interesting crossroads here. ETSY is still in an uptrend, but we have sold out our recommendation. With a possible $210 price target now from the Point and Figure chart we have to consider the risk and the reward. If we go long ETSY around $140 we would have to risk a close below $120 to make perhaps $60-$70. The math makes sense but I would only purchase a small position."
That advice made sense as prices declined into September and would have stopped out any purchases with a loss.
Let's check on the charts again.
In this daily bar chart of ETSY, below, we can see that ETSY rallied to a new high this month, but new signs of weakness have popped up. Prices are above the 50-day moving average line, but the line has crested. The 200-day moving average line is still rising, but intersects down in the $85 area. Trading volume was relatively light on the rally to a new high and the On-Balance-Volume (OBV) line has largely moved sideways the past few weeks. The Moving Average Convergence Divergence (MACD) oscillator has crossed to the downside for a take-profits sell-signal.
In this weekly Japanese candlestick chart of ETSY, below, a bearish evening star formation over the past three weeks. This is a major top reversal pattern. The 40-week moving average line is still bullish but this is a lagging indicator. The OBV line looks like it is peaking this month and the MACD oscillator is poised to cross to the downside again.
In this daily Point and Figure chart of ETSY, below, we can see a potential downside price target in the $114 area.
Bottom line strategy: With a Point and Figure target of $114 we could see ETSY test nearby support in the $120-$110 area. If ETSY reaches $114 it would mean that prices declined more than halfway through the support zone and that increases the odds that ETSY could fall still further.
