T/A'ing Atari's Stock Rise (Oct.23,1993)
From: Atari SIG (xx004@cleveland.Freenet.Edu)
Date: 02/20/94-12:43:57 AM Z
From: xx004@cleveland.Freenet.Edu (Atari SIG)
Subject: T/A'ing Atari's Stock Rise (Oct.23,1993)
Date: Sun Feb 20 00:43:57 1994
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:: Volume 2 - Issue 18 ATARI EXPLORER ONLINE 23 October 1993 ::
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
||| T/A'ing Atari's Stock Rise
||| By: Sanford E. Wolf
/ | \ GEnie: S.WOLF4
------------------------------------------------------------------
//// Editor's note: A GIF file, showing the rise of Atari's stock
//// price from May to mid October is included in this ZIP. This
//// chart was generated by Sanford E. Wolf, using STalk the Market.
On Thursday, October 14, Atari Corp.'s stock rose from 5 1/8 to 6 3/4.
The following day it rose to 8 3/8. Then on Monday, it rose as high as
8 3/4 before beginning a modest retracement. Volume for those 3 days
approximated 5 million shares, and ATC was at the top of the AMEX most
active list.
What happened? Atarians all over the country, investors in ATC or not,
were searching for the news reports and announcements which "caused"
this 70% jump. Messages in the 2 Atari stockholder topics on GEnie
told of the failures of such searches. Indeed, the financial media
were eerily silent through it all; even those which regularly at least
mention the daily volume leaders on the 3 major exchanges.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
//// Meanwhile, on GEnie....
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
A little noticed posting in the Atari stockholder topic on the ST
RoundTable, dated September 25, spoke of a price projection to 8 1/2.
A week earlier, with the price at 4 1/2, a move of "50% to 100%" had
been postulated. On October 13, the "nail biting" analyst posted:
"another try at breaking through 5 1/2 is being mounted... it should
succeed". On the night of October 14th, as the breakout was in
progress, a reminder of the previously established target range of
8 - 8 1/2 was posted.
Was all this just more RT chit chat: a guess here, a stab there, a
"what have I got to lose" try at "15 minutes of fame"? Hardly! A
review of the past few months in Category 14, Topic 44 will show a
delightful debate with two main themes. One was based on "fundamental"
analysis, and was filled with speculation and rumor. Its principal
promoter was the butt of ridicule when he urged purchase of ATC last
April/May with the price under $1 (oh, if only... ), and established a
target of 60, with a probable personal selling point of 30.
Who knows, maybe?...
The second theme, commencing in July and based entirely on classical
technical analysis (T/A) - also the butt of jokes and sneers from the
beginning as so much "tea leaf reading" - made the calls cited above
as part of a continuing analytical exercise. The analyst, yours truly,
admitted that after reading all the reasons, arguments, speculations,
etc., I did not really understand what was going on with Atari, and so
would base my own investment in ATC purely on my reading of developing
chart patterns. I was willing to do so in public for reasons later
explained (see below).
The remainder of this article will review that chart reading as it
unfolded, and demonstrate how the "shock" of October 14-15 and the
target price range of 8 - 8 1/2 were virtually inevitable. The timing
was the most difficult aspect to pin down; but during the week before
it struck, even the timing became unavoidably obvious: A message
calling for "a breakthrough early next week" was posted on October 9,
and the rising tension the following week was made as palpable as this
author was able to convey with words.
=-=-=-=-=-=-=-=-=-=-=-=
//// From the Beginning
=-=-=-=-=-=-=-=-=-=-=-=
My interest in Atari dates back to 1986 when I acquired both my first
ST (1040) and some stock. The stock started at 12 and rose to 32
within 6 months when it split 2/1 (meaning a high price for the new
stock of 16). It then went down under 5, where I bought some more and
eventually sold it all at 9. The modest profit was invested in a new
Mega ST (mono) which has been my computer to this day. So I have long
had a natural interest in the doings at Atari.
Over the years, I joined countless other Atarians in frustration as we
watched the company fail in one area after another. Frankly, to avoid
getting sick, I decided to just ignore it; but from time to time I
couldn't stop myself from noticing how the stock was faring -
terribly. It gradually dropped through 3, then 2, then seemed to level
off just above 1. One day, last April, I noticed it at 1/2, and this
perked my interest. It was either on the verge of bankruptcy, or
something might be in the air; but years of disappointment led me to
continue ignoring it - while still loving my ST.
In May it started to rise, hitting 3 early in June. THAT got me
interested, and someone on GEnie directed me to the Atari stockholder
topic. There I found lots of discussion about something called Jaguar
and great things to come. Most, however, were still poo-pooing any
idea that Atari was once again on the rise, and I felt the same way.
Then something happened. As a subscriber to the non prime-time DJN/R
service where I check every night for, among other items, the daily
insider trading and news reports, I read one night that Jack Tramiel
had divested himself of half his stock, distributing it to his sons.
To me, this was very exciting news, for reasons I posted at the time.
Very shortly afterwards, the $500,000,000 Jaguar contract with IBM was
announced. Now I was ready to buy the stock, which had by then risen
to 5. I bought some at 4 1/2 on the basis of so-called "fundamentals."
Then, deciding there was no way for me to know what was really going
on in "fundamentalist's" terms, despite all the talk and "analysis" on
GEnie, I announced that I intended to treat Atari as an exercise in
T/A and would post my analysis. I don't believe anyone viewed me as
anything but some kooky interloper.
I have been doing T/A of one type or another and from time to time
for more than 20 years. (I was asked to put this in.) I've had my
best success with an approach based on time cycles, for which I even
wrote my own program for an IBM mainframe. But Atari is not yet
displaying enough cyclic effects to work with, so I have been honing
my skills with more classical forms of T/A which are based on analysis
of the price patterns engendered by trading activity. (i.e., I try to
read the chart displaying price and volume vs. time.) The patterns
displayed on such a chart can often be related to similar patterns
which have repeatedly shown up in financial markets, and have been
studied and written about for many decades. Now let's apply this to
ATC.
=-=-=-=-=-=-=-=-=-=-=-=-=
//// The Importance 0f 4
=-=-=--=-=-=-=-=--=-=-=-=
After rising to 5 on July 1, ATC dropped back to oscillate above and
below 4 for 1 1/2 weeks. But the oscillations were not haphazard,
they displayed an interesting short term pattern appearing as a
narrowing triangle aiming towards a vertex at 4. On the day before
the vertex was reached, I tripled my holdings in ATC at 4, and the
next day the price started a 3 day rise to 5 1/2. No, the importance
of 4 is not that I bought there, but that it turned out to persist
and show up again as the breakout point from an 8 week long triangular
pattern which provided a very prescient price projection. Be patient,
there's more about that below.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
//// The Importance of 5 1/2
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
On Friday, July 16, ATC hit 5 1/2. For the next 4 weeks, the price
fluctuated downward, twice hitting lows of 3 1/4 along the way. But
the downward motion was, once again, not haphazard. The tops of each
fluctuation defined a descending straight line, starting from 5 1/2
and descending 1/2 point per week. By the end of the 4th week, I was
reading what I felt was a very significant pattern, and on Sunday,
August 15, I posted the following:
"The pattern for ATC looks, symbolically, like this:
.
. .
. .
.............
.
.
.
"The triangular pattern at the top, more often than not, will resolve
itself to the upside, with a price projection, in this instance, of a
minimum of 2 points and a maximum of about 4 points. The trigger is
the crossing of the downsloping upper boundary, which this week
ranges from about 3 3/4 to 3 5/8.
[Some discussion of a much less probable downside breakout]
"Such triangular patterns usually are resolved about 1/2 to 2/3 out
along the triangle. I would be surprised if some resolution does not
occur this week."
Well, the guffaws and ridicule which came back at me that Sunday
evening were something to behold. One added his opinion that T/A is,
"more useful for explaining what has happened in the past than it is
for predicting the future." Of course, on Monday the breakout occurred
and the price rose more than a point, to 4 5/8, over the next few
days. It did not, however, rise the predicted 2 points, and this
suggested some other pattern was governing the action, one which would
hopefully become evident soon.
Taking a leap forward, I drew a line from 5 1/2 through 4 5/8 and
continued it as a possible new upper boundary for the triangle. This
line turned out to have a slope of special technical significance, so
it was interesting to watch if it had practical relevance. For the
next 3 weeks, all upward thrusts in the price were, in fact, turned
back by this line. So, I posted the following message on Sunday,
September 5:
.
| . o
| . o
| . . . . . . . . . . . o
|
|
"Symbolically, you should see 2 triangular flags. One, denoted by the
'.'s was the one suggested last time. The 2nd, denoted by the 'o's
and the horizontal line of dots, has now manifested itself with a
longer time base which can mean even a stronger move when the
breakout occurs."
I explained the special technical significance of the line of "o"s and
suggested that a break above this line - in the vicinity of 4 1/4
during the coming week - should carry through as high as 8. I also
noted that, until the line was penetrated, it represented overhead
resistance which could delay breakout from the triangular pattern.
Also, a move below 3 1/4 - the bottom horizontal boundary - was not
ruled out and would be a serious breakdown, although it had a low
probability.
My comments like the above elicited the response that T/A was only
capable of predicting "the price will rise, but if it doesn't it will
either stay the same or go down." Such is the burden of a T/A-ist I
suppose, but I pointed out that there were probabilities - i.e.,
betting odds - associated with each possibility, and that traders make
lots of money by acting on such pattern resolutions.
The breakout did not occur that week, and on Monday, September 13, the
following was posted:
"ATC spent all last week in a very tight range of +- 1/16 just beneath
the descending upper boundary of the triangular continuation pattern.
Such restricted volatility can be compared to the calm befor[e] the
storm, and usually presages a strong move, one way or the other."
"The breakout price... this week comes down to and below 4, just where
ATC closed on Friday. [//// Remember 4! ////] If the price gets up to
4 1/8 this week, this should mark the beginning of a move UP... as
much as 4 points... over the next month or so."
The following day, September 14, ATC closed at 4 3/16 and I posted
that the climb upward seemed to have begun and that volatility was
apparently growing again. (I interpose here that a month later the
price had indeed risen just over 4 points; but more "struggle" lay
ahead in the interim!)
=-=-=-=-=-=-=-=-=-=-=-=-=-=
//// Aha!! I've found it!!!
=-=-=-=-=-=-=-=-=-=-=-=-=-=
The rise from 4 seemed oddly slow. This made me suspicious that some
other "master" influence was at work and that the triangle patterns I
had been discerning were just interim phases in something larger. For
the previous several weeks I had been concentrating on the segment of
the chart covering the period beginning with July. Now I extended the
chart back to April, the day of 50 cents, and quickly saw a
fascinating situation: as the price rose from the ashes, the low
points of the fluctuations seemed to lie along a straight line with a
gradual upslope of about 3/4 point per month. I extended that line
through September, and saw it pass through, you guessed it, 4 on
September 14!
There it was!! Aha!! and another Aha!!! That line was supporting ATC's
rise from April right up to mid September (i.e., every downward
fluctuation for the past 5 months that approached that extended line
encountered renewed buying and was turned back up.) I counted 9 tests
of that line, and all were successfully turned back. That is power!
After a few more days of pondering, I posted the following message:
" .
.
. .<---today
. (9/14) .
(R)___/ . | . "This is another way of
. looking at the ATC chart.
. Support line (S) extends from
. May 6, daily low of 11/16, through
. today. The price, above line (S) since
(S)--->. May 6, tested this support line 9 times
. between May 6 and Sept. 13, and bounced back up
. each time as buyers came in.
.
. "Resistance line (R) extends from the daily high of 5 1/2 on
July 16 to the vertex where it intersects line (S) on Sept. 14 at
$4. Prices rose up to and retreated from this resistance line 3
times before breaking up through it on Sept. 13 - one day before the
vertex.
"As of Tuesday, Oct 5, support line (S) is at 4 1/2 and rising. The
stock price came down to a low of 4 3/4 today (Monday, Oct. 4). Thus,
the price is getting close to another test of the support line. Watch
to see if it actually comes down to meet the line, and how it bounces
up once again. If the test fails this time and the price breaks below
line (S), I'm afraid that's not very good news. In fact it's downright
bad. So caution is needed right here.
"One good omen is that the volume has been low and declining as the
price has slowly retreated about 1/2 point during the past week,
indicating a gradual abatement of selling pressure. But sellers could
come back in force if the price breaks below line (S). If the price
moves up over the next day or 2, it should go right up to and above $6
fairly soon. I still believe the odds favor this outcome, but....
"--Sandy"
Well, the next day, October 5, ATC dipped down to 4 3/8, or 1/8 point
BELOW the support line, and then went back up to close precisely on
the line at 4 1/2.
That night, my favorite antagonist came in with "Since Atari closed at
4 1/2 today, I guess that places it at the support line that you
illustrated. If I understand you correctly, a sell signal will be
triggered if the price drops lower tomorrow. Some of us have been
hoping that the price would fall back some so we could buy more
shares...."
My own message that night was: "A very brief penetration which is
immediately followed by a return to or above the line can be
accommodated without signaling a sell. The line, to all intents and
purposes, will be at 4 1/2 tomorrow as well, so what happens will be
important to watch." I requested my antagonist, who has always exuded
all that "fundamental" faith in Atari, to "give us a prayer" to assure
an upward move and a successful test.
The next day, ATC did manage to move above the support line, but not
by much. It was enough, however, for me to thank my pal for a good
prayer that even Gen. Patton would have applauded. I admitted that I
had been prepared to sell 1/3 of my ATC shares if the price had gone
down at all that day. It didn't, and the support line passed its 10th
test.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
//// The Tension --> The Payoff
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
It was now obvious that the 5 1/2 reached on July 16 represented
substantial resistance to further advance. After the break above 4 on
Sept. 16, I had posted a warning that some selling pressure could be
expected at 5 1/2, and that a pause before moving above it could be
expected. I did not, however, fully appreciate the tension - and
excitement - which was to come.
The rather slow rise from 4 took over 2 weeks to reach 5 3/8. The
price then spent a week playing around just under 5 1/2. Not being
able to push through, it fell back to the test of the 5 month long
support line described above: where the brief 1/8 penetration raised a
few goosebumps, but the line held. The price then rose for another try
at 5 1/2, but again was pushed down. But notice, the support line was
steadily rising beneath all this activity! On October 9, a Saturday, I
put up the following post:
"Having established 5 1/2 as the target to shoot at... ATC has made 2
attempts to move above it. The last attempt was Friday morning, Oct.
8, when it rose to 5 1/4 on heavy volume. In the afternoon, the buying
slowed down a bit, and the price backed off to close at 5.
"It looks to me that the breakthrough will come early next week. For
one, the 5 month support line, which has just, for the 10th time,
showed its power, is creeping up steadily. It will reach 4 3/4 next
week and be squeezing the price range. [i.e.,] something like the
following:"
5 1/2 ___. . . .
.
.
. \____ the 5 month uptrend
.
On Monday I posted the following:
"ATC made a strong move up to 5 3/8 this a.m. on heavy volume, but
again petered out in the afternoon to close at 5, unchanged. It is
becoming obvious that the 5 1/2 region represents substantial
resistance. It is at war with the 5 month uptrending support line
which is now about 4 5/8. Nail biting time."
Tuesday's postings showed a bunch of guys trying to pass the time of
day nonchalantly, as though nothing unusual was happening.
Wednesday night I posted: "During the morning, on volume averaging
about 20,000/hour, the price gradually sank to 4 3/4. This was another
test of that 5 month long uptrending support line, and for the 11th
time that line held and provided the buying power to move the price
back north, Now it looks like another try at breaking through 5 1/2 is
being mounted. I think it should succeed; if not, my fingernails will
disappear."
On Thursday... well, let me just quote excerpts from some of the
postings of other users:
7 "It looks like the rocket has taken off."
7 "Man, that is good news... but I hope it drops back a bit so I can
pick up more ATC... ."
7 "Wow! What a day! ATC closed at 6 3/4 for a one day gain of about
30%." (This was posted by my favorite "fundamentalist", and he went on
to speculate on causes, finally concluding that it was simply a matter
of supply and demand.) But he went on: "Sandy, you called it right,
pal. Congratulations." and suggested I could now "afford a deluxe
manicure. <G>"
That night, I posted: "There isn't much I can add to what ATC said for
itself today. It finally achieved the awaited breakthrough which
completes the pattern which has been developing for months. The only
other help one can get from the former pattern is a target in the
8 - 8 1/2 region.
"BTW: I learned some things about T/A from the past few months of
analyzing ATC here, in public, and I wish to express appreciation to
all who have tolerated what may have seemed an imposition. You have
added an unusual kind of fun to chart reading.
"PS: a look into DJN/R reveals no news item on ATC."
The next day the postings continued:
7 "At about 1:00 PM, ATC reached the $8 per share mark. The volcano
has started to erupt... It hasn't reached my target of 30 yet, but it
is starting to seem more realistic with each passing day, isn't it?"
7 "It's at 7 5/8 up 7/8. Amazing. I can't figure out why either. No
press releases. Jaguar hasn't shipped yet. Amazing."
7 ">> Woulda, shoulda, coulda << Ah, the old familiar 'if only I...' "
7 "So I'm confused. Why did ATC move & get traded so much?"
7 "Can demand get so pent up as to facilitate a volume increase of 10
fold?"
To this last, I answered "Yes indeed! Why do you think I was so busy
chewing my fingernails Tuesday and Wednesday? That is tension, and it
was all there to see in the chart. Ahhhh, what relief!"
That weekend, the board was filled with messages of all sorts. Many
complained about not being able to find any news or any reason why it
all happened.
My friend, the fundamentalist, even had to admit "I think this lack of
media attention is due to the fact that there has been no obvious,
legitimate reason to account for the price increase."
To which I answer: that is precisely the power of technical analysis.
AMEN!
-----------------------------------------
Return to message index
