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Shares of the Waterloo-based Descartes Systems Group have climbed steadily in recent years, outpacing the broader markets (Thinkstock)

Shares of the Waterloo-based Descartes Systems Group have climbed steadily in recent years, outpacing the broader markets

(Thinkstock)

Schizas’ Mailbag

Descartes Systems has breached its uptrend Add to ...

Hi Lou,

Would you please have a look at Descartes Systems Group? It is in a major selloff without any material news, and it’s now in the red for 2014. Is the run over?

Thanks!

Mario

Hey Mario,

Thanks for the assignment.

This will be my first examination of the situation at Descartes Systems Group Inc. The company is a software developer focused on solutions for logistics intensive businesses. The shares of DSG enjoyed a nice ride over the last sixteen months but the bloom has come off the rose. The stock began to top out as we came into March of 2014.

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A scout of the charts will help identify how best to proceed under current conditions.

The three-year chart reveals a breach of the uptrend that started in December of 2013. DSG had been range bound through most of 2012 with support at $8.00 and resistance at $9.00. The shares reached a 52-week high of $17.02 by March of 2014 for close to a double on the move bottom to top. A recent report by analyst Blair Abernathy from Cantor Fitzgerald Canada suggests that SAP could acquire DSG to consolidate the logistics vertical. Nice if it happens, but until it does we have to focus on what the charts are telling us.

Currently the stock is in a pullback that has to be respected. The shares have caught a bounce off the 200-day moving average but there is lots of work that needs to be done to ignite a new up leg.

The six-month chart displays the next test for DSG as it approaches the 50-day moving average. We will have to see if the stock can move through resistance near $15.00. At the time of writing the MACD and the RSI are turning lower after the May 29, 2014, release of first-quarter 2015 results that met street expectations.

If the selling pressure continues, support comes in at $14.00, $13.60, $13.00 and then at $12.00. I would be cautious with the new downtrend in place. It’s not something to fool with especially if you are sitting on hard-earned profits. There are no dividends with these shares so keep in mind you only get paid on gains when you sell.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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