3D Systems Corporation (NSYE:DDD) isn’t printing money for bulls just yet, but Wednesday was a nice step in the right direction both off and on the 3D Systems stock chart. Let me explain.
Wednesday wasn’t likely a big ol’ “K-A-C-H-I-N-G!!!” for most DDD investors despite gains of 13% on the session. Don’t get me wrong, it’s a nice rally. But the other, more formidable truth is the additional $1.24 in 3D Systems stock price still barely registers for longer-term holders.
Bottom line, the past four years have been a hard lesson for some investors wagering too aggressively on 3D Systems. Wall Street’s once deafening drumbeat of hype and overly ambitious expectations have been replaced by poor business conditions and a crashing stock price that could still find some bulls underwater by as much as 88%.
Having said that, Wednesday was a nice step in the right direction for DDD shares. Off the price chart and on the heels of Monday’s weak guidance from peer Stratasys, Ltd. (NASDAQ:SSYS), 3D Systems reported preliminary earnings which easily topped the Street’s profit and sales estimates.
And on the price chart of 3D Systems stock? The reaction looks like a building block for something more meaningful to DDD’s bulls — and even an enabler of profit-taking for the 3D Systems short interest of 33% and a very bearish analyst community possibly in need of an upgrade of its own.
DDD Stock Weekly Price Chart
Jim Cramer could reasonably call the period from 2014 through 2015 a “house of pain” for 3D Systems stock investors. Shares crashed lower by nearly 95% following an equally dizzying and speculative, bout of “next, next big thing” stock promotion wherein DDD raced higher by an astonishing 850% during its 2012–2013 bull run.
Since that time, 3D Systems has established an equally lengthy two-year long base during 2016 and 2017. After a promising breakout last year shares went on to give back all of those gains and retreat deep back within the consolidation pattern. To be sure, the severity of the reversal was a surprise to this strategist.
Looking forward though, the observation is DDD’s price action has turned bullish once again and deserved of bullish investors’ attention. A higher-low double bottom pattern has been established which now also has the support of a smallish four-month long emerging uptrend.
Where does 3D Systems go from here? Other than through $11.80 to add confirmation to the friendlier price action, I’m personally unwilling to place a forecast. However, I don’t mind using the options market to put together a capped intermediate-term strategy to increase our chance for success.
DDD Stock Bull Call Spread
For like-minded traders willing to see the 3D Systems turnaround building on itself over the next few months, I’d suggest an out-of-the-money bull call spread. Vertical spreads like this are smart plays as they reduce and define risk. This type strategy also offers a nice payoff relative to risk if DDD shares eventually allow the spread to go into or fully in-the-money.
One combination that looks reasonable is a long August $13 / $16 bull call spread. With 3D Systems trading for $10.74, the vertical is priced for 55 cents and limits risk to about 5% of owning stock outright.
In our view, the smallish and limited risk is a nice insurance policy in the event DDD’s improving technical picture fails to follow-through and given the stock’s reputation for volatility. Bottom line, those conditions could mean even larger losses for stock traders looking to exit with a stop-loss.
At the same time, if a second attempt at manufacturing an uptrend continues to improve, a gain of $2.45 or nearly 450% is possible if 3D Systems stock can rally above $16 a share. That’s a stretch for the time being. But with time on our hands, this August vertical looks up to the task of capping our gains with handsome profits and without the fear of missing out.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.