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This liquidator could be setting up for a trade

Chris Bamford drives his 1912 Kisselkar Fire Chief's car during the A Dickens of a Festival at Fort Edmonton Park in Edmonton on Sunday, May 22, 2005.

Darryl Dyck/CP

Hi Lou,

I see Liquidity Services has popped. Any thoughts?


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Hey Richard,

Thanks for the assignment.

Liquidity Services Inc. operates in the asset recovery space where excess inventory, used items, and bankrupt assets are disposed of. The company serves a number of industries including aerospace, pharmaceutical, automotive, as well as government. On the company's website I found a 1927 Ford Model T pickup that was offered online.The current bid at the Government Liquidation site is $7,000 which seemed like a bargain!

An examination of the charts will inform my thoughts on how to proceed with LQDT. The three-year chart has a number of interesting patterns worth investigating. The stock has been in a retreat since June of 2012 when a double top formed around $65.00. A double top is a reversal pattern which signalled the end of the advance that started in January of 2011 when the shares were trading for $12.65. A big advance followed by a significant decline explains why you are interested in this opportunity. The question that remains is if the selling has abated and are buyers ready to step up and take control of the market.

The average daily volume over the last three month is 406,931 shares. Over the last 30 days there have only been 8 days above average with a big jump at the 52 week low of $27.26 on August 07, 2013. Four of the above average days have been recorded since Sept. 9, 2013. At this point the shares have made progress but are still operating under the established downtrend.

The six-month chart indicates that the stock has broken above the 50- and 200-day moving averages and has formed a pennant that could signal a continuation of the uptrend. As of Aug. 30, 2013, the short position on LQDT is reported as 10,117, 919 shares. The move off the 52-week low could be a case of short covering.

At this stage it appears that an upside trade is setting up but it is for those with an appetite for risk. There is still the downtrend to consider and the fact that the RSI and the MACD are turning down. We will know very shortly how the pennant formation will be resolved.

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Make it a profitable day and happy capitalism!

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