American Capital Ltd. (NASDAQ: ACAS)

American Capital, Ltd. is a private equity and venture capital firm specializing in management and employee buyouts, subordinated debt, leveraged finance, mezzanine, acquisition, recapitalization, middle market, early venture, mature, industry consolidation, and growth capital investments. The firm seeks to invest in senior debt mezzanine, unitranche, and equity financing for buyouts of private equity firms and direct in private and public companies. It also invests in special situations and in government. In special situations, the firm invests in troubled situations and in distressed situations. The firm also considers smaller investments as add-on acquisitions for existing portfolio companies.

To review American’s stock, please take a look at the 1-year chart of ACAS (American Capital, Ltd.) below with my added notations:

1-year chart of ACAS (American Capital, Ltd.)

Over the last 5 or 6 months ACAS has traded mostly sideways, while forming a trend line of support (blue). Always remember that any (2) points can start a trend line, but it’s the 3rd test and beyond that confirm its relevance. As you can see, the market deems ACAS’ trendline to be very important. In addition, the stock also has a key level of resistance at $16 (red).

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The Tale of the Tape: ACAS has a trend line support and a $16 resistance. A long position could be entered on a break above $16, or on a pullback to the trendline, with a stop placed below the level of entry. A short position could be entered if ACAS were to break below trendline or if the rally continues up to $16.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach