In my weekly Picks History post I mentioned STEC showing a reversal sign. Although I am losing my interest in this stock, because it doesn’t meet my picks criteria any more, I am just curious how the stock will develop and I may consider a small position as a swing trade based purely on technical analysis.

When I look at the chart of STEC I can see that the stock is still downtrending (1) even though the StochasticRSI indicator came up with a reversal signal (2). The stock moved higher, but then flailed again. The good sign is that the volume is declining (3). It is still significantly higher than prior November 2, 2009 but falling down. And more, the stock is creating a consolidation at its support line at $12.5 (4).

Now, four scenarios may happen:

1. The stock will continue drifting down in slow pace and declining volume and all my technical analysis will be off. We will have to wait for new development.
2. The stock falls down on higher than average or heavy volume (and todays action was close to this – even though the stock closed higher than yesterday, overall the trend is negative and volume was rising again, which may support further fall or support the reversal). If the stock falls further down on heavy volume, it would be a great opportunity to go short. I do not short stock so I will take no action.
3. The stock will move higher on rising or high volume and will continue in uptrend on rising volume then I may consider opening a small position. However, when you look at today’s intraday movement, the most of the run happened in the morning and the rest of the day the stock was losing steam. I am not much confident about a strong buying power, but it may come.
4. The stock will continue jumping at its support line (4) and no movement happens. It may be a positive sign at least in the case of losing selling pressure which we could experience several days ago. On the other hand the stock will have no buying power either and it will continue in its consolidation for several days or even weeks or months. We will have to wait some more days for confirmation or break out.

As I said, I am not interested in this stock much, but I am interested in seeing whether my assumptions will be correct or not. I may or may not enter in this stock or I may just watch if I was correct or not. My main criteria for the stock picking are that the stock must be trading above 50 day and 200 day MA or cross it over and this stock is not there at all. However, as a highly speculative swing trade this may be a great opportunity to make some bucks out of it.