Ambarella (AMBA), once the champion of momentum traders, has been brought low. Since its epic ascent ended at the lofty $125 level with a massive double-top pattern, AMBA stock has been locked in a deathly game of limbo.
Sadly for shareholders AMBA has excelled in the endeavor, falling as much as 65% to the bearish chants of “How low can you go?”
To bottom-fishers wondering if the AMBA water hole is now teeming with fish, I say prep the rods and grab the bait. We now have some compelling technical signals to suggest AMBA stock price could finally be carving out a low.
Chief among the bullish developments is the dynamic duo of slowing momentum and accumulation. Though AMBA stock has continued plumbing the depths with lower pivot lows, it has done so with decidedly less gusto lately. The distance between each support level has been compressing, which suggests the bears are losing their grip.
AMBA Stock Charts
The slowing momentum can be confirmed by the RSI bullish divergence that has taken root. For the uninitiated, a divergence occurs when the RSI is making higher swing lows while the price is carving out lower lows.
Further buttressing the bulls’ bottoming bid is the double dose of accumulation seen on Nov. 3 and 4. Believe it or not, the twin buying surges are the first major up days with above-average volume since the downdraft in AMBA stock price began in July. Chalk that up as a change in character.
If you’re seeking more confirmation that recent events aren’t just a bit of leftover Halloween trickery, consider waiting for a break above the 50-day moving average before rushing in.
Rather than going all out with our AMBA trade, let’s consider a higher probability play positioned to profit even if AMBA stock meanders sideways for a spell. Sell the Dec $45/$40 put spread for 75 cents credit. The max reward is limited to the initial 75 cents and will be captured if AMBA stock price remains above $45.
The max risk is limited to the distance between strikes minus the net credit, or $4.25, and will be lost if AMBA sits below $40 at December expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
