Wave Systems Corp is pulling wealth out to sea

Apr 20th, 2011 – 2 Comments

The downtrend line is now in place and none of the signal generators are suggesting a shift in momentum towards buying.


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Hi Lou,

I was wondering if you could have a look at wavx for me.

Thanks
Eric

 

Hi Eric,

Wave Systems Corp. ( WAVX NASDAQ) provides software for hardware based digital security and has seen its revenues increase substantially over the last year. But keep in mind that its total sales for all of 2010 were about $27 million. Yes they were up 38% from the year earlier and yes its cause for celebration, but keep in mind that in the world of computer security it is a very small piece of the pie.

The charts will give us a better understanding of what may be in store for WAVX.

The three year chart tells the tale of a stock that spiked to a fifty two week high in January of 2011 and has been giving up ground ever since. The RSI and MACD both signalled a shift in momentum from buying to selling which led the stock down from the $5.00 level to its current trading range near $3.00.

What you should also make note of is that WAVX has been testing support along its 200 day moving average since March of 2011. Clearly it has to catch a bounce off of these levels or it runs the risk of retesting support at $2.50.

The six month chart provides a closer look at the recent action in WAVX. The January 2011 signal from the MACD to hit the silk was fairly emphatic as was the RSI moving out of overbought territory. The downtrend line is now in place and none of the signal generators are suggesting a shift in momentum towards buying.

I am not sure what attracted you to this small cap player in the digital security business. It is currently  not generating a profit and is actively spending more on research and development as well as sales activities.  For the moment I don’t see much to get excited about. If you like something about the prospects of the company put it on your watch list for a break to the upside. Otherwise you might be well advised to look for a better prospect.

Happy Capitalism!

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