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Playing the Long-Term Trends in a Stock

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Altisource Portfolio Solutions is a strong growth company in the right sector at the right time.

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How many times have you bought a stock and then a few weeks go by and you get frustrated with lack of real net movement? You see all kinds of other stocks moving every day and finally you give up, sell your stock, and go chase another one. Inevitably what happens in many cases is that you find out later that your instincts were right and your research was correct, as the stock you gave up on finally takes off, leaving you frustrated.

Sometimes it helps to understand the long-term picture of a stock cycle and try to determine where you may be at in the big picture. This way, you may be more willing to sit on a stock a bit longer, understanding that it may need some time to work off a prior large move to the upside.

Stocks often consolidate in Fibonacci periods of time, as those revolve mainly around sentiment related to the stock or the company itself. You can see big up moves that come out of nowhere and last for several weeks, and then many weeks of consolidation or mild decline. These are actually crowd behavioral movements playing out as sentiment swings from too bearish to overly bullish and back again.

In the sample below, we outline Altisource Portfolio Solutions S.A. (NASDAQ:ASPS), which is a strong growth company in the right sector at the right time. We can't be sure that this stock will break out to the upside, but we do like the fundamentals and the catalysts ahead. At my firm, we look for both technical and fundamental marriages as it were, and then do our best to time the entry and exits accordingly. ASPS plans to spin out two divisions as a stock dividend to shareholders in the next 30 days or so, and we think that will catalyze the shares as sentiment turns north.

In the meantime, the stock trades between $100 and $107 per share, frustrating anyone who expects an immediate pop. Taking a look at a multi month chart with weekly views, we can see that this actually has been consolidating for several weeks in a normal pattern. In this case, the 20-week moving average line seems to be the bogey for this stock cycle for ASPS. As we approach that line, we may see a shift back north in sentiment. Should we be wrong, we will know if the stock breaks down materially from this crowd pattern in play now.


Click to enlarge

Above is the chart as of November 29. Let's see how it plays out.

Twitter: @activetrading

Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.

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Our ATP service has recommended a long position in ASPS within the past few weeks.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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