During Friday night's "Mad Money" program, Jim Cramer wanted to circle back on a couple of stocks that had stumped him in earlier shows. He did his homework, like he advises all investors to do. The first stock was USA Technology (USAT) , a payment processing company.
At first glance, USA Technology seems like a sure bet given that it serves as a self-service retail vendor (think products like self-checkout, laundromats and kiosks). But there is a rub, this stock has been in free-fall thanks to the company launching an internal investigation and delaying its earnings.
One of Cramer's longstanding rules is, "accounting irregularities equals sell," and therefore USAT is a no-touch. Let's check the charts and indicators to see if they are bearish too.
In this daily bar chart of USAT, below, we can see how prices quickly went from an uptrend to a downtrend in early September. USAT gapped to the downside and in one day closed below the 50-day moving average line and the 200-day line. Both averages have negative slopes now and we can also see a belated death cross of these averages in October.
The daily On-Balance-Volume (OBV) line has been weakening for nearly three months and its decline tells me that sellers have been more aggressive.
The Moving Average Convergence Divergence (MACD) oscillator has been in a sell mode since early September and is close to turning lower again.
In this weekly chart of USAT, below, we can see it takes longer for a stock to rally than it does for it to come down. It took USAT a long time to go from $4 to near $17 but it has quickly given back those gains in just a couple of months. The slope of the 40-week moving average line has turned bearish.
The weekly OBV line is bearish and so is the MACD oscillator.
In this Point and Figure chart of USAT, below, we can see a downside price target of $3.50.
Bottom line strategy: It should not be a surprise that bearish fundamentals play out with bearish charts. Continue to avoid USAT.