Ambarella Breaks Key Support and Turns Bearish

Here's why the gains of the past four months could evaporate.

Ambarella, Inc. (AMBA) manufactures semiconductors used in digital still cameras, camcorders, and video-enabled mobile phones. The stock soared over the past two years but now the air is coming out of the rally. Let's check on the charts.

In the daily bar chart of AMBA, below, we can see a choppy sideways trading range for the stock in November and December. The shares have recently broken below the lows of the past two months leaving everyone who bought in the past two months with a loss. The stock is trading well below the 50-day moving average line and fast approaching the rising 200-day line.

The trading volume has been fairly active the past five weeks and that can suggest a shift in ownership. The On-Balance-Volume (OBV) is starting to turn down but the Moving Average Convergence Divergence (MACD) oscillator has been weakening since October.

 

In the weekly Japanese candlestick chart of AMBA, below, we see a number of bearish clues. Notice the three upper shadows above $210? Traders have been rejecting the highs for a while now. The rising 40-week moving average is a positive but obviously a lagging indicator.

 

The weekly OBV line has stopped rising the past few weeks. The MACD oscillator just crossed to the downside for a take profit sell signal.

 

 

In this daily Point and Figure chart of AMBA, below, we can see a potential downside price target in the $98 area.

 

 

 

Bottom-line strategy: A downside price target of $98 on AMBA suggests we could see all the gains of the past four months evaporate. Avoid the long side of AMBA.

 

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