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Synaptics Inc – another candidate to buy?

[tag]Synaptics Inc[/tag] ([tag]SYNA[/tag]) is another candidate for a [tag]trade[/tag], which I added to my [tag]watch list[/tag] today. Here are my reasons:

  1. The [tag]stock[/tag] is [tag]up-trending[/tag]. However, I have some comments to this item, see below the [tag]chart[/tag].
  2. Strong [tag]fundamental data[/tag] (12 mo [tag]Relative strength[/tag] 96%, [tag]EPS[/tag] 44%, [tag]EPS surprise[/tag] +30%, etc)
  3. Analysts mean recommendation is “[tag]strong buy[/tag]”
  4. [tag]Short interest indicator[/tag] shows that more than 55% of [tag]investors[/tag] out there are in [tag]short positions[/tag]. If the stock continues growing, they will need to close their positions by buying the stock back, which may push the [tag]price[/tag] even higher.
  5. All ratios such as [tag]P/E[/tag], [tag]P/S[/tag] etc are significantly above [tag]ratio[/tag]s of SYNA‘s peers and the [tag]industry[/tag]. This is what I want to see. (Note that [tag]value investors[/tag] may look at exact opposite results)

However, the stock is not for buy yet. Let’s take a look at its chart to see why I think I need to wait:

Synaptics INC

The stock started trending on around March 23th, 2009, see the green vertical line at the chart. The price rose up significantly soon after in correlation with its [tag]oscillator[/tag]. However, then the oscillator dropped down while the price was rising to new highs. This could be indication that this [tag]trend[/tag] won’t last long. Then the price created its new high point, see first green dot on the price line, while the oscillator created its low, see first red dot on the oscillator field. Soon after the stock price reversed and dropped down to its [tag]50 day MA[/tag], see the second green dot on price line. The [tag]StochRSI oscillator[/tag] did the exact same movement this time. Today the stock created new higher high point (third dot on price line) as well as the oscillator. However I do not have the new high low formed on the price line chart yet (waiting for fourth green dot on lower side, closer to the blue trend line). You may ask why I do not consider the second green dot on the price line chart as confirmation of the trend, because of this point is higher than the low created soon after the [tag]divergence[/tag] on [tag]weekly chart[/tag] (the vertical green line) which formed between March 26th – 31st. I would consider it, if there wasn’t a divergence on the [tag]daily chart[/tag] soon after, when the oscillator was down-trending while the price was growing. This is why I do not count this low into a “[tag]trend confirmation equation[/tag]”. If you were an [tag]aggressive investor[/tag], you could buy this stock at the first cross over (when the blue line crossed above the red one) on March 30, 2009, ignoring the divergence on the daily chart, but since then it would be very difficult to set your [tag]exit price[/tag]. The first dip of the price could not be a dip, but a [tag]trend reverse[/tag] and you would lose [tag]money[/tag] on this trade.

I am going to wait, what this stock will do next couple days or weeks. If the price continues higher and then dips again, but the low point will still be higher than the previous low (the second green dot on the price line), the next day after the price reverses I would buy a small position of this stock.

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