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DECLINING TREND


3D Printing Stocks: What Does this Parabolic Blowoff Mean?

02/05/13 10:37:12 AM
by Matt Blackman

3D printing has taken the world by storm, and lately stocks in this space have been on fire. But even the best things must come to an end. Does the recent parabolic blowoff mean the industry's best days are over?

Security:   DDD, SSYS
Position:   N/A

3D or additive printing is exactly as it sounds -- the ability to create objects in three dimensions using a piece of equipment like a printer. Currently, it can be used to create realistic prototypes, architectural models, plastic toys, and even engine parts in materials like aluminum for automobiles. A Dutch architect even recently announced plans to build a house using 3D printing.

Why is this technology important? No longer do entrepreneurs and business people have to go to manufacturers in places like China where labor costs are relatively low to produce products made at competitive prices. They can do so in their own workspaces in the countries where the products will be sold and used.


FIGURE 1: DDD AND SSYS, DAILY. Here's a daily chart showing 3D Systems Corp (DDD) and Stratasys Inc. (SSYS) in the final stages of a parabolic blowoff, which ended with prices falling off a cliff in late January 2013.
Graphic provided by: TC2000.com.
 
According to Vivek Srinivasan and Jarrod Bassano in a "Forbes" article entitled "Manufacturing The Future: 10 Trends to Come In 3D Printing," 3D products will combine new materials, nano scales, and printed electronics to incorporate features that seem almost magical compared to the products we use today.

And the industry has the potential for creating more intricate and complex products than we can produce today, manufacturing intricate and life-changing objects such as medical devices, titanium bone implants, orthotic devices, and even tissues such as arteries and lifelike prosthetic limbs.

Clearly, market players have bought into the hype. As Figures 1 and 2 show, two players in the 3D space -- 3D Systems and Stratasys Inc. -- have been exciting investors for more than three years. But as these charts also show, buying the industry got a little out of hand.


FIGURE 2: DDD VERSUS SSYS, WEEKLY. Here's a weekly chart showing longer-term picture of the two stocks. Look for past areas of resistance to form support once the euphoria dies down and buyers work up the courage to venture back into them again.
Graphic provided by: TC2000.com.
 
In late 2012, these two stocks started to go parabolic -- a phenomenon that occurs when investors and traders begin to pile into a stock on a euphoric buying spree. Then in the third week of January 2013, the move ran out of gas and stock prices began to drop as quickly as they had risen.

It isn't the first time these players have gone parabolic; SSYS and DDD experienced similar moves. In early 2011, DDD ran from $6.00 in September 2010 to more than $28 by early April 2011. After putting in a couple of jagged tops, the stock price dropped back to the mid-teens by late 2012.


So what happens next? Like unmanned rockets, parabolic blowoffs are unpredictable events. Now that the bloom has come off the rose, the question will be when the herd begins to find it attractive again. There is no way to know for sure, but it often pays to look at previous resistance points for future support. In the case of DDD, $46 and $44 are two possible support points. The next major support is around $30.

It is highly unlikely that the 3D printing business is finished. Like the Internet craze in the 1990s, there will likely be many peaks and troughs, runups and blowoffs before this industry goes mainstream. The trick is to resist the urge to jump in with the herd and instead play the game on your terms -- wait for support, for the stock to begin to form a base and start working up from there before buying in any size.



Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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