Ambarella Inc (NASDAQ: AMBA)

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:

1-year chart of Ambarella (NASDAQ: AMBA)

AMBA started its current decline back in JULY after breaking down from its double top pattern. However, the stock has also tested the $50 level (red) as support on multiple occasions over the past year, thus creating a very important 52-week low support at that mark. Now that the $50 level has been broken, the stock should be taking another significant leg lower.

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The Tale of the Tape: AMBA broke a key level of support at $50. A trader could enter a short position on any rallies up to or near $50 with a stop placed above the level. If the stock were to break back above the $50 level, a long position might 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!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach