NCR Corporation (NCR), the manufacturer of ATM machines, self-checkout and self-service kiosks and more has had an impressive run this year as the stock is up 50% to date. The stock, which trades in rather volatile swings, gained a quick 20% from November 16th to December 7th as word got out that the company is acquiring software maker Retalix Ltd. (RTLX). All of this may have been a little too much too quick, setting up a short-side opportunity for a trade.
Looked at from a longer-term perspective, the stock remains in its up-trend from 2009, much like the broader markets. The roughly 260% gain since the 2009 bottom did however not come without any backing and filling.
On December 6th the stock staged yet another solid one-day rally taking the stock to a new 3.5 month high, and thereby pushing the stochastic oscillator deeper into overbought territory. The following day the stock tried to move higher intraday but failed to close higher, leaving a clearly visible shooting star candle behind on the daily chart, on much above average volume.
The appearance of the shooting star candle (recognized by its long tail on top of its small body) at the top of a three week, 20% rally is something that makes me go hmmm. The exhaustive rally simply ran out of steam as buyers higher could no longer hold the weight and caved in, all of which is graphically represented on the day of the shooting star, December 7th. Furthermore, the following three trading days were so called doji candles, or indecision days. The appearance of such indecision days after a shooting star candle further qualifies the short-side opportunity:
A stop at the highs of December 7th around the $25 mark with an initial profit target towards the middle or bottom of the late November/early December consolidation period (blue box on chart) around $23.80. A potential second price target near $23 looks like a good risk/reward setup to me.