The set-up: Energous Corp. (WATT) is the development-stage tech company behind Wattup, a technology that allows for wireless charging of electronic devices. It has a lot of buzz around it, as people anticipate whether the next iPhone is going to offer wireless charging.
As a swing trader, I let others speculate on business prospects and fundamentals, I’m looking for a good technical set-up. A catalyst – like the buzz around Energous every time there’s talk of the new iPhone – is a bonus but not necessary.
For Energous, the technical set-up comes from the Relative Strength Index (RSI); the stock is oversold, with an RSI of roughly 26. Yes, there was an earnings miss this month, but if you overlay the chart of the Russell 2000 over Energous, the movement has been identical; some of the negative action here has just been the trend in small-cap stocks.
The back-testing: Over the last two years, Energous has gone into oversold territory on the RSI just four times. Every time it has happened, WATT has been a tremendous bounce opportunity, gaining between 47 percent and 113 percent in a matter of weeks to a month coming out of oversold.
I don’t know what caused the bounces in the past, and how circumstances now might be different. But I look for stocks that bounce big – and reliably – out of oversold. It’s not a guarantee of future success, but it allows me to win about 70 percent of the time.
The play: I started buying WATT last week, accumulating 10,000 shares at an average price of $9.72 over three purchases made between Aug. 23 and 28. I’m expecting a bounce that could go as high as $13, though I’ll start taking profits closer before that.
With that kind of upside, WATT remains buyable in the $9 to $10 range. If it fails to hold support of $8.91 from August 21, it might be a sign that this is one of those times when the technical indicator and the past history aren’t going to hold up.
Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks. At the time this was published on RagingBull.com, as described in the article, he held 10,000 shares of WATT and was planning to trade them as described here. He no options or open orders in WATT.