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A worker makes technical measurements with robots on the carbon chassis at the serial production BMW i3 electric car in the BMW factory in Leipzig September 18, 2013. (FABRIZIO BENSCH/REUTERS)
A worker makes technical measurements with robots on the carbon chassis at the serial production BMW i3 electric car in the BMW factory in Leipzig September 18, 2013. (FABRIZIO BENSCH/REUTERS)

Schizas’ Mailbag

ATS Automation is ripe for a pullback Add to ...

Hi Lou,

You wrote about ATA in the spring, if I remember correctly, suggesting if the stock broke resistance around $10 it would move to $12.75. It did so on good (if spiky volume) and has kept this up to date. A good call on your part.

Do you consider the now high RSI worth acting on? ATA has had much longer runs in the past trading historically at much higher prices. I do not have access to historic data to see how it behaved vis a vis the RSI during these bull runs but I am tempted to let it run with the slowly improving macroeconomic situation.

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I am interested in reading your take on this again.

Jim

Hey Jim,

Thanks for bringing ATS Automation Tooling Systems Inc. back for another inspection. When you last asked for a case study on March 22, 2013, the shares were trading at $9.93. You are correct I did indicate that if ATA could break above $10.00 where it was struggling with resistance it could run to $12.75. The shares did better than that advancing to a 52-week high of $14.22 on September 17, 2013.

Another examination of the charts will add texture to the decision you will have to make whether or not to stay on this ride.

The three-year chart depicts the break above $10.00 in April of 2013 and the sustained advance over the last 5 months. What is worth noting is that the steepest part of the advance started in August after the release of first-quarter 2014 data. On Sept. 1 the company announced the acquisition of a tube filling and cartoning machinery group and its shares were added to the S&P TSX Composite Index on September 20.

The stock has become overbought and it should come as no surprise that some investors would have booked some of their profits as the shares hit a 52-week high. Investors always struggle with the question as to how much is enough. Some are focused on capturing gains when available while others have a greater appetite for risk.

The six-month chart provides a view of the buy signal generated by the MACD in August ahead of the move to the 52-week high. It’s never a bad thing to grab a piece of a 23.65 per cent gain over four weeks. An examination of the RSI in indicates that the shares had taken up residency in overbought territory by late August but have since moved lower. In addition the MACD looks to be bending lower. If you look at the big spike in volume on September 20 that’s the day that index funds and ETFs had to add ATA to their holdings.

Examining the patterns on your behalf suggests that the shares of ATA will probably pull back to retest $13.50. If that doesn’t hold it might have to retest $12.50. It seems that all the good news has been baked into this cake. It wouldn’t be unreasonable to see more profit taking ahead of the next flex point for the stock which comes in November when it reports second-quarter 2014.

You mentioned not having access to long term data to analyze historic RSI performance in bull runs. If you check out Yahoo Finance you will see that they offer a free charting service that will give you some access to the information you seek.

Make it a profitable day and happy capitalism!

 

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

 

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