Ask The Trader
Wednesday, May 30, 2001
Riding The Rapids In Riverstone
My request for analysis is (NASDAQ:RSTN), Riverstone Networks. Like many stocks it has done well since April, but now what do you think? The $20 level looks like support here. Thanks.
This provider of internet infrastructure solutions just went public through an IPO in February. The stock closed at $13.31 on its first day of trading on 02/20/01. As of the writing of this piece, it's hovering around $18, which represents a 35% gain, provided you got in on the first day. This is certainly not bad, though I think Riverstone Networks can chalk up these gains to good timing more than anything. If it had gone public just a month earlier, who knows where it would be trading today.
Turning to the chart, it is evident that RSTN has been riding the ebb and flow of the NASDAQ. This is not unusual, as stocks usually take a while to take on a character of their own after going public.
However, taking a more micro look at RSTN's chart reveals that the stock's uptrend line has just been violated to the downside and the MACD has just gone negative. Technically speaking, this does not bode well for the stock.
Even though support at the $15 level is bolstered by the 50-dma, if weakness within the NASDAQ continues, this support level probably will not hold. Bottom line is that volume has been visibly decreasing as the stock marches higher; a sure sign that buying support is drying up. Therefore, I would caution against buying the stock until volume can pick up when the stock moves higher. In addition, the stock needs to build a base and stabilize before it can be expected to move higher with any conviction.
Good Luck and Have a Profitable Trading Day
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