Ellie Mae, Inc. provides on-demand software solutions and services for the residential mortgage industry in the United States. Its mortgage management solutions streamline and automate the process of originating and funding new mortgage loans, facilitating regulatory compliance, and reducing documentation errors. The company provides Encompass, a proprietary software product that combines loan origination, business management, and customer relationship management (CRM) software for mortgage originators into one end-to-end system.
Take a look at the 1-year chart of Ellie (NYSE: ELLI) below with my added notations:
ELLI has been trending consistently higher for the last 6 months, and during that time the stock has also formed a clear trendline of support (blue). In addition, the stock had also created at 52-week high resistance level at $36 (red) in August and September. At some point ELLI was going to have to break one of those two levels, and late last week the stock broke through resistance to a new high.
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The Tale of the Tape: ELLI broke though its $36 resistance, which was also a new 52-week high. A long trade could be made on a pullback down to the $36 level with a stop placed below that level. A break back below $36 should lead to a fall down to the trendline support, which is currently near $33.
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!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach