2/12/2024 0 Comments Unity software stock a buyWhen the black line is rising that means that U is outperforming the index. This is shown in the fourth pane of Chart 1. Relative strength can be measured using a ratio of the underlying security to the SP 500 index. I prefer to own stocks that are outperforming the SP 500 index. The last piece of my investment thesis for U is relative strength. Momentum is bullish for U as the black line is above the red line and the black line is above the zero or centerline. ![]() When the black line is below the zero or centerline that is a sign of bearish momentum. Another bullish sign of momentum is that the black line is also above the zero or centerline of the chart. The black is above the red line showing bullish momentum. The red line crossed below the black and stayed that way for nine months. You'll notice that the major price decline from November 2021 coincided with bearish momentum. Bearish momentum is the opposite the red line is above the black line. The first indication you want to see for bullish momentum is the black line above the red line. PPO is easy to understand and shows bullish and bearish momentum in two ways. PPO uses multiple moving averages and some math to generate the two lines you see in Chart 1. I use the Price Percentage Oscillator shown in the first pane of Chart 1 as my momentum indicator of choice. I like to own stocks with bullish momentum. When I analyze the volume for U I also see this as bullish. Those huge volume bars are not the sign of retail traders getting positions in U. You can't miss the huge volume bars that have occurred over the past four weeks. Institutional buying often occurs over multiple weeks as institutions load up on the stock before it begins its major advance. Large volume bars on weeks that U advances in price are associated with institutional or smart money buying the stock. Since the low in November, most of the large volume bars seen in the third pane of Chart 1 are on bullish weeks. I read the current price action for U as very bullish. It has four consecutive closes above a now upward sloping 30-week EMA. Another bullish price action signal is that U is now above its 30-week EMA. A series of higher lows and higher highs are the textbook definition of an uptrend. U then rallied back to a new high in June at $45.07. U then fell back to $24.66 in May, undercutting the previous low. It also went above the 30-week EMA which it hadn't done in over a year. This was a higher high than the rally made in late November to $42.24. In other words, U made a higher low by not falling below the low made in November of $21.22. U fell to $24.69 in January 2023 and then rallied from there up to $42.24. From there it declined yet followers of price action would have noticed a significant change. U rallied to $42.24 in late November 2022. From its low in November 2022 at $21.22, U has put in a series of higher highs and higher lows. Keeping track of the stock compared to its 30-week EMA is a big part of my investment strategy. U lost 80% from its close below the 30-week EMA in January 2022 to its low in November 2022. From its high in November 2021 to its low in November 2022 U lost 90%. Following that simple rule would have saved investors plenty of money. Price being below a downward sloping 30-week EMA is a definite sign to not be long the underlying security. A downward sloping 30-week EMA is a bearish condition. The second indication that U was set for a potential decline was when the 30-week EMA rolled over in the Spring of 2022. This series of lower lows and lower highs is the textbook definition of a downtrend. U made its ultimate low in November at $21.22. U then rallied back to almost $60 in August. This was a lower low compared to the low in March. This was a lower high compared to previous highs. U traded down to the low $70s in March 2022, then rallied back to $110 in April 2022. The first was that U made a series of lower lows and lower highs. Two things showed investors that they should have stayed away from U. U never regained its 30-week EMA in 2022. That was confirmed in the subsequent weeks. ![]() I prefer to own stocks that are above a rising 30-week EMA, so this close below the 30-week EMA was a clue that U might be changing from a bullish condition to a bearish condition. U then sold off and closed below its 30-week exponential moving average shown in blue, in January 2022. U made its all-time high in early November 2021 at $210. Chart 1 shows U on a weekly chart for the past 2.5 years. ![]() Whenever I look at a stock, I like to start with price action on a weekly basis. Let's look at price action using the second pane of Chart 1 above. Chart 1 - U weekly with 30 week moving average, momentum, volume, and relative strength Let's begin by examining the price action of U. ![]() My investment thesis is built around price action, volume, momentum, and relative strength. In this article I will outline why I think Unity Software, Inc.
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