ALGN – A Big Hammer

[Ramsburg]

Profile: Align Technology, Inc. engages in the development, manufacture, and marketing of Invisalign, a system for the treatment of malocclusion or misalignment of teeth. Its product Invisalign contains ClinCheck and Aligners components. The ClinCheck is an Internet-based application that enables orthodontists to simulate treatment in 3-D by modeling stages of tooth movement.
Website: http://www.aligntech.com
Market Cap: 433.68M

Trading Idea:
Align Technology posts $2.6M Q2 loss

ALGN posted a Q2 loss of $2.6M, but even so, much less than the analysts estimates (estimates were 10 cents and it was only 1 cent per share). The stock was already experiencing a heavy correction since April (down from 9.5 to 6.5), this means that the predicted (bad) outlook was already being discounted.

Taking the fact that the earnings were much better than expected (even if they represent a loss), this could mean a good short term opportunity when looking also to the technical outlook:

ALGN touched the long term support during yesterday's morning sell off, the volume was high and the stock closed near the highs making a nice hammer candlestick (reversal pattern), and closing near the descending resistance line and also horizontal resistance: $7.00.
So in order to get an effective buying signal we need a true breakout of this $7.00 barrier. I believe this hammer will give the necessary strength for that to happen.

Trading Plan:
Buy ALGN today only if it prints $7.00 or above (suggested order will be an entry stop buy market order with trigger @ $7.00)

Best regards,

[Melf Elf]

ALGN touched the long term support during yesterday's morning sell off, the volume was high and the stock closed near the highs making a nice hammer candlestick (reversal pattern), and closing near the descending resistance line and also horizontal resistance: $7.00.

Frederick,

This stock sure has wild reactions to earnings!    

I was long ½ a position in it at the April 26 release of earnings (trades were posted in the ALGN folder on the Stock Picking Board).  There were 3 Bullish targets IN PLAY at the time; one of them (Ascending Triangle in purple) already had MADE, at 9.63.

The initial reaction to earnings looked fine: a gap higher.  Then...tank...tank...tank....and I got out of there with a small gain on my remaining ½ position.



Both Ascending Triangles (patterns in purple and green) ended up getting broken to the downside on May 9, which is right when the NASDAQ started to break to downside.

During the selloff, a Symmetrical Triangle formed (pattern in red), which usually is a continuation pattern.  It was.  That pattern broke on a gap down to 6.91 on July 9.  The bottom of the pattern was at 7.031 when the stock gapped down.   The high on the day was 7.02., confirming that "former support was resistance."

The July 9 candle, like yesterday, also was a Bullish Hammer on 768,800 shares, but there was no upside confirmation.  Yesterday's Bullish Hammer only was 604,200 shares.

Technically on the release of earnings yesterday, it looks as though ALGN tried to make the Symmetrical Triangle target of 5.86 that is IN PLAY, but it only got down to 6.15, then rallied back toward the broken Symmetrical Triangle.  The volume doesn't look quite strong enough to get through all of this resistance, but we'll see if it can follow through to the upside:

Resistance:

1. 7.051 - the Bottom of the broken Symmetrical Triangle (it rises 0.00154 per day)

2. 7.09 - the low of July 8, prior to the gap down below the Symmetrical Triangle

3. 7.20 - the close of July 8 (top of the gap), prior to the gap down below the Symmetrical Triangle

4. 7.28 - the top of the Symmetrical Triangle

5. 7.31 - the decliing 50-day moving average 

[Ramsburg]

Update:
ALGN wasn't able to make the necessary breakout for our order be placed, so we are going to put this trading plan in standby. (this topic will be moved to the Trading Drafts Board)

Trading Plan:
None