Ambarella, Inc. develops semiconductor processing solutions for video that enable high-definition (HD) video capture, sharing, and display worldwide. The company’s system-on-a-chip designs integrated HD video processing, image processing, audio processing, and system functions onto a single chip for delivering video and image quality, differentiated functionality, and low power consumption. Its solutions enable the creation of video content for wearable sports cameras, automotive aftermarket cameras, professional and consumer Internet Protocol (IP) security cameras, telepresence cameras, and unmanned aerial vehicles in the camera market; and manage IP video traffic, broadcast encoding and transcoding, and IP video delivery applications in the infrastructure market.
Take a look at the 1-year chart of Ambarella (NASDAQ: AMBA) with the added notations:
AMBA started to trend higher back in December, and then the stock really took off in May. Since that time, though, the stock has fallen all the way back down to its $50 level. Over the past year, AMBA has found support at that same $50 support (green) on multiple occasions. Traders could expect some sort of bounce if the stock reaches that support again. However, if the $50 support were to break, lower prices should follow.
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The Tale of the Tape: AMBA has an important level of support at $50. A trader could enter a long position at $50 with a stop placed under the level. If the stock were to break below the support a short position could be entered instead.
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