Anatomy of a Top. Let’s get into Ellie Mae (ELLI) (October 01, 2015)

by DAN
You could basically call this video the anatomy of a top here, because Ellie Mae ( NYSE:ELLI ) is a really good example of a stock that ultimately the bulls overstay their welcome. This was an IBD 50 stock, maybe it’s still on that list, I don’t know, but it isn’t on my list. Earnings, big Boom! higher. It gapped up too far and ultimately came back down a bit. But you can see, traders are excited about this stock, the stock moves up. Again, big pop, ultimately a pullback. But I’ll say it again, traders are excited about this stock, very excited about this stock.

Now, we get a breakout here, stock moves up, it’s all good. Then, along with every darn other thing in the market on the 24th, this stock bottomed and started moving up, and this is where the fun starts. It started moving up again and unlike some stocks (think Nike for example). Unlike some stocks this stock couldn’t get back up above the 50-day moving average. Instead, it came up to this prior support level, that was resistance, and now the stock’s hitting a new low. I wouldn’t even be looking at the 200-day moving average as support.

You’re probably going to see a bounce if the stock does fall down this far, but it would really be more the fact that it’s $60.00 and traders tend to trade at the even figure (60, 70, 100, 500, whatever the case may be). So look for maybe some support here at 60.00. But my point for showing this to you is not to give you a trade on Ellie Mae ( NYSE:ELLI ). Here was the trend, but I’m showing this to you, the squeeze, the volatility squeeze below the 50-day, and then a move to the downside. So this is a stock where it was nice to be in Ellie Mae ( NYSE:ELLI ) back here. Now, not so much.

Don’t be a true believer. This is a stock that’s gone lower, it’s ultimately going lower. You can tell these stocks, when they have their breakdowns and don’t get back into the channel, that is actually a good shorting opportunity, and definitely a selling opportunity if you’re upside down in the stock. By the way, not enough volume here to short this stock, and not the right time to short the stock. I’m just telling you, breakdown, rally, failure, short, and then profit.

Free Chart