Etsy Inc (NASDAQ:ETSY) is falling on Monday in a continued downtrend that began March 22 when it topped out at the $151.50 level.
Etsy created contoversy among its vendors after raising its transaction fees for artisans and merchants who sell their products on the site from 5% to 6.5%. The increase caused some sellers on the site to strike, shuttering their online stores and beginning to discuss unionizing.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control, while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify an uptrend, with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend.
Descending longer-term moving averages (such as the 200-day simple moving average) indicate a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend, the "trend is your friend" until it’s not, and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high, indicating a reversal into an uptrend may be in the cards.
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The Etsy Chart: Etsy’s most recent lower high in its downtrend was printed at the $122.46 level on April 12, and the most recent confirmed lower low was formed on April 1 at $122.53. On Monday, Etsy was continuing to slide lower, but there is no sign yet that the next lower low is in.
- If Etsy closes the trading day near its low-of-day price, it will print a bearish Marubozu candlestick, which could indicate lower prices will come again on Tuesday. If the stock is able to rise up to close the day above the $109.50 level, it will print a hammer candlestick, which could indicate the lower low has been formed and the stock may bounce on Tuesday.
- If lower prices come again on Tuesday, Etsy’s relative strength index (RSI) will likely fall further toward the 30% mark. When a stock’s RSI reaches or exceeds that level, it becomes oversold, which can be a buy signal for technical traders. On Monday, Etsy’s RSI was measuring in at about 35%.
- Etsy is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The eight-day EMA has been acting as hard resistance and guiding the stock lower since March 30 and bullish traders will want to see Etsy regain the level as support as an indication a reversal to the upside may be on the horizon.
- Etsy has resistance above at $109.52 and $125.62 and support below at $97.50 and $88.02.
