Don't Ignore This Chart!

Will Divergent Make The LGF Stock Roar Like A Lion

 | 

Lions Gate Entertainment LGF released Divergent as the first in a 3 part trilogy with Insurgent and Allegiant yet to come. The stock was also divergent.

One of the great qualities of the stock market is the investors try to buy early for a big move up or sell early when they don't see new catalysts for the stock. We would like to see if that behavior reflected in the stock price of Lions Gate Entertainment. Perhaps the title of the movie will be the plot of the stock.

First glance, the investors don't expect the next Harry Potter series here. After being in a strong up trend, the stock made a double top near $38. The importance of the chart information at that time suggested caution. The uptrend line divided the double tops so something might be changing. The longer the trend line and the more touches on the trend line defines the strength of the trend line. 

When the stock failed to hold the $34 area, investors knew Divergent was ready to be released. The MACD at the bottom of the chart told us the stock was ready to be released too. The dotted line pointing to the MACD reveals a significantly lower momentum on the final high.  When the stock failed to get back above $34 as the release date approached, this looked more and more ominous. After dropping from $38 to $28 or losing 25% of its market cap, the investors were not hoping for much.

LGF 20140324


So the movie opened as #1 in the box office this weekend after breaking to new lows on Friday. Look at the recent price action on a 60 minute chart in Chart 2. The CMF or 'Money Flow' is clearly negative for the vast majority of the last 2 months. We probably knew that from the price action as well.

The most interesting part of the chart is the orange circled area the week of March 10. The stock tried to rally to a new high and change from a downtrend to an uptrend. We can see looking left that it got stuck at the same price level as the first week of February move up. You may remember that all stocks surged the first week of February. The important clue for basic technical analysis is: Can the stock make higher highs and higher lows? The right answer is no at this time.

LGF 20140324 60 Minute chart

The volume surged through March as investors sold. Today may mark a high volume day and investors could watch for a reversal to the upside as it was a critical date for the stock. At this point I would still be a seller until it can start changing direction. Divergent price action was definitely on display long before Divergent was released.  

Deeper pockets may have the courage to pick it up here. The next two movies in the series are Insurgent and Allegiant. We will have to watch for any 'surge' in the stock by new investors and find out if they can get a renewed 'allegiance' to the stock like they had in early 2013. At this point investors are not very enthused by the opening weekend, even though it was #1. 

We try to keep our articles informative and entertaining. Make sure you check out the other blog writer articles in Mailbag, Chartwatchers, Traders Journal, Decision Point and The Canadian Technician. All of these articles are free to subscribe to. The subscriber button is top right on most articles. One of the little known secrets of StockCharts is our Blog or Articles section. The Blog tab will bring up a view of some of the most recent articles. StockCharts.com Subscribers have two additional daily feature articles.

Lastly, Chartcon 2014 in Seattle is rapidly booking up. Click here for more information.

Good trading,

Greg Schnell, CMT

 

 

Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
Subscribe to Don't Ignore This Chart! to be notified whenever a new post is added to this blog!
comments powered by Disqus