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
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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!
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