The 3-D printer specialist 3D Systems has shed more than half its value since peaking at $21.78 back in late August, but a recent bounce toward a key trendline suggests the stock could be ripe for a short-term bearish trade at current levels, says Elizabeth Harrow.

Specifically, DDD is running headlong toward its 20-day moving average, which has acted as stubborn resistance since the end of August.

Looking back at the past five times DDD has challenged resistance at its 20-day trendline, Schaeffer's Senior Quantitative Analyst Rocky White found that the stock was lower five days later 60% of the time, with the average return amounting to a drop of 2.22%. Ten days after a signal, DDD’s average return widened to a loss of 9.26% -- and by 21 days later, the stock was down 13.91%, on average.

Based on these past returns, as well as current short-term options pricing, White’s analysis points to optimal conditions for DDD put options to double in value over the next 10-day and 21-day time frames. The pricing component of this forecast is based on our Schaeffer’s Volatility Index (SVI), which gauges front-month, at-the-money option premiums, and then assigns a percentile rank based on the past year of comparable data.

Currently, DDD’s SVI of 64% arrives in the 13th percentile of its annual range, which means front-month puts (and calls) on the stock have priced in lower volatility premiums only 13% of the time in the last 52 weeks. This sets the stage for prospective put option buyers to maximize the benefits of leverage on a downside move in DDD in the coming weeks.

Meanwhile, a renewed assault by short sellers could also help to smack the shares lower, particularly as that steadfast 20-day resistance holds up. After recently falling to its lowest level since March 2017 amid rampant profit-taking, short interest on DDD ticked back up by 3.3% in the past two reporting periods.

An increase in selling pressure from this group could exacerbate the stock’s pullback from trendline resistance this time around.

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Recorded: TradersExpo Las Vegas, Nov. 13, 2018.
Duration: 49:23.